Syllabus: GS2/ Government Policies & Interventions; S3/Conservation
- We must stop ‘greenwishing’ and ‘greenwashing’ and start looking for the instruments that will enable the private sector and private investors to channel more capital toward climate resilience and sustainable development.
What is Greenwashing?
- Greenwashing is the process of conveying a false impression or misleading information about how a company’s products are environmentally sound.
- Greenwashing involves making an unsubstantiated claim to deceive consumers into believing that a company’s products are environmentally friendly or have a greater positive environmental impact than they actually do.
About Climate Finance
- Climate finance refers to local, national or transnational financing—drawn from public, private and alternative sources of financing—that seeks to support mitigation and adaptation actions that will address climate change.
- The Convention, the Kyoto Protocol and the Paris Agreement call for financial assistance from Parties with more financial resources to those that are less endowed and more vulnerable.
- It is critical to addressing climate change because large-scale investments are required to significantly reduce emissions, notably in sectors that emit large quantities of greenhouse gases.
- It is equally important for adaptation, for which significant financial resources will be similarly required to allow societies and economies to adapt to the adverse effects and reduce the impacts of climate change.
|India’s Position on Climate Finance
– Global Problem: India firmly believes that climate change is a global collective action problem that can be solved only through international cooperation and multilateralism.
– Clarity on definition: India also seeks clarity on the definition of climate finance—the absence of which allows developed countries to greenwash their finances and pass off loans as climate-related aid.
– Capacity building & technology transfer: India expects action from rich countries in terms of climate finance, technology transfer and strengthening the capacity of poor and developing countries to combat climate change.
- Unachieved goals: The UNFCCC Standing Committee on Finance (SCF) released a report on the progress made by developed countries towards achieving the goal of mobilising $100 billion per year.
- According to the report, it is widely accepted that
- The $100 billion goal has not been achieved in 2020, and
- An earlier effort to mobilise private finance by the developed countries has met with comprehensive failure.
- According to the report, it is widely accepted that
- Private climate finance: The OECD 2020 data shows that the mobilisation of private climate finance has underperformed against the expectations of developed countries.
- Many investors associate climate-centric investments with ‘social impact’ and reduced profitability.
- While sophisticated investors have the means to deploy their capital profitably toward decarbonization, the energy transition and other climate-related sectors, such investments tend to be illiquid.
- Demands of developing countries: Developing countries have for a long time insisted that a significant portion of climate finance should come from public funds as private finance will not address their needsand priorities especially related to adaptation.
- Climate finance already remains skewed towards mitigation and flows towards bankable projects with clear revenue streams.
- Contradictory claims: Many developed countries and multilateral development banks have emphasised the importance of private finance mobilised in their climate finance strategies, including by de-risking and creating enabling environments.
- According to the reports, these efforts have not yielded results at the scale required to tap into the significant potential for investments by the private sector and deliver on developed countries’ climate ambition.
- Need of significant private-sector resources: While the public sector has an important role to play in climate financing, scalable solutions require significant commitments of private-sector resources.
- CoP-28 offers an opportunity to rethink how we deliver such market solutions, and how we can harness digital innovation to scale up promising models.
- Mobilising capital: The solution is to create climate investments that are profitable, liquid and accessible to all.
- To mobilize capital at scale, we must draw on the global savings of individual investors as well as institutions such as pension funds, insurers, and sovereign funds.
- Risk diversification can be achieved through retail-friendly, liquid, easily accessible instruments such as exchange-traded funds (ETFs).
- Climate-resilient real estate and infrastructure: This comprises assets in weather-proof, stable geographies that have low climate exposure.
- Real-estate and infrastructure valuations in such regions are poised to appreciate significantly on the back of population shifts from high-risk areas across the Southern Hemisphere to more resilient communities in North America, Northern Eurasia, and select geographies in the Global South.
- Seeking for reliable returns: Carefully selected Real Estate Investment Trusts (REITs) and exposure to greenfield developments through ETFs are two ways to secure reliable returns from climate-adaptation efforts.
- And as an added bonus, such investments offer broader economic and societal benefits, including productivity growth, job creation and the provision of employment and housing for migrating populations.
- Green commodities: An orderly transition to a more resilient future requires massive investments not only in energy, food and water assets, but also in the metals and critical minerals used in renewable energy and electric vehicles (EVs).
- These include commodities such as soy, wheat, copper, rare-earth elements, cobalt, lithium, and so forth.
- To avoid any ‘greenflation’ (inflation caused by decarbonization efforts) and supply bottlenecks, we urgently need to boost production and lower the cost of securing these commodities.
- Climate-aligned portfolio: A climate-aligned portfolio should include assets that provide a hedge against inflation and geo-economic risks, such as short-term and inflation-indexed sovereign bonds and gold.
- Greater investments in inflation-proof sovereign assets will allow governments to do more to finance the green transition.
- To build climate-resilient communities, encourage cross-border public-private partnerships, secure critical green supplies and accommodate climate-driven population shifts around the world.
- With climate-driven costs escalating rapidly, innovation (both technological and financial) remains the most powerful tool at our disposal.
|Daily Mains Question
[Q] With climate change already wreaking havoc on poor and rich countries alike, unlocking this largely untapped pool of capital has become an urgent priority. Analyse.