Environmental Finance

The field of environmental finance was first defined by Richard Sandor, an American economist and entrepreneur, when he taught the first ever environmental finance course at Columbia University in 1992.

Environmental finance can be loosely defined as the use of various financial instruments to protect the environment. As such the deployment of these instruments, such as land trusts to conserve the natural environment, has a long and rich history.

But it is only relatively recently, with the advent of carbon markets and rapid development of technology, that environmental finance has taken on a key global role in financing environmental activities of all kinds.

Some of the world’s largest banks have committed billions to environmental finance initiatives. These include financing activities that mitigate the impacts of climate change; renewable energy and energy efficiency financing; financing of greenhouse gas reductions and resource efficiency in other sectors, such as sustainable transportation; seeking to finance and support activities that enable communities to adapt to climate change impacts; and direct financing to other environmentally positive activities, such as infrastructure improvements that increase access to clean water and manage waste.

Mainstream investors, such as asset owners and asset managers, are increasingly investing according to new sustainability mandates.

Green bonds are a relatively new phenomenon: issuance is expected to double to more than $200 billion in 2017, boosted by investments from sovereign wealth funds, sub-sovereigns and companies with lower credit ratings.

In the rapidly growing rooftop solar market, residential and commercial solar developers have found success in third-party leasing and Power Purchase Agreement (PPA) models, which lend themselves to the securitisation of solar assets.

Environmental finance also plays a major role in poverty alleviation in the world’s poorer regions. The United Nations Development Programme (UNDP) notes that the development and integration of financial markets have increased the number of available options to advance investments in sustainable development.