makingit_15_pp46-47–endpiece_print 21/11/2013 11:30 Page 46
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Setting green finance on the right track Environmental disasters around the globe keep reminding us that humankind has to change its unsustainable ways of living. Therefore we need enormous amounts of green finance to tackle these challenges in the coming decades. The good news is that we have a broad consensus on this necessity. However, almost acknowledged as much as the notion that we have to restrict our ways of living in a way that we stay within the planetary boundaries, is the sense of helplessness about where this green finance shall come from. At this point, we are facing the first hurdle: we do not have a precise definition of ‘green finance’, which makes it hard to mobilize it. For the moment, we will define ‘green finance’ broadly as finance flows or investments that respect the planetary boundaries. A multitude of reports on the bottlenecks and challenges of green finance have been published. The same is true for estimations of financing resources and needs, as well as case studies on best practices. In a nutshell, financing needs are impressively high, with estimates for investments in green infrastructure varying between US$1-2trn per year for the next decades. Government budgets are insufficient, even more so in the aftermath of the latest crisis, and private and institutional investors (such as pension funds, assurances and sovereign wealth funds) that have assets under management of several tens of trillions of dollars only invest less than 1% of their portfolios in capital products that are targeted for green investments. The well-
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Illustration: Patrick Hoesly
DR. NANNETTE LINDENBERG, German Development Institute/Deutsches Institut für Entwicklungspolitik (DIE)
known constraints include high risks, insufficient policy support and enabling environments, and a lack of a project pipeline. Why can’t we succeed in moving forward, in scaling-up and mainstreaming green investments? The answer is definitely a complex one, but a good starting point might be to change the way, the processes and the places that we are using to discuss green finance and the necessary economic, political, legal and regulatory framework conditions. We need a trio of exchange, transparency and cooperation. Why will this make the difference? The answer is straightforward: there are too many actors, too much fragmentation. The problem is not just that
we have two distinct communities, development cooperation and climate finance, with different perspectives on green finance, as well as many different processes on the international level, within the different international organizations and country groupings. The problem is also that within national governments there are many parallel working streams that all focus on green finance in one way or another. It seems logical that the ministry for development cooperation deals with the financing of sustainable green investments, the environment ministry with climate finance, the finance ministry with long-term infrastructure investments – which have to be green to avoid lock-in effects, and the energy