It is important to recognize that the progress of industrialization and modern urbanization over the past three centuries was heavily reliant on the consumption of natural resources and fossil fuels.
However, as time progressed, particularly from the late nineteenth century onward, concerns regarding environmental pollution and the disruption of the planet’s ecosystem became more pronounced.
Nowadays climate change is a multifaceted issue within environmental economics and a significant global challenge, whereas the UN has declared the “red code of humanity” due to global warming. It undeniably disrupts agricultural production, posing risks to food security, contributes to global warming, triggers droughts, and exacerbates geopolitical tensions over depleting water resources.
Some researchers argue that the threat of climate change is not solvable in the short term due to its global nature; therefore, addressing it requires global unity and coordinated policy efforts.
However, it is important to note that efforts, though small and integrated, have been made to address climate change. These efforts include international agreements such as the U.N.
Framework Convention on Climate Change (1992), the Kyoto Protocol (1997), and the Paris Agreement (2015), which aim to implement coordinated policies to mitigate the threat of climate change.
The uneven over-utilization of global environmental resources has signaled the need for countries to enter into multilateral agreements to adopt the Sustainable Development Concept, which was first proclaimed in 1987 in the report of the World Commission on Environment and Development, and green finance has become a new trend in world finance.
In November 2021, international leaders gathered in Glasgow for the United Nations Climate Change Conference (UNFCCC) to discuss green finance, one of the five critical issues on the agenda. Besides, climate finance targets in the Sustainable Development Goals (SDG’s 13) call for a major shift in investment patterns towards low-carbon, climate-resilient development.
Sustainable projects or development seeks to redefine economic progress beyond mere economic growth and social well-being, encompassing broader considerations such as energy, urbanization, poverty alleviation, hunger, and the promotion of environmentally friendly economic prosperity.
The essence of sustainable development lies in ensuring the safeguarding of the environment and natural resources, charting a course where the social and economic development of nations continues unabated, yet economic activities evolve responsibly, preserving the delicate balance of the planet’s ecosystem.
Central to the success of these initiatives is the role of green finance, which has become vital in the worldwide struggle against climate change and environmental damage. It provides the necessary funding to support sustainable projects and innovations crucial for reducing carbon emissions and fostering a low-carbon economy.
That makes it important to understand what green finance is and how it matters. The projects of “green finance” are: renewable energy and energy efficiency, pollution prevention and control, biodiversity conservation, initiatives of circular economy, sustainable use of natural resources and land.
Green financing refers to the allocation of financial resources from various sectors—banking, micro-credit, insurance, investment, public, private, and not-for-profit sectors – to projects and initiatives that promote environmental sustainability, reduce carbon footprints and contribute to the overall goal of net-zero emissions.
This encompasses a range of financial instruments and mechanisms designed to support eco-friendly projects, such as green bonds, green loans and investments in renewable energy, energy efficiency and sustainable infrastructure. A crucial aspect of green financing is better managing environmental and social risks, seizing opportunities that offer both a decent rate of return and environmental benefits and ensuring greater accountability in the use of funds.
From a broader perspective, the development of green finance optimizes the entire economic structure through improvements in both supply-side quality and demand-side awareness, while also sustaining growth.
On a narrower scale, green finance facilitates entrepreneurial innovation in green product development by encouraging green production processes, reducing transaction costs, and guiding consumer promotion efforts. It also contributes to poverty alleviation by promoting awareness of green products among farmers, encouraging them to cultivate green and organic crops without resorting to environmentally harmful practices.
Green finance serves as a catalyst, motivating enterprises and investors to actively engage in green finance markets. This engagement can take various forms, including borrowing loans, securing credit, or acquiring bonds, as part of a green policy initiative to foster sustainability. Additionally, green finance contributes to the amplification of sustainable innovation progress, particularly in developing countries.
This is evident in the expansion of green research and development (R&D) facilitated by enhanced access of enterprises to green funds and services.
According to the research the global green finance market reached nearly 720 billion US dollars in 2021, with over 522.7 billion US dollars attributed to issued green bonds. Projections indicate a continued expansion, with the green finance market expected to reach a staggering 22,485 billion US dollars by 2031. This trajectory underscores the recognition that countries are placing green financial policies as a pivotal solution in achieving sustainable development goals.
The Union Territory of Jammu & Kashmir like many other regions, is already experiencing the impacts of climate change, including melting glaciers, erratic rainfall patterns, and more frequent extreme weather events. The region is heavily dependent on agriculture, which is highly vulnerable to climate change and the tourism industry, which is also at risk due to environmental degradation.
In order to mitigate the effects of climate change and promote sustainable development, it is essential to explore and promote green financing opportunities in the region. In recent years, India has made significant strides and initiated several green financing initiatives that have been successfully implemented such as Green Bonds, National Clean Energy Fund (NCEF), International Solar Alliance (ISA), Energy Efficiency Services Limited (EESL), National Bank for Agriculture and Rural Development (NABARD).
In 2021, the Securities and Exchange Board of India (SEBI) has also issued guidelines for “Green, Social and Sustainability Bonds” which includes a framework for issuing and listing of such bonds. Indian Renewable Energy Development Agency (IREDA) is the first Indian organization to have raised funds through green bonds in international market.
Likewise, Jammu & Kashmir can embrace various green financing mechanisms and initiatives at urban and rural levels like Green Bonds, Energy Service Companies (ESCOs), Sustainable Mortgages, Green Microfinance, Green Subsidies and grants to accelerate its transition towards a more sustainable and resilient future, while also contributing to national and global efforts to combat climate change.
Like traditional bonds, Green Bonds are a type of fixed-income investment used to fund subsidized projects. It can be issued by various departments such as J&K Power Development Corporation (JK-PDC), J&K Energy Development Agency (JK-EDA), J&K Pollution Control Committee (JK-PCC), Municipal Corporations, Development Authorities, Real Estate, Transport Department, Jal Shakti etc. to raise capital for initiatives such as renewable energy, energy efficiency, clean public transportation, pollution prevention and control, conservation, sustainable water and wastewater management, and green buildings that meet internationally recognized standards and certifications.
The entrepreneur and new companies who are planning to pitch in energy service domain can provide energy efficiency services to buildings and facilities, such as lighting retrofits, HVAC upgrades, and building automation in future development projects.
Apart from solar roof top projects, J&K Energy Development Agency (JK-EDA) can also work in implementation of other energy service domains. Under a Green Mortgage, a bank or lender can offer mortgages that are designed to encourage energy-efficient home improvements, such as solar panel installations, insulation upgrades, and window replacements.
These mortgages may offer lower interest rates or longer repayment terms than traditional mortgages. The sectors such as commercial banks, insurance companies, investment banks (Jammu & Kashmir Bank, J&K Grameen Bank, Ellaquai Dehati Bank, Central Bank of India, State Bank of India, HDFC, ICICI, Punjab National Bank, Life Insurance Company) can play a pivotal role in green microfinance, green subsidies by offering loans and subsidies to farmers, women entrepreneurs, rural entrepreneurs, small scale industries for investments in sustainable agriculture, renewable energy, and other green technologies.
In addition, they can offer loans for purchase of energy efficiency products. In order to implement the green financing policies, there is a need to devise a proper mechanism that involves need assessment, formulating a committee and UT-Level framework, marketing strategy to promote green financing to investors, technical assistance and capacity building and above all collaborating with multilateral organizations, development banks, and other organizations to mobilize resources.
Further, the working in the green finance sector shall be more effective if all the sectors come up and adopt to the changes at the same time. By increasing funds for green initiatives and growing public awareness about the importance of safeguarding the environment can create numerous other opportunities in the field of green finance in future.
Since the UT of Jammu & Kashmir has entered a rapid development era which has potential to bring swift environmental challenges, hence, this is the appropriate time to initiate work in green financing sector on a larger scale. This can help to achieve the balance between development and sustainability and set a working example for others to follow.
By Dr. Fayma Mushtaq, Faculty at King Fahd University of Petroleum and Minerals Saudi Arabia