What is "Green Finance"? What Should Companies Do?

The world is beginning to face the issue of sustainability, and cash flow will be the key to grasping the success or failure of sustainable development. "Green Finance" has also emerged as the times require. From a financial perspective, it assists different industries to invest in green projects and implements sustainable thinking into corporate missions.

The following will introduce you to green finance, the DNA that enables sustainable development to be put into practice.

What is Green Finance? What is the Relationship between ESG and SDG?

"Green finance" is any financial activity that can create a positive impact on the environment. It invests huge funds into sustainable development projects through mechanisms such as corporate loans, personal investment, and bank issuance of financial products (such as bonds), encouraging individuals, Companies and non-profit organizations invest in sustainable development and reduce activities that have a negative impact on the climate. It is regarded as a business model that takes into account both environmental protection and sustainable corporate profits, and is synonymous with a balance between profit and sustainability.

The Green Horizon Summit in the UK in 2021 will cover five themes: risk management and returns, energy transition, infrastructure and green growth, financial resilience and resilience, and net zero carbon emissions.

One of the goals is: In the future financial decisions of various companies, climate change must be taken into account and a complete sustainable development framework must be proposed, starting from the financial sector as a leader, leading other industries to gradually incorporate ESG and SDG sustainability concepts into operations in strategy.

In the concept of green finance, the role of banks is to allocate funds to form a sustainable ecosystem, and to create responsible consumption and production in the capital market with four major axes.

Support The Government to Create a Friendly Environment

The government can encourage enterprises to develop green industries through financial subsidies, and formulate regulatory policies to simplify the procedures for investors to obtain financing from banks, and promote responsible investment in the capital market.

Issuance of Green Bonds (Climate Bonds)

The funds raised are used for climate and environment-related issues, usually attracting investors with tax relief as an incentive. The world's most important issuer is the World Bank, which has issued USD 14.4 billion in green bonds since 2008, and the projects invested include renewable energy. , clean transportation and agricultural land use projects.

Green Credit

The funds of the loan must be used for environmentally friendly green projects, such as the development of renewable energy. In addition, the industrial transformation loan is specially used to assist the transformation of highly carbon-intensive industries, and the sustainable continuous loan provides borrowers with incentives to plan sustainable development through interest rate concessions.

Issue A Sustainability Report

In the "Corporate Governance 3.0 - Sustainable Development Blueprint" issued by the Taiwan Financial Supervisory Commission in 2020, it is mentioned that the scope of preparation of the sustainability report will be expanded. From 2023, listed OTC companies with paid-in capital of more than 2 billion yuan must Actively prepare and file the 2022 sustainability report, and must refer to the international standards TCFD (Task Force on Climate-related Financial Disclosures) and SASB (Sustainability Accounting Standards Board) to strengthen the disclosure of the sustainability report.

Therefore, for the disclosure of non-financial information, compared with other industrial banks, the process of implementation is more comprehensive and leading. Take BNP Paribas, a giant in the financial industry as an example, they established an ESG Verification Committee to carry out overall sustainable reform, verifying 295 items. Whether the investment strategy complies with ESG guidelines and has achieved an ESG asset under management (AUM) of EUR 330.5 billion to date.

Why Companies Must Implement Green Finance?

Global warming and climate change have had an impact on the world that cannot be underestimated. Green finance is no longer just a piece of paper, but an emerging potential stock in the global financial market. From 2020 to 2021, the growth rate of green perpetual bonds is 861%.

Expanding sustainable investment will help companies strengthen their risk control and management capabilities, and prepare well in advance to reduce the impact of the "green swan event" (systemic risks brought about by climate change). To examine the importance of green finance from a business perspective.

Legal Norms Are Increasingly Strengthened

In the "Green Finance Action Plan 2.0" released by the FSC in 2020, the development process of green finance is strengthened with eight aspects, among which "information disclosure" is the cornerstone of the implementation of sustainable finance. Therefore, the FSC conducts research from quantitative and qualitative perspectives. It is intended to be the norm for the enterprise.

First, listed companies are required to disclose ESG information that is material to financial decision-making. For “climate”-related issues, they should follow the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), and regularly publish CSR sustainability reports. In addition, from a qualitative point of view, companies are required to strengthen the quality of disclosed information through the guidance of third-party institutions (stock exchanges, OTC centers, etc.).

Contribute to the realization of a green supply chain: a balance between resource use efficiency and sustainable development practices

From the perspective of logistics, the green supply chain takes "environmentally friendly" as the core of products and services from procurement, manufacturing, packaging, transportation and even recycling, and implements the strategy of sustainable development from the source. From the perspective of the past, it may be regarded as a zero-sum game between sustainability and profit or an international trade barrier.

However, the practice of green supply chain can prolong the product life cycle, enhance the added value, and then create a competitive advantage in the market.

The scale of investment in the Asia-Pacific region is increasing, and the demand is strong

The total number of ASEAN member countries is as high as 650 million, which is the third largest market in the world. According to the report "Green Finance Opportunities in ASEAN", the scale of its green investment is expected to increase by 3 trillion US dollars from 2016 to 2030. Green investment needs to grow by 400% to reach the target, showing its high growth needs.

In addition, small and medium-sized enterprises are the mainstream in Southeast Asia. Therefore, helping industry players use digital finance as an entry point to promote more private capital into the financial system in a low-cost and efficient way (such as crowdfunding platforms), which is a way to stabilize green finance. an indispensable conduit.

Five Steps to Green Finance as Defined by The EU

The European Commission's "European Green Platform" has a climate goal of making Europe the world's first "climate-neutral continent" by 2050, by directing private investment to transition to a climate-neutral economy, and the European seven-year period. Financial support for the budget plan to ensure the elimination of net greenhouse gas carbon emissions and the decoupling of economic growth from resource use, creating a green financial ecosystem that coexists and thrives.

The classification system created by the European Union is applicable to the whole of Europe. It is based on six aspects as classification criteria: mitigation of climate change, adaptation to climate change, sustainable use and protection of marine resources, circular economy, pollution prevention and control, and protection of ecological diversity. and restoring ecosystems.

At the same time, through five steps, enterprises, investors and policy makers can correctly invest funds in green projects, and gradually carry out green finance planning.

Step 1: The financial industry must clearly define the purpose of credit financing.

Step 2: Categorize business activities for which the purpose of funds is not clearly defined.

Step 3: According to the customer's business behavior, define its category in the classification system.

Step 4: Require the client to disclose the necessary information to comply with the Technical Screening Criteria (TSC) and MSS, and corroborate whether the company's contribution is in compliance with the TSC based on scientific evidence.

Step 5: The assessment method of DNSH and MSS depends on the legal compliance of the client and its assets, and the plan for the use of funds must also be flexible in time.

What Other Benefits and Challenges are There in The Practice of Green Finance?

Taking green and virtual credit cards as an example, many banks gradually promote the greening of credit cards. In addition to obtaining carbon footprint label certification and using recycled materials to enhance their sustainable use, virtual credit cards are also born to replace the manufacture of physical cards. In addition, green credit cards usually give higher rewards for environmental protection consumption, providing cardholders with incentives to make responsible consumption.

From the perspective of the financial industry, the above approach invests funds in renewable resources, digital transformation, and actively encourages environmentally friendly consumption in the form of feedback. In addition to helping reduce greenwashing behavior, enhance corporate reputation, and improve consumers. The trustworthiness of green finance enables green finance to be practiced, no longer just to maximize profits for shareholders, but to create a win-win situation for stakeholders from the three perspectives of economy, environment and society.

The 2021 COP26 has pledged that the world will move towards net-zero carbon emissions by 2050, and the Center for Green Finance and Development has also pledged to accelerate investment in climate change, especially for emerging economies to increase funding.

So far, Glasgow Financial Alliance for Net Zero (GFANZ) has attracted more than 450 financial industry players to invest US$130 trillion in all actions to reduce carbon emissions, bringing huge green business opportunities and creating more job opportunities to promote economic development. Go hand in hand.

However, between 2019 and 2020, there will still be 315 billion US dollars of capital invested in carbon emission industries. In the current situation, investment in green finance is not achieved overnight. It's a suffocating challenge.

In this regard, Transition Finance came into being to help traditional high-carbon industries develop long-term plans to enable gradual green transformation, such as issuing transition bonds for pipeline renovation to avoid gas leakage. There may still be concerns about "greenwashing" due to the lack of a unified standard for defining what transformational finance is.

In short, how to reconcile the balance between climate and financial goals and gradually assist high-carbon industries to reduce emissions will be the two major challenges for green finance in practice.

The issue of climate change continues to rage, and the international efforts to promote green finance have also increased. Through lending and investment, financial industry players can assist enterprises in green transformation. Although many high-carbon industries still face many uncertain risks and difficulties However, greening has become the only way for all industries to create a blueprint for sustainable development through the capital injection of green finance, creating a shared value chain between the environment, society and economy.