Green financing supports projects that sustainably utilize renewable natural resources, protect the environment with medium and long-term objectives, and incorporate sustainable production processes in businesses.
European banks finance two-thirds of total investment, meaning that over 80% of the external debt of households and businesses is bank-related. How much of this debt can be considered green? Very little. Probably because, in general, it is limited, and because we have not placed much emphasis on defining it for ethical and socially responsible purposes until now.
Having clear information, with concrete objectives, is a priority. Transparent information also allows for defining the risks assumed in financing these types of projects, so that both credit institutions and private investors can make appropriate decisions, not only from a financial perspective.
Banks are already making decisions to reduce the potential negative impact of their activity on the environment. The core focus is on their financing role and also on guiding private investors. Regarding this dual aspect, we must acknowledge that strict current regulation may limit their room for maneuver. Regulators should work with banks with an environmental and climate change mitigation approach. Naturally, the possibility of applying incentives for banks to finance these projects should consider the assumed risks and the necessary financial stability.
Society must embrace the goal of achieving sustainable development. Banks, as part of society, have already assimilated this. In 2003, the Equator Principles were established as a reference for defining, assessing, and managing environmental and social risks in credit institutions’ projects. The ultimate goal is to achieve responsible financing.
