Green Finance. Can Nature Pay for Itself?
With the population growing, the world of today is exposed to increasing needs and shrinking natural resources. Numerous initiatives at supranational, national, and regional level are attempting to restore some of the environmental balance. The finance industry has a part to play, too.
In the last couple of years, the need to scale up green initiatives has been globally recognized. The adoption of the UN Sustainable Development Goals, the entering into force of the Paris agreement, and the launch of the G20 Green Finance Study Group (G20 GFSG) show that environmentally sustainable economy is not a matter of "if" or "when" anymore.
Closing the Financing Gap
As defined by the G20 GFSG, green finance is the financing of investments designed to generate environmental benefits. These include more efficient energy sourcing from natural resources, reduction of pollution, the conservation and restoration of ecosystems, the protection of biodiversity, reductions in greenhouse gas emissions, and tackling climate change.
The finance industry's involvement in the transition to a world less dependent on fossil fuels and to a low-carbon and climate-resilient economy is inevitable. While public finance continues to be necessary to fund green projects across sectors, its possibilities are limited and it cannot cover today's green investment needs.
Private capital will be required to close this financing gap. With investors becoming more aware of and more sensitive to environmental issues, the possible supply of private capital sources is huge. What is needed are standardized tools to create financial value for investors while having a positive impact on the environment.
Key Green Finance Topics at Credit Suisse
- Credit Suisse supports the Green Bond Principles and is a partner in the Climate Bonds Initiative. Both of these initiatives seek to mobilize investments in the capital markets for environment and climate-related projects.
- Green fintech: An ally in spreading renewable energy and developing other new green solutions. Digitalization, blockchain technology, and artificial intelligence have the capability to improve productivity and support the transition to a lower carbon economy. Its potential, also as an investment, has been recognized by Credit Suisse's Supertrends.
- Conservation finance: Preserving the world's precious ecosystems. According to our own estimates USD 300 to USD 400 billion per year is needed to preserve healthy ecosystems. However, not more than one sixth of that volume per year flows to conservation projects, mainly from public and philanthropic funds. Bringing private capital to that field is necessary and its potential has been already recognized. Credit Suisse has been a leader in the market and is one of the four founding members of the Coalition for Private Investment in Conservation (CPIC).
- Impact investing: This year Credit Suisse celebrates 15 years of impact investing. The strategy aims to provide a measurable response to a targeted social or environmental problem, while delivering a financial return.
- Green real estate: Staying green by keeping buildings up to date with the latest standards. Since 2012, Credit Suisse Global Real Estate has been measuring and monitoring energy and resource consumption, waste generation, and CO2 emissions of invested buildings, undertaking a number of measures to optimize operational efficiency.
Financial and Non-Financial Returns
For an increasing number of investors, financial return is not enough. They seek additional, non-financial returns from their investments. Green finance is certainly one area where such additional value can be found, and as Burkhard Varnholt, Deputy Global CIO at Credit Suisse puts it: "Sustainability will soon have become an integral part of investing." Watch the video where he explains the rationale behind this: