ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Green Finance: Perspectives in Sustainable Finance Instruments

Green bonds are financial instruments that deliver both returns and environmentally positive outcomes. They can be a key part of strategies to incorporate climate action into financial decision-making and help developing countries meet their Paris Agreement and Sustainable Development Goal obligations. While their total volume increased, their effectiveness in promoting sustainability—especially in post-pandemic recovery—looks questionable.

The development agenda received a critical rethinking as it became clear by the late 1980s that the pre-existing models of industrialisation prescribed to the “third world” meant deep neglect of the environment. If the industrialisation path of the West was adopted as the recipe for development by all nations, five or six planets would be required to act as mines and waste dumps (Sachs 1992). Therefore, it is clear that the rapid expansion of the post-war economy, financed through Bretton Woods Institutions is not a model path; rather, it ought to be seen as an aberration.

The role of financial institutions is increasingly being recognised in this domain as a way to redeem the perceived environmental disregard. Fossil fuels still dominate global energy investment, threatening the expansion of green energy to meet climate and clean air goals which, combined with the reluctance to shift from pro-coal policies by several developed and developing economies, keeps the goals of cutting CO2 emissions at odds (Figure 1). Financial institutions are crucial for any type of infrastructural projects and they lean more towards the conventional energy domain because of the existence of multiple risks involved with new technologies, not to mention the low initial rates of return.

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Updated On : 13th Feb, 2023
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