Why Finance Is The Solution To Climate Change Not The Problem
Some people want to make fossil fuel companies and their financiers stop. They do this because they think the people in these companies are bad. People who don’t like it might protest or campaign against them.
The media pays attention when these activists do bad things that make the firms they protest pay for being bad. But they are wrong to call the finance sector a moral villain because there is more to be done on sustainability, but it is not all about them being good guys either.
Extinction Rebellion is not the right way to go about climate action. They are too disruptive and it does not lead to meaningful change. Banks lending money to fossil fuel companies. for example, reflects that the world economy is still reliant on fossil fuels. We need banks with us on the net-zero journey for this problem to be solved.
Banks may have power in some decisions. They can invest their money more sustainably. They are ready to do this by changing some of the things they do, or by asking for government help.
Some organizations are making voluntary changes to their policies because of TCFD. For example, the Universities Superannuation Scheme announced that they will make plans to have a Net Zero strategy even before the UK made TCFD reporting mandatory. But now it is mandatory in the UK for companies so there is more consistency and everyone understands how much carbon pollution is being released by their company.
More things need to be done. The industry needs to do more, and the government too. We should find out what banks and companies are doing about climate change. The UK Government is making companies make plans for the future, so this is important too. And we should push other countries to do the same thing.
It would be good if companies put more emphasis on taking care of the environment. It would also be good if there were more green products so people can take care of the environment more.
There are strong reasons to think about sustainable finance. Governments should do it because it could bring jobs to the financial centres and will help make the Net Zero economy affordable for families. The majority of finance needed to reach Net Zero will come from private companies, not government-sponsored money.
Impressively, £5.8 billion of investment from foreign countries has been secured in the UK in just one year for projects like green ones. It is hoped that three times as much money will be unlocked from private companies to support the delivery of projects like public transport and energy and natural environments.
The green finance market will be important for increasing financing options. You can get a credit card or car loan that offers a better interest rate on more sustainable choices. This will improve your financial options so you can have what you want, and this will also encourage emotional investment in the transition to net-zero.
It helps when banks give money to help people. They have given a lot of money. They will give more in the future.
Sustainable finance can be more than just giving people money to help them become Net-Zero. It also helps show the benefits of Net-Zero. The UK Government has a green savings bond, where people can invest $100-$100,000 and they get a good return on it, too.
The Government will use this money to help finance green projects. They will then show people how much green is good for them. Then they can make money while doing something good for the environment.
This is not just about the government. Investors can also help by using their influence and votes for more sustainable ends. Other people call this stewardship. It is good to be a good steward because then you will have better financial returns on the stock market and be happy.
Shareholder activism is a good way to get companies to say how they are affected by climate change. Investors like this, and the stock market reacts positively when companies that have been pressured by shareholders talk about their exposure to climate-related risks.
Shareholders should have a say in the transition plans. Having a vote on the plan means people can discuss it. It also makes sure that companies are acting responsibly with climate change.
Scrutiny is important in this debate because there are many businesses that claim to be green but they are not always doing what they say they are doing.
The government set up a group to help people who make false claims about sustainable practices. The group uses standards and definitions of what is sustainable to stop such behaviour. They also use a book called “Green Taxonomy” which helps people know what is sustainable and not.
This is hard to understand. It can be confusing. Whether or not you are doing something to fight climate change, like investing in the right projects, does not always work.
It is hard to stop investing in fossil fuels. But if you do, it will be less valuable for another investor. But if the world moves away from using fossil fuels, then investments in them will become worthless. So if you are the first one to stop investing in them, then your investment won’t be worthless.
There are some people who think that putting money in green bonds is a good investment. This might be why the recent UK green gilt issuance was oversubscribed by a factor of 12.
But there have been different answers to this question, so it may not have reached the US markets yet even though research has shown that ESG funds outperform stocks without sustainability.
When banks and financial institutions make decisions, they should consider the environment. They can make more money this way because of renewable energy. If they don’t take environmental factors into account, their profits will decrease.
It’s clear that the economy is trying to be more green. The government needs to give the direction because the finance sector can’t do it on its own.
The government should provide regulations and support for reducing emissions in the real world so that companies have a better idea of what they should do. If shareholders have a say about this stuff too, then there will be less confusion and greenwashing around investments.
Decisions that we make will have consequences for many years to come. Banks should see decarbonization as an opportunity to seize, not just something for ESG funds. Financial decisions made today will have repercussions in the future.
The people who protest say that we should do something about climate change now. They want action. But we need to wait for our industry leaders and the government to work together to take action before anything happens.
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