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Green finance: navigating risks and embracing sustainability

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By Diego Balverde

· 2 min read

Unraveling green finance: the intrinsic connection to climate solutions

Climate solutions, once a peripheral concern in finance, are now emerging as reliable and profitable ventures, catalyzing a much-needed shift toward planetary restoration. The advent of the circular economy is pivotal, driving sustainable processes to curtail production costs, eradicate fines, and optimize general consumption, thereby yielding economic gains.

The devastating impacts of the climate crisis are globally discernible, with cities from Madrid to Manila experiencing the brunt. However, successive international forums appear entangled in perpetual discussions, failing to formulate and implement concrete solutions. The urgency for tangible resolutions resonates louder amidst the recurring consequences.

Analyzing fossil finance: assessing long-term viability

Within European commercial banks, projections suggest a substantial delay, potentially a decade, before the ramifications of global warming perceptibly influence financial strategies and loan allocations. The delayed response in adapting to climate realities hints at an overarching reliance on high-carbon industries and the imminent financial implications thereof.

Standard Chartered’s analysis reveals an impending period where losses from high-carbon loans might become financially significant. The assessments consider various climate scenarios and their probable financial impacts, underlining a transitional phase wherein climate risks become pivotal in shaping the bank’s lending decisions, especially from 2030 to 2035.

Scrutinizing carbon-intensive sectors, Standard Chartered’s report disclosed potential credit losses, totaling $603 million from high-carbon sectors, signaling a larger financial revelation. The sectors, including oil and gas and coal mining, are witnessing financial viability in the short term, but the growing shift away from fossil fuels and the encompassing legislations hint at diminishing revenues and repayment capacities.

Gaining time: assessing the transition to net zero

The transition requires substantial alterations in business models and notable investments, impacting profitability and increasing credit risk. Banks like HSBC are expanding into the growing ESG debt market, exploring how different weather pathways can influence credit losses and adapting their strategies accordingly.

Innovative solutions are pivotal in minimizing emissions and maximizing sustainability, fostering healthy habits, and driving responsible consumption and resource management.

The journey towards sustainable development is extensive, demanding collective learning and relentless pursuit of solutions. The integration of finances into sustainable projects is crucial, acting as the driving force for the transition, yielding economic benefits, and ensuring genuine care for the planet.

illuminem Voices is a democratic space presenting the thoughts and opinions of leading Sustainability & Energy writers, their opinions do not necessarily represent those of illuminem.

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About the author

Dr. Diego Balverde is an Economist at the European Central Bank and has extensive experience in climate finance. He is currently also an Advisory Member of the Council of Foreign Trade at The World Bank. Diego is very active on the international sustainability stage having attended COP27 as a Circular economy for Climate Change specialist and will also be attending the G20 Conference in India as part of the Energy, Sustainability and Climate Task Force. Diego holds a PhD in Foreign trade from Chapman University and an MBA degree from Cambridge Judge Business School.

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