Sustainable finance is the provision of finance to investments taking into account environmental, social and governance considerations. The recent growth in sustainable finance is seen by many experts as a response by governments seeking to comply with and reach the targets set by the Paris Agreement (a legally binding, global agreement on climate change as agreed in Paris on 12 December 2015).
Some other drivers attributed to the growth in sustainable finance (from both an Irish and EU perspective) include:
1. EU targets: the EU target of reducing EU-wide CO2 emissions by 40% by 2030.
2. Potential investments in the EU: according to the EU High-Level Expert Group on Sustainable Finance, it is estimated that €11.2 trillion of investments in EU climate control measures will be required between 2021 and 2030 in order to meet the above EU target.
3. Capital investments in Ireland: according to Sustainable National Ireland, it is estimated that Ireland’s transition to a sustainable, low-carbon economy will require in excess of €40 billion of new capital investment by 2050.
4. Sustainable Development Goals: The 2030 Agenda for Sustainable Development encourages countries to develop national responses to the Sustainable Development Goals and incorporate them into planning and policy.
5. Financial Penalties: Ireland could face substantial fines for missing the EU carbon reduction targets by 2020.
Green bonds are becoming an increasingly prevalent form of sustainable finance. According to the Climate Bonds Initiative, the global green bond market reached $162 billion in 2018 and is estimated to reach $300 billion in 2019.
In addition to green bonds, sustainable finance can take the form of financing climate change projects such as renewable energy projects, infrastructure projects and energy-efficiency projects, in the form of green loans.
According to the GLP, green loans are defined as “any type of loan instrument made available exclusively to finance or re-finance, in whole or in part, new and/or existing eligible Green Projects”. “Green Projects” are defined by reference to a non-exhaustive list of eligible categories set out in Appendix 1 to the GLP. Indicative categories of eligibility for Green Projects include production and transmission of renewable energy, pollution prevention and control, sustainable natural resources management, biodiversity conservation, climate change adaptation and green buildings.