Why green finance matters
Adarsh Varma, Technical Director, Economic Advisory
| WSP
This World Environment Day, WSP's Adarsh Varma explains how green finance can unlock the benefits of a nature-positive world.
As the urgency to address growing environmental challenges increases, the role of financial markets in driving positive change has become increasingly vital. While positive steps have been made in integrating environmental factors into financial analysis and investment processes in the UK, the protection of our natural environment has remained largely overlooked.
Now is the time for business, government and financial institutions to come together to truly harness the transformative potential of green finance, enabling us to safeguard our planet's natural assets and pave the way for a sustainable future.
But what exactly is green finance?
Simply put, green finance refers to financial activities that promote sustainable investments, projects and practices designed to deliver better environmental outcomes. From loans and debt mechanisms to investments, these initiatives power the development of green projects and mitigate the impact of climate change. By directing private capital towards sustainable initiatives, green finance has the power to revolutionise our approach to biodiversity protection.
Despite the overwhelming evidence of their efficacy, habitat restoration and management, urban greening, green infrastructure and natural flood risk management have for too long been viewed as a 'nice to have' in design and planning. Rarely have they been prioritised because, in classic economic analysis, the costs have outweighed the benefits.
However, measuring the short, medium and long-term economic benefits of these interventions and integrating them into financial markets helps the private sector to grasp the significance of nature to their business and take appropriate action.
WSP has been actively involved in several projects that drive investment in sustainable finance and in turn fund nature restoration activities in the community. We recently supported the London Borough of Islington in developing urban green spaces across the borough through pocket parks on dead-end roads. We helped the Council secure seed funding from the Natural Environment Investment Readiness Fund (NEIRF), a UK Government initiative that provides grants to nature recovery and biodiversity projects, with the aim of sparking further investment.
The success of initiatives like NEIRF demonstrates the need for increased collaboration between public and private sectors to boost sustainable finance. This not only benefits the environment but also presents significant economic opportunities for business and Government alike.
That said, there is more work to be done if we are to truly unleash the full potential of green finance. Make no mistake – the UK has emerged from the global pack as an early leader in green finance. The Government’s publication of its Green Finance Strategy in 2019 (and updated strategy earlier this year), and the establishment of the Green Finance Institute in partnership with the City of London Corporation, underscore the UK’s commitment to driving sustainable financial practices.
The landmark Environment Act 2021 further solidifies environmental goals, mandating Biodiversity Net Gain (BNG) for developers and Nationally Significant Infrastructure Projects (NSIP) from November 2023. London's consecutive top ranking on the Global Green Finance Index further cements its status as a leading global green financial centre.
But ambition is needed to stay ahead of the pack. For example, the integration of green finance principles into land use planning, infrastructure development and corporate decision-making could pave the way for a nature-positive future. Moreover, a robust and mandatory compliance framework for businesses is imperative. By aligning financial incentives with environmental goals, we can encourage businesses of all sizes and sectors to embrace sustainable practices and make informed decisions that protect and restore biodiversity.
With successful implementation of nature-based solutions and an investment community which appreciates the economic long-term benefits of nature, biodiversity protection and restoration will fast become a priority for project developers. The growth of the nature economy will involve a new and diverse range of professionals and skill sets beyond ecologists, engineers and planners. Individuals with expertise in finance, business leadership, digital innovation and transformation, as well as public advocacy, will all play a pivotal role in achieving successful outcomes.
As we navigate the complex challenges posed by the climate emergency and rapid biodiversity loss, the transformative power of green finance cannot and should not be overstated. By unlocking private capital and aligning financial incentives with environmental goals, we can forge a path towards a sustainable future.
It is time to work more collaboratively to seize the opportunities presented by green finance. Together, we can create a world where economic prosperity goes hand-in-hand with the protection and restoration of our precious natural environment so future generations can inherit the benefits of a nature-positive world.
Adarsh Varma is Technical Director in WSP’s Economic Advisory team, based in London.
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