To Make ‘Green Finance’ Work, Start by Defining It Better

To Make ‘Green Finance’ Work, Start by Defining It Better
A poster for the ESG Summit Europe can be seen at the Palacio de Cibeles, in Madrid, Spain, Sept. 29, 2023 (Europa Press photo by Isabel Infantes via AP Images).

Around the world, “green finance” is in hot demand.

Europe leads the way, with over half of its financial assets under management, or 7 trillion out of 12 trillion euros, invested in green funds or strategies. In the U.S., one-eighth of financial assets under professional management, or $8.4 trillion out of $66.6 trillion, is invested in funds with some sustainability criteria. And in the Asia-Pacific region, a FTSE Russell survey found that nine out of 10 asset owners said they had “implemented” or “evaluated” sustainable investment in their investment strategies in 2022.

The surge in investor demand for green finance is good news for the environment, representing a potential reservoir of urgently needed funds to stabilize the climate. According to a United Nations report, $125 trillion of climate investment is needed to meet the “net zero by 2050” emissions goal set by the Paris Agreement. McKinsey put the number substantially higher, at $275 trillion, an average of $9.2 trillion per year, or $3.5 trillion more per year than today.

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