Green Finance – A potential for GMC

Green Finance – A potential for GMC

Another landmark for the Gelephu Mindfulness City (GMC) was seen on February 10, 2024, as His Royal Highness (HRH), Gyalsey Jigme Namgyel Wangchuck, brought out the Royal Charter of the City from the sacred Machen of the historic Punakha Dzong. The country was celebrating the lunar New Year (Losar) and the event added to the joy and celebrations across the country. And as the nation moves into another phase of GMC’s development, observers and experts from different fields have begun discussing the potential areas of investment within the GMC. Green finance is seen as an area that could attract investors.

According to a local financial expert, green finance is a rapidly evolving field that’s transforming how we invest, lend, and manage money with environmental sustainability in mind. “It’s not anymore a movement for environmentalists but a global force attracting billions of dollars and reshaping the financial landscape,” he said, adding that the world has now realized that climate change is a realty.

“The climate crisis is knocking on our doorsteps. Extreme weather events, rising sea levels, and ecosystem collapse are demanding urgent action and investors are not only thinking about the dangers but also the vast opportunities in building a greener future.”

He further added that the area has both profit and a purpose. “Everything green, like renewable energy, energy efficiency, sustainable infrastructure, and clean technologies is good. Moreover, they generate attractive returns. Solar and wind power are now cost-competitive with fossil fuels, and the demand for electric vehicles is skyrocketing,” he added.

Meanwhile, governments are setting ambitious climate targets and implementing policies that favor green investments. Carbon pricing schemes, green tax breaks, and mandatory ESG (environmental, social, and governance) disclosures are forcing businesses to embrace sustainability.

Speaking about the current generation, he said that this generation is the most environmentally conscious ever, and are “putting their money where their mouth is.” “They’re demanding greener options from banks, pension funds, and investment managers, and pushing the financial industry to adapt.”

He also added that the world is now going beyond green bonds. Despite  green bonds remaining a mainstay, the world is witnessing a boom in  sustainability-linked loans, impact investing funds, and climate-focused venture capital, due to which investors are exposed to a wider range of green opportunities and tie financial returns to measurable environmental impact.

“And on the other side we have Artificial intelligence and blockchain, which are game changers, with the former crunching vast datasets to assess climate risks and identify promising green investments, and the latter ensuring transparency and traceability in green finance transactions.”

However, he said there are challenges too. “Green washing, where companies exaggerate their green credentials to attract investors, is a growing concern and robust regulatory frameworks and independent verification mechanisms are crucial to ensure the integrity of green finance.”

On factors that could make GMC the potential Green finance hub of the world, he said that as a late starter, there would be challenges. “Yet, Bhutan has a lot of advantages. At the global level, the western economy has reached the saturation point. The Asian economy will dominate and taking advantage of this is at the crux of GMC,” he noted.

Regarding investor bankers coming in, he added that Bhutan is already in a favorable position, given its image in the world. “We will definitely need to build infrastructure that meet global demands, human resources second to none and draw up legislatures to offer to prospective clients. However, Bhutan is a beacon to the world when it concerns climate change. We are the champions of sustainable development, birth place of Gross National Happiness (GNH) and the only country, whose constitution mandates that we have 60% of our land under forest cover for all times.”

He added that Bhutan’s clean and green energy capacity is huge. “It is not just hydropower we are talking about but renewable power from wind and solar energy that are yet to be harnessed.” Bhutan’s installed hydropower capacity is 2,336 megawatts, while the country has the capacity to generate about 30,000MW.

“The future of green finance is bright. Why would people now invest in products that will be obsolete in a few years? We already see the growth of electric vehicles (EV), while there is a decline in the production of fossil fuel driven cars.”

On reasons investment banks would come to GMC, an upcoming entrepreneur said that financial institutions and businesses have based themselves in countries, where there is the ease of doing business, sound economic and political environment, conducive legal and tax policies, reputation for integrity, and safety.

“Besides factors directly related to investments, the quality of life are also a big pull. We also need a strong workforce that’s able to work with international business houses in multiple industries and sectors,” he said,  adding that the “kind of people” also matters. “Everyone loves Bhutanese. Most tourists visiting Bhutan say so and we have the added advantage of learning from the mistakes that cities like GMC in other parts of the world made,” he said, adding that there is a lot of goodwill for Bhutanese around the world. “And His Majesty our King, has further strengthened our relations with several countries around the world.”

On Green finance, he noted that a major chuck of the work would involve aspects of Green Taxanomy. “A green taxonomy is a framework for defining what can be called environmentally sustainable investments. In addition to tackling “greenwashing”, a green taxonomy can help companies and investors make more informed choices. And I heard that the Royal Monetary Authority and the Ministry of Finance are already working on it,” he said.

Further, he added that green finance also involves mitigation and adaptation finance. “For example, unlike mitigation finance, which always focuses on reducing greenhouse gas (GHG) emissions, adaptation requires a broad array of activities tailored to particular climate risks facing a specific location. There are also varying methods for tracking adaptation finance. What do we focus on,” he said, adding that decisions should not be made in haste. “Of all, we have to decide what we can do in a different way from others.”

Meanwhile, in August 2023, Climate Bonds’ Market Intelligence team revealed that aligned Green, Social, Sustainability, Sustainability-Linked and Transition (collectively GSS+) finance volumes passed the $4trillion mark in the first half of 2023, reaching a combined $4.2trillion.

The first half of the year saw USD488bn of aligned GSS+ debt captured in H1 2023 a 15% year-on-year (YoY) decline compared to H1 2022. Despite a difficult macroeconomic and geopolitical terrain slowing issuance in the last two years, the market was on track to hit $5trillion combined issuance at the end of the year.

Bonds meeting the climate requirements outlined in Climate Bonds screening methodology qualify for inclusion in the datasets and are classified as aligned. Labeled bonds for which there is not enough information to determine eligibility for database inclusion are classified as pending until sufficient disclosure is available to decide. Bonds failing to meet the requirements of Climate Bonds screening methodology are classified as non-aligned and are excluded from the datasets.

Germany and China were the largest sources of green bond volumes, leading the market share with 14% (USD39.2bn) and 13% (USD37.4bn) respectively. Despite a drop in total volume from China, issuance bearing the green label maintained its growth making it the second largest source of green volumes. March was the busiest month for aligned green volumes with USD51.2bn.

Green finance encompasses financial products, services, and investments that endorse sustainable and eco-friendly endeavors. It entails directing capital towards activities that positively impact the environment, such as renewable energy ventures, energy-efficient constructions, waste management, and sustainable agricultural practices. For instance, it facilitates funding for renewable energy projects, adoption of energy-efficient technologies, and implementation of low-carbon initiatives, thus aiding in curbing greenhouse gas emissions, transitioning away from fossil fuels, and addressing the challenges of climate change.

Moreover, green finance backs projects adhering to the principles of sustainable development, ensuring economic advancement while minimizing adverse environmental effects. The tenets of green finance stress transparency, accountability, and the evaluation of environmental impact to mobilize investments towards a sustainable future.

Furthermore, green finance fuels innovation by supporting research and development in clean technologies, renewable energy, and resource-efficient solutions. By allocating funds to these domains, green finance accelerates the adoption of sustainable technologies and encourages further innovation in the sector. The transition towards a greener economy through green finance creates novel economic opportunities and employment prospects. Investments in renewable energy, energy efficiency, and sustainable infrastructure projects not only generate employment but also contribute to economic growth while reducing reliance on unsustainable industries.

Green finance also plays a pivotal role in tackling environmental challenges by directing investments towards sustainable projects, fostering innovation, mitigating climate risks, and advocating long-term environmental sustainability. It harmonizes economic progress with environmental stewardship, thus paving the way for a more sustainable and resilient future.

Ugyen Tenzin from Thimphu