Can Green Finance Spark COVID-19 Recovery?
By focusing on sustainable, equitable, and long-term outcomes, here's why green finance initiatives could be key to coronavirus recovery
Green finance—any financial activity designed to generate a climate-friendly outcome—could be the best way to recover from this pandemic and protect our planet.
Jennifer Oetzel, professor at American University’s Kogod School of Business, educates future business leaders in green finance concepts like the green economy and ethical management.
She focuses on financial risk in crisis situations and how companies can mitigate business risk while promoting peace in the countries where they operate.
For Jennifer, green investing and green lending, which have environmental criteria for how funds are used, could be the key to a sustainable long-term recovery from COVID-19 that takes into account the economy, environment, and social implications.
BusinessBecause spoke to Jennifer, who told us three ways green finance initiatives could help us bounce back from COVID-19.
1. Green finance sparks economic growth
Since the start of the pandemic, green investments have been performing better than their non-green counterparts.
Green bonds—investments that support climate and environmental projects—were responsible for almost 17% of all capital flow in 2020 despite representing just 2% of the total bond market.
These sustainable green investments could trigger wider economic growth, which would support the global economy as it recovers from the impact of coronavirus, creating new opportunities for employment, upskilling, and mobility, Jennifer notes.
“COVID has revealed so many social problems and, at the same time, there has been so much interest in green lending in particular,” Jennifer reflects. “In times of crisis, like recessions and pandemics, green finance does not drop in revenue in the same way many financial instruments do.”
2. Global collaboration
As green finance grows as a movement, countries and corporations are coming together to work toward similar overarching goals.
The US Securities and Exchange Commission (SEC) is just one organization that wants to see greater efforts to combat the long-term financial risks of both coronavirus and the effects of climate change.
“The SEC is forcing banks to declare their climate risk so that the broader risk in their portfolio is clear,” says Jennifer. The SEC also monitors market functions and risks in relation to COVID-19 so that it can provide targeted regulatory relief and guidance to those impacted.
3. Greater support for social initiatives
Green finance also encourages investment in renewable energy and climate risk mitigation, which in turn helps address important social issues, including the consequences of COVID-19.
With greater investment in sustainable business initiatives like green power and recycling, Jennifer predicts there could be greater employment and, therefore, broader economic prosperity.
This will likely have a positive impact for communities who have been disproportionately impacted by the pandemic, such as communities of color, those on the poverty line, and those in poor health. Since climate change also disproportionately impacts poorer communities, sustainability and social wellbeing go hand-in-hand.
“Environmental change can have a huge impact on social wellbeing and health, so even if someone is just interested in green financing, they are still helping people beyond that,” Jennifer notes.
Business Schools like Kogod are playing a key role in developing future green finance leaders to spearhead these initiatives.
Kogod’s MS in Sustainability Management equips students with the tools they need to solve organizational problems in their environmental context and produce ecologically and socially responsible solutions.
Kogod’s Master's in Finance program also gives students a firm grounding in global emerging markets and investment analysis, which is valuable for students interested in the role of green finance in economic recovery.
With a sustainable and green finance approach, Jennifer says, businesses and the wider economy can recover from COVID-19.