Green and Climate Finance: Responses and Challenges in Finance

Overview of the Special Issues

 Green finance can be defined as comprising "all forms of investment or lending that consider environmental effect[s] and enhance environmental sustainability" It combines the world of ‘traditional’ finance and business with socially responsible and environmentally friendly behaviors. It plays an increasingly important role in mobilizing capital towards investments that help to fulfill commitments under the Paris agreement for climate change, or underpin efforts in achieving the UN Sustainable Development Goals (SDGs). It is an emerging arena for many participants, including individual investors, financial institutions and institutional investors, credit market participants, as well as other economic agents such as major energy producers and consumers – each of which harbor questions on how best to adopt it. Yet rapid growth in sub-fields of green finance, such as green bonds, stands testament to the appetite among both investors and users of capital, to embrace a new class of financial instruments that offers a different combination of financial and social returns.

Against the backdrop of a pressing global vulnerability to increasingly severe climatic change and the immediate need to reduce carbon emissions, huge investments are needed in green and climate-resilient infrastructure across the globe. According to the Global Environment Facility, an estimated $400-600 billion per annum is needed to finance the conservation of land, forests and water, and more than $350 billion of incremental capital to fund projects in renewable energy and energy efficiency. However, there’s a large gap between the required capital and the actual capital flows: the latest accounting of climate finance suggests the financing gap to be in the region of $70 billion*, while anecdotal evidence and views among practitioners suggest this may be a conservative estimate.

Green finance can be connected to the majority of the SDGs, and successes in achieving the SDGs may hinge on well implemented green finance solutions by firms, while simultaneously delivering co-benefits that enhance general business sustainability and reflect positively on firms environmental, social and governance performance metrics. Research regarding green finance is of critical importance to underpin sustainable development capable of benefiting the full spectrum of stakeholders and participants in domestic and global economies and international financial systems. The financial system has a unique ability to rapidly and continuously adjust and develop innovative mechanisms that direct finance to meet the development needs of an economy, allocating financial resources fairly and effectively while maintaining vigil over the need for financial efficiency. In order to mobilize required resources further research is needed to bridge an apparent knowledge gap, and make progress to answering the question: how to close the green-finance gap?

 In a recent report the Inter-Governmental Panel on Climate Change identified the mobilization of climate finance as critical to limiting global warming to 1.5◦C, and preventing catastrophic climate change. Climate finance is a rapidly emerging area of finance (at least into the mainstream) that takes as its aim the promulgation of investments targeted towards reducing vulnerability, and generally increasing the level of preparedness and/or resilience of human and ecological systems, to the negative impacts of climate change. Examples of projects that constitute climate finance include those that reduce emissions, enhance efforts to capture and store (sink) greenhouse gases, investment in renewable energy systems, smart cities etc. 

Mobilizing investments to the level necessary to reach the ‘1.5◦C pathway’ requires a major shift in investment patterns of both public and private financing, from regional, national, and international entities. Such a shift should be accompanied by enhanced rules, regulations, fiscal incentives and the creation of effective markets at the international, national, and sub-national levels to shift current and projected “business-as-usual” investments on to a different trajectory. Thus, advancing our understanding of the required enabling environment, and investigating the efficiency and effectiveness of various mechanisms and channels of climate finance are of critical importance for mobilizing and allocating financial resources reasonably and effectively to achieve global, national, and local climate change mitigation and adaptation goals.

The Special Issues of International Review of Financial Analysis and Finance Research Letters will directly address issues in this dynamic area of research and welcome a wide range of empirical methodologies and theoretical orientations addressing issues of material importance to future adoption of climate finance.

Toward these goals, the editors seek manuscripts that address research questions including, but not limited to:

• Advantages and disadvantages of climate finance under different institutional and environmental contexts
• Enabling environment for mobilizing climate finance – including dimensions of liquidity and secondary markets
• Explorations of the role of governments in promoting green finance
• Green investments and products and their interaction with traditional asset classes
• Identification of the advantages and disadvantages of green finance under different institutional and environmental contexts
• Investor demand for climate finance opportunities
• The efficiency and effectiveness of climate finance
• The interactions/associations between international fragmentation and domestic politics of green finance
• The overlap/conflicts between international fragmentation (on investment opportunities) and domestic politics behind climate finance
• The role of governments in promoting climate finance and/or attracting investors
• Theoretical and applied contributions on sustainability-growth nexus in the sector
• Uncovering of the effectiveness of green investments and financial products
• Understandings of the nature and norms of green finance as a financial phenomenon

United Nations Framework Convention on Climate Change (UNFCCC). 2014. 2014 Biennial assessment and overview of climate finance flows report. UNFCCC, Bonn.

Volz, U., Bohnke, L., Kneierim, Richert, K., Rober, G-M., and Eidt, V. (2015) Financing the Green Transformation: How to Make Green Finance Work in Indonesia, Basingstoke: Palgrave Macmillan.

Krushelnytska, O. (2017) Introduction to green finance. Global Environment Facility (GEF). Washington, D.C.: World Bank Group. http://documents.worldbank.org/curated/en/405891487108066678/Introduction-to-green-finance

Submission deadlines

The project will progress on an expedited timeline, adhering to the fixed deadlines set out below. Please format and reference your paper according to the requirements of the journal to whom you are submitting. Note that Elsevier journals work on a “online first” publication model, so as and when papers are accepted they are available online, with full citeable articles available when the SI’s are published.  

Key dates:

(1) August 15th 2019 – Submission system open for submission of article
(2) May 30th 2020 – Deadline for submission of articles
(3) September 2020 – Special issue publication

About the Editors

Shunsuke Managi is the Distinguished Professor of Technology and Policy & Director of the Urban Institute at the Kyushu University, Japan. He has been awarded several national research grants on topics such as urbanization, transportation, energy, climate change, sustainability, and population change. He was a lead author for the Intergovernmental Panel on Climate Change (IPCC), a coordinating lead author for the Intergovernmental Platform on Biodiversity and Ecosystem Services (IPBES), and director for the Inclusive Wealth Report 2018 (IWR 2018). He is chief-editor of “Economics of Disasters and Climate Change” and “Environmental Economics and Policy Studies”, and co-editor of “Resource and Energy Economics”. He is co-chair of the Scientific Committee for the 2018 World Congress of Environmental and Resource Economists.

David Broadstock is Deputy Director for the Center for Economic Sustainability and Entrepreneurial Finance in the School of Accounting and Finance at The Hong Kong Polytechnic University. David’s research interests cover various aspects of the empirical economics of energy and the environment, with special interests in consumer behaviour and energy finance. David is currently Editor for The Energy Journal, and an Editorial Board Member of the British Journal of Management.

Jeffrey Wurgler is the Nomura Professor of Finance at New York University Stern School of Business. His research and teaching interests include corporate finance and behavioral finance. Before joining Stern in 2001, Professor Wurgler was the Robert B. and Candice J. Haas Assistant Professor of Corporate Finance at Yale School of Management. He has also been a Visiting Fellow at the University of Oxford Said Business School.Professor Wurgler received a Bachelor of Arts and Sciences degree from Stanford University and a PhD in Business Economics from Harvard University.