CC BY
10THE SIGNIFICANCE OF GREEN FINANCE IN GLOBAL ECONOMIC
GROWTH Yuldasheva Madina Tohir qizi
PhD student at Research center "Scientific bases and issues of development of the economy of Uzbekistan" under the Tashkent State University of Economics https://doi.org/10.5281/zenodo.11003782
Annotation. Uzbekistan exhibits the second highest energy intensity in Central Asia and possesses the highest carbon intensity after Turkmenistan. Nowadays, the country heavily relies on natural gas for electricity and heat generation, accounting for 74% and 94% respectively in 2018. Additionally, Uzbekistan faces challenges related to water scarcity and is susceptible to the adverse effects of climate change. Nevertheless, the government of Uzbekistan has set ambitious goals to transition towards a greener economy, including a commitment to achieve carbon neutrality in the power sector by 2050. Achieving this objective will necessitate significant reforms aimed at restructuring the energy mix to align with the goals of the Paris Agreement. Moreover, substantial investments will be required to enhance critical infrastructure such as the energy grid, water supply systems, wastewater treatment facilities, waste management infrastructure, broadband networks, and transportation systems. To achieve the ambitious goals set by the government of Uzbekistan for transitioning to a greener economy and achieving carbon neutrality, it is imperative to understand the concept of green finance.
Green finance can be conceptualized within the framework of the green economy, where finance is recognized as an integral component of the ecosystem. This perspective emphasizes the interaction between two types of capital: natural and financial. It entails a holistic examination of the subject, as financial principles are intertwined with environmental considerations. A green finance approach encompasses a range of measures such as environmental investments, taxation, tariffs, establishment of funds for pollution control and ecosystem restoration, support for clean technologies, insurance mechanisms, among others. However, a comprehensive understanding of green finance necessitates the recognition of the interplay among three spheres: nature, economy, and society. Within the realm of "green" finance, attention is predominantly directed towards the economic and social aspects associated with monetary capital and financial practices, which are assessed in monetary terms and interact with other forms of capital, particularly natural capital1.
Below is given the interaction of environment, social and governance in sustainable development.
1 Зеленая экономика и зеленые финансы: учебное пособие [Порфирьев Б.Н. и др.] / Под ред. акад. Б.Н. Порфирьева. - СПб.: Изд-во «МБИ», 2018. - 327 с. ge.pdf (ibispb.ru)
> Environmental factors encapsulate concerns related to climate change, natural resource depletion, and environmental degradation. This includes phenomena such as land-use change, habitat degradation, and declines in biodiversity.
> Social aspects encompass a broad range of considerations, including working conditions (such as the presence of child labor), impacts on local communities, conflicts, health and safety standards, employee relations, and diversity initiatives aimed at promoting inclusivity within organizations.
> Governance factors pertain to the structure and practices of corporate governance. This encompasses aspects such as executive compensation, incidences of bribery and corruption, charitable donations, board composition and diversity, as well as the formulation and execution of tax strategies.
By evaluating entities against these ESG criteria, stakeholders can gain insights into their environmental stewardship, social responsibility, and governance practices, enabling informed decision-making and promoting sustainable business practices.
The term "green finance" was initially introduced by American economist Richard Sandor in 1992 during his tenure at Columbia University, where he incorporated it into his teaching curriculum. Sandor's concept of green finance revolves around the financing of projects specifically geared towards mitigating climate change. These financial mechanisms are designed to facilitate the reduction of greenhouse gas emissions and facilitate the transition towards a more sustainable and environmentally friendly mode of economic growth. The overarching aim of green finance aligns with the objective of channeling increased financial resources towards investments that promote environmental sustainability. By leveraging financial instruments tailored to green initiatives, societies can advance their efforts to combat climate change and foster a more ecologically resilient future. The significance of financial mechanisms in driving the green transition and their pivotal role in climate mitigation is underscored in Article 2.1(c) of the Paris Agreement. This provision highlights the imperative of aligning financial flows with sectors that contribute to the reduction of greenhouse gas emissions and foster the development of climate-resilient frameworks. By prioritizing investments that support sustainable development and climate action, green finance serves as a cornerstone for achieving the objectives outlined in international agreements like the Paris Agreement, thus steering global efforts towards a more sustainable and climate-resilient future[1].
Literature review. Research conducted by D. Kahneman, P. Krugman, K. Perez, M. Spence, and N. Stern underscores the imperative for integrating the green factor into the development of both financial and real sectors within economic systems, at both global and national levels. Economist Friesenbichler posits that the observable impacts of climate change necessitate significant transformations in existing economic and social frameworks. Scholars Altenburg and Rodrik characterize this challenge as twofold: green finance must drive structural changes conducive to substantial reductions in greenhouse gas emissions while ensuring sustainable prosperity[2]. This entails not only targeted climate policies but also the mainstreaming of climate considerations across all policy domains, recognizing that achieving a decarbonized economy demands a multifaceted approach.Increasingly, green finance is acknowledged as a critical enabler for effecting profound structural shifts and attaining climate objectives. Mark Carney's assertion in 2015 that "Climate Change is a Tragedy of the Horizon" underscores the discrepancy between the time horizon typically considered in decision-making processes and the
time frame in which the repercussions of climate change will predominantly impact future generations. This highlights the potential for risks to financial stability from climate change to manifest only when it is too late to take effective remedial action[3]. .Austrian economists Daniela Kletzan-Slamanig and Angela Koppl acknowledge that short-term gains from business practices often perpetuate an economic paradigm that disregards pertinent scientific insights and strategies for combating climate change. Uncertainty surrounding technological advancements and the potential for disruptive change dampens investment in low-carbon technologies and heightens the risk of technology lock-in effects. According to scientists Michel Cardona and Maria Berenguer, the development of sustainable and green financing initiatives is intrinsically linked to bridging the investment gap necessary for mitigating climate change. Regulatory frameworks within the financial sector play a pivotal role in catalyzing private capital inflows into sustainable investments and climate finance. Integrating climate risk assessment into the operations of financial institutions is imperative, given the current misalignment of the sector with the objectives of the Paris Agreement. Cochran and Pauthier propose a framework for financial institutions seeking alignment with the Paris Agreement. This framework entails integrating Paris Agreement alignment strategies into strategic plans and employing evaluation methodologies in decisionmaking processes[4]. They advocate for a combination of regulatory interventions and incentives, such as the issuance of green bonds and implementation of disclosure rules, to incentivize transformation within the financial sector and elevate the proportion of green finance within overall financial flows.
An alternative strategy to promote the adoption of renewable energy sources entails leveraging and redistributing additional tax revenues generated by private investors through the spillover effects stemming from infrastructure development. Several academic studies, such as Yoshino and Tagizadeh-Hesari's works in 2017 and 2018, have scrutinized the influence of green energy projects on diverse industries and regional GDP. Governments could contemplate returning a portion or all of the augmented tax revenue to private sector investors as an additional mechanism to incentivize and bolster renewable energy endeavors.
During the third meeting of G20 Finance Ministers and Central Bank Governors in Chengdu, China, on July 23-24, 2016, a significant development emerged with the inclusion of green finance on the G20 agenda for the first time. Spearheaded by China's G20 presidency, this initiative led to the establishment of the G20 Green Finance Study Group (GFSG), jointly chaired by China and the UK, with support from the United Nations Environment Program (UNEP) Secretariat. The GFSG, comprising over 80 representatives from all G20 member states, aims to provide clear strategic policy directives and frameworks conducive to advancing green finance. Among its objectives are the endorsement of voluntary principles for green finance, the expansion
of training networks to enhance capacity-building, and the facilitation of the development of local and cross-border green bond markets[5]. Furthermore, the initiative underscores the significance of promoting international cooperation for investment and advocates for the reinforcement of knowledge-sharing mechanisms concerning environmental and financial risks, as well as the measurement of the impact of green finance activities. This concerted effort underscores the commitment of G20 nations to fostering sustainable development through the integration of green finance principles into global financial systems[6].
In 2023, global investment in the transition to low-carbon energy surged to a record level of $1.77 trillion, marking a 17% increase from the previous year. This robust growth, despite geopolitical uncertainties and economic challenges, underscores the resilience of the clean energy transition. Notably, electrified transport emerged as the largest sector for investment, experiencing
a 36% increase to $634 billion, surpassing
renewable energy.
Investment in power grids also rose significantly to $310 billion, reflecting their crucial role in facilitating the energy transition.
The report
highlights strong
investment growth in emerging sectors such as hydrogen, carbon capture and storage, and energy storage, signifying expanding opportunities in these areas. Although China experienced a slight decline in renewable energy investment, the overall global growth was driven by strong performance in the US and Europe, with significant investment in offshore wind capacity[7].
According to the report by BNEF, current investment levels in clean energy technologies fall short of what is necessary to achieve net zero emissions by mid-century. To align with BNEF's Net Zero Scenario, an average annual investment of $4.8 trillion from 2024 to 2030 is required, nearly three times the investment seen in 2023.Albert Cheung, Deputy CEO of BNEF, emphasizes the urgent need for policymakers to take decisive action to ramp up investment and accelerate the transition to clean energy. The report also highlights the significant growth in investment in the global clean energy supply chain, reaching $135 billion in 2023 and
Olobal invoütmont In tnargy transition, by »octor
* KMNwn
Silimw £J/iM«MfM*r|jMf t Noh' SM'f ift/IWr mmtstu* luti m N o»ii. mil fn*mit'ft frutti Söfft) im» «m/o mtmrn
MulhuUvJuvt mora >tmi«>i f>Kml nitfmMy HimAnm ftijmmm »trnit Ml »Ol0 ih.v,», ^„fm in ¡N)gO CC-f» imfmt* to cmütan capfur« mud mttumym
projected to rise to $259 billion by 2025. Furthermore, the report tracks climate-tech equity raising and energy transition debt issuance. Climate-tech equity raised by companies focused on climate and energy transition amounted to $84 billion in 2023, with the clean energy sector attracting the most equity. Energy transition debt issuance totaled $824 billion in 2023, with utilities raising the most debt, followed by financial institutions and governments. However, debt issuance by oil and gas companies for energy transition purposes declined to $8.3 billion in 2023 from $17.5 billion in 2022.
References:
1. C. Liu and S. S. Wu, "Green finance, sustainability disclosure and economic implications," FulbrightRev. Econ. Policy, vol. 3, no. 1, pp. 1-24, 2023, doi: 10.1108/frep-03-2022-0021.
2. B. Prempeh, S. Asuamah Yeboah, and K. Boateng Prempeh, "'Greening the Future: Mobilizing Environmental Finance for Sustainable Development in Developing Countries,'" no. 118281, pp. 0-21, 2023.
3. X. Zhuo and L. Zhang, "A Framework For Green Finance: Making Clear Waters And Green Mountains China's Gold And Silver," Green. China's Financ. Syst., pp. 28-43, 2015, [Online]. Available: https://www.iisd.org/sites/default/files/publications/greening-chinas-financial-system.pdf
4. G20 Sustainable Finance Working Group, "2022 G20 Sustainable Finance Report," pp. 1-123, 2022, [Online]. Available: https://g20sfwg.org/wp-content/uploads/2022/07/Presidency-Summary---Forum-on-
5. G20 Green Finance Study Group, "G20 Green Finance Synthesis Report 2016," G20 Green Financ. Synth. Rep., no. August, pp. 1-11, 2016, [Online]. Available: http://g20.org/English/Documents/Current/201608/P020160815359441639994.pdf
6. B. Report, "BloombergNEF Report," 2023. https://about.bnef.com/blog/global-clean-energy-investment-jumps-17-hits-1-8-trillion-in-2023-according-to-bloombergnef-report/#:~:text=212 318 2000-,Global Clean Energy Investment Jumps 17%25%2C Hits %241.8 Trillion in,2023%2C According to BloombergNEF Report
