Four ways to unlock the potential of green finance initiatives 

Financial institutions are grappling with the growing impacts of climate change and striving to align their operations with environmental goals. There are four core questions to consider when engaging in projects related to green financing.  

1) How is the project advancing green finance literacy for end users?  

 One major challenge – which can also be viewed as an opportunity for successful green investment – is to increase end-user literacy about green finance.  

“Households and micro-, small- and medium-sized enterprises need to understand that making an investment in new technology or in methods to improve energy efficiency in their homes, farms, or businesses brings positive long-term results,” Elena Yunatska, a senior project manager at GOPA explains. “These end users won’t see immediate gains but need to make the investment up front, which is often a challenge, especially in emerging markets where political and economic situations are volatile and unpredictable.” 

In Armenia, GOPA ran a KfW Development Bank-funded project that involved 14 commercial banks and credit organisations providing affordable loans to families to invest in energy-efficient housing. In a country where political instability and geopolitical tensions in the region have impacted economic development, helping families to get comfortable with long-term investing was a core element of the project’s success.  

In addition, the project contributed to establishing an energy-efficiency standard for newly constructed buildings. It also developed a web-based tool for assessing and monitoring the impact of green investments in the mortgage sector across the country. The data being generated by this tool helps make a stronger case for green-mortgage financing and contributes to raising public awareness of the benefits of investing in energy efficiency.    

2) What is the regulatory context within which the project is being implemented, and how is that context changing?  

The green finance sector is experiencing rapid growth and transformation. Regulations, energy tariffs, and trends in the financial landscape are constantly shifting, influencing the lending capabilities and risk exposure of financial institutions. Organisations and companies must navigate these evolving dynamics whilst also seizing the opportunity to influence and shape regulatory changes and emerging trends in the sector.   

In Papua New Guinea, GOPA, through close partnerships with the Bank of Papua New Guinea and the Centre for Excellence in Financial Inclusion, has shaped the framework for the country’s first inclusive green finance policy. Once fully developed, this policy will be critical in supporting Papua New Guinea’s transition from a conventional to a sustainable financial system. 

Financial institutions are increasingly recognising the strategic value of integrating environmental objectives into their business development projections as a way to enhance the stability and resilience of their investments amidst the challenges of climate change.  

“A deliberate engagement of national stakeholders is key to ensuring that advisory operations are sustainable in the long run,” says Yunatska. “Still, not everyone is convinced that green finance makes sense. But ‘green’ finance shouldn’t be considered as a separate operation. In fact, every financial solution for businesses and individuals should consider environmental and social contexts.”  

3) How is knowledge sharing and capacity building being integrated into the project to ensure its long-term sustainability?  

Financial development projects are uniquely complex because they involve multiple layers of stakeholders, from government and financial institutions to loan officers and end users of products and services. Beyond raising public awareness of the benefits of investing in renewable and cleaner energies and more energy-efficient technologies, financial institutions need to be equipped with tools and expertise to ensure the long-term success of new green finance solutions.  

“We talk face-to-face with final beneficiaries, but we also train the front-line workers of financial institutions, which are the loan officers and relationship managers who often travel to remote rural areas to work with customers in the field,” explains Alexis Nyamugira, project manager in GOPA's Financial Sector Development department. “Understanding the nuances and unique complexities of the local context is key to ensuring that the knowledge shared with loan officers and customers is adequately integrated.”  

On behalf of KfW Development Bank, GOPA developed an e-learning course, “Climate Finance, Resilience and Financing for Biodiversity”, which has been utilised by the East African Development Bank and its partners across East Africa as a financial institution training tool for local staff.  

“The course highlighted financial players’ critical role in interventions geared towards biodiversity conservation,” says Kayita Dan Davis Lule, Agriculture Lending Manager at Uganda’s Finance Trust Bank.  

“It will take time for financial institutions to start rewarding their loan officers based on environmental indicators rather than having incentive mechanisms that purely target financial performance,” notes Nyamugira.  

Trainings like the e-learning course are not only an important contributor towards this shift, but also help ensure that new staff can be quickly brought up to speed on the importance of considering the environment when offering financial products and services.  

4. How is the project adopting an integrated approach to development?  

Finance intermediaries often intersect with other industries such as energy, water, agriculture, infrastructure, or health. Adopting a holistic integrated-development approach is crucial to avoid fragmentation whilst maximising the synergies between green finance and broader sustainable development goals.  

To ensure that green finance projects are not being implemented in a vacuum, organisations and companies need to engage stakeholders from diverse sectors relevant to the financial products and services being offered. For instance, in Moldova, GOPA collaborated with the Ministry of Agriculture and local banks to support small-scale renewable energy investments for farmers on behalf of the European Investment Bank. A core component to the project’s success was the seamless integration of cross-sectoral expertise from organisations working in the financial, agricultural, and energy sectors.  

Combining technical specialists from various industries under one roof, GOPA can leverage in-house expertise from diverse sectors to address the multifaceted challenges inherent in sustainable development projects. This in turn leads to more comprehensive solutions that are not only more effective but also more robust in the face of our ever-changing world.  

(Originally published 22 April 2024. Updates have been made to reflect current branding.)