RIM Pacific Business and Industries Vol. XXI, 2021 No. 80,
Issues Surrounding Climate Change and Green Finance —Realization of a Green Recovery Is Imperative—
Satoshi Shimizu
Summary
Although global greenhouse gas (GHG) emissions in 2020 are believed to have decreased by approximately 7% from the previous year due to the novel coronavirus (COVID-19) pandemic, it will still be extremely difficult to achieve the Paris Agreement targets in the long run. It is said that there is little time left for us to implement emission reduction measures, and going forward, the expansion of renewable energy, reduction of coal use, improvement of energy efficiency, electrification in areas such as transportation, and decarbonization efforts in energy-intensive industries must be rapidly promoted.
Under these circumstances, the importance of green finance, which provides funds for environment-related projects, is also increasing. Expanding green finance requires three steps: 1) increasing the supply of green investment projects; 2) increasing the supply of funds to implement green finance; and 3) creating a framework for smooth implementation of green finance. These should be linked to the realization of steady financing in each field of green finance, namely infrastructure including renewable energy, improvement of energy efficiency, food, agriculture and land use.
ESG investment, which is considered to be part of green finance, is expanding globally and will continue to do so. However, in the face of the pandemic, the emphasis on environmental factors seems to have been reconsidered somewhat and the focus is shifting to social factors, so it is important to keep a close watch on future trends. In addition, ESG investment in Asia lags behind that in Europe and the United States, and efforts must be made to catch up.
The risks associated with climate change are divided broadly into physical risks and transition risks. It is essential that companies and financial institutions accurately analyze these risks and make efforts to reduce them. Central banks should also encourage financial institutions to manage and control climate-related and environmental risks appropriately.
The Task Force on Climate-related Financial Disclosures (TCFD) is leading the effort to disclose environment-related information to promote the expansion of green finance. In addition, the classification of economic activities (taxonomy) needs to be discussed internationally. Furthermore, although the introduction of carbon pricing is politically difficult, it is considered essential to achieve GHG emissions reduction, and it is important to deepen discussions on this issue.
The importance of a “green recovery,” which simultaneously realizes economic recovery and climate change control in the post-pandemic world, has been emphasized, but it has not been realized in countries other than European countries. Even under the difficult circumstances posed by the pandemic, countries around the world are required to steadily promote measures to curb climate change.