These, mostly private, debt-based instruments involve the transfer of capital from one entity to the borrowing party who is then under an obligation to pay the debt back at a later date, usually with interest. This category could also be called “green lending.” Leasing is a finance instrument that allows individuals or companies to acquire equipment or facilities and pay a monthly or annual fee for use or access rather than having to outright purchase the assets. Bank loans are debt provided directly from a bank to an individual or company. Notes refer to a wide range of formal debt instruments where the borrower agrees to pay back the lender (almost always with interest) as documented by a contract (the “Note”). Some Notes can be tradeable and resold while others are restricted. Trade Finance is a multi-instrument set of mechanisms that are designed to facilitate international trade through enhanced financial liquidity and risk management. “Bank-intermediated trade finance (or trade finance, in short) performs two vital roles; providing working capital tied to and in support of international trade transactions, and/or providing means to reduce payment risk.” (Bank for International Settlements, 2014). One example of a trade bank that helps advance investment opportunities for clean energy is the NY state (USA) affiliated NY Green Bank. Many multi-lateral, bi-lateral and national development banks (such as the World Bank, Inter-American Development Bank, and OPIC use debt-based instruments to support sustainable development and often include conservation goals and environmental and social safeguards in their investments.
Green Banks
State or donor-sponsored financial entity that works in partnership with the private sector to increase investments into green businesses and markets that are underserved by commercial finance. The backing from a Government (or donor) guarantee the Bank can catalyze private investments and introduce new financial products. While the emphasis has traditionally been on renewable energy, the focus of green banks can extend to other environmental areas including conservation and biodiversity.
Green Banks have been increasing the amount of investment that is flowing into conservation and biodiversity. While there are several various examples that exist, capacity building organizations within the green banking space have also become active in recent times. The Green Bank Network is a membership organization formed to foster collaboration and knowledge exchange among existing Green Banks, enabling them to share best practices and lessons learned.
Conservation Notes
Fixed income product that channels capital to conservation-critical lands and waters. The interest rate can be lower than market rates (i.e. concessional). Examples include property being resold to a government agency, institution, or conservation buyer, with easements or restrictions in place to ensure that the organization's long-term conservation objectives for the project are met.
Credit Suisse joined forces with Althelia Ecosphere in 2014 to launch the Nature Conservation Note, as the first bank to develop a conservation investment product. This 10 million USD initiative aimed to restore a high biodiversity area in the Peruvian Amazon. Read more about the Credit Suisse Conservation note here.
Green Lending
Lending facility by a development or commercial bank or a microfinance institution that positively screens or actively encourages environmentally beneficial loans. The facility or fund may have specific requirements for loan approval or allocation in the form of environmental criteria and assessments. Criteria can include an identified sub-sector (e.g. climate change adaptation) or reference to certain best practices (e.g. via certification of sustainable agricultural/forest management practices).
Microsfere is a non-profit organization that aims to improve the livelihoods of rural people living around areas that are protected for their ecological value in developing countries, and notably in West Africa. Their first two projects are in Ghana, in the Kakum National Park and the Amansuri Wetland. One of the principle measures implemented by Microsfere is Social Microfinance. Read more about Microsfere here.
Mobile Banking
Allows customers to conduct financial transactions using mobile devices. Due to the higher cost of traditional banking (i.e. establishment of physical presence) in developing countries, mobile banking expands financial inclusion among the poor and among populations living in remote locations. Beyond commercial banking services, the same system can be used to pay taxes, receive Government benefits or regulate other payments (e.g. payments for ecosystem services). Associated systems allow for microenterprise loans financing solar panels and other environmentally beneficial investments.
A wide array of banks offer smartphone applications which allow for mobile banking to occur, especially in the developing world. The largest bank in India, the State Bank of India, offers a wide range of online and mobile banking services. To view their website and understand some of the services offered through Mobile Banking, please visit their website here.
Trade Finance
Broadly defined as the set of financial instruments that support foreign trade transactions, trade finance includes letters of credit, factoring, export credit and insurance. The provision of trade finance support is often limited in developing countries due to the lack of service providers or affordable products. Trade finance is particularly needed to support bio trade, i.e. activities related of collection, production, transformation, and commercialization of goods and services derived from native biodiversity under the criteria of environmental, social and economic sustainability.
The United Nations Conference on Trade and Development (UNCTAD) launched the BioTrade Facilitation Programme (BTFP) in 2015 with the aim of mainstreaming BioTrade in relevant multilateral, regional and national processes and strengthen the policy and regulatory environment for BioTrade sectors so as to enable key stakeholders (governments, communities and companies) to take advantage of policy options and strategies available for leveraging BioTrade sectors. To achieve this goal, three components were implemented:
a. Mainstreaming BioTrade in sustainable sourcing and use in sustainable development strategies, including in global biodiversity targets
b. Identifying barriers to trade of biodiversity-based products
c. Understanding and mapping policy options on certain aspects of the implementation of the Nagoya Protocol on Access and Benefit Sharing on BioTrade.
Read more about the BioTrade Facilitation Programme here.