Climate financing key to enabling inclusive green finance

Climate financing plays an important role at the global and institutional level in enabling inclusive green finance (IGF) and sustainable development policies, speakers said at a virtual joint learning program (JLP) held exclusively for leaders on inclusive financial technology (FinTech) ecosystems and cybersecurity.

Innovation in green technologies and cooperation across sectors and borders in financial inclusion policies and regulations was also underlined at the AFI event, co-hosted by the Ministry of Finance and Ministry of Foreign and European Affairs of the Grand Duchy of Luxembourg, and in technical collaboration with the University of Luxembourg on 8 October.

Carole Dieschbourg, Luxembourg’s Minister for the Environment, Climate and Sustainable Development, opened a day of discussions dedicated to linkages between IGF and inclusive FinTech policies by emphasizing the role of financial inclusion in contributing towards the Paris Agreement.

“Inclusiveness is the key element of sustainable development,” Minister Dieschbourg said. “We need to make sure that no one is left behind, particularly vulnerable communities”.

A strong voice among practitioners

While the outbreak of COVID-19 poses new risks to financial inclusion, the panel underscored new opportunities to build back in a more agile, vigilant and resilient manner that also considers the impending climate crisis.

For this to succeed, Dr. Susan Krohn, head of financing international climate action and environmental protection, multilateral development banks at Germany’s Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU) called on the “strong voice” of practitioners to influence the climate change debate.

In line with climate action commitments made at the international level to facilitate the transfer of funds, knowledge, resources and technology, Dr. Krohn emphasized that climate financing is crucial in helping developing countries.

“Aligning financial flows will secure the green recovery needed at the end of the COVID-19 crisis,” Dr. Krohn emphasized.

BMU has been a key supporter and primary funder of IGF since 2018, a partnership that has enabled AFI members to increasingly incorporate and prioritize the workstream into their mandates. AFI’s IGF policies are embedded in the 2017 Sharm El Sheikh Accord and 4P framework, empowering policymaker and regulatory contributions to the climate agenda through national strategies and global level while also targeting a range of Sustainable Development Goals (SDGs).

Abderrahim Bouazza, general director at Bank Al-Maghrib, explained how Morocco’s transition strategy to align the financial sector with sustainable development aims to achieve 72 percent renewable energy by providing incentives to the financial sector. In 2018, Morocco created the “Innov Invest” fund to support 300 startups over five years in fields ranging from FinTech to renewable energy, including “cleantech.”

“FinTech is helping manage energy through innovation and finance solutions for SMEs and clean energy projects,” Bouazza said.

Sharing experiences from developed countries, Bertrand de Mazières, director general of finance at European Investment Bank (EIB), said that his institution had provided EUR170 billion (USD 199 billion) in funds for climate action since 2012.

“Everything we do must be consistent with the Paris Agreement,” he said.

Opening access to finance

According to Dr. Margarita Hernández, Superintendente for the Superintendencia de la Economía Popular y Solidaria (SEPS) de Ecuador, the superintendency supports sustainable development along three axes: transparency (including security of information); strengthening (including strategic partnerships) and financial inclusion (including gender perspectives, financial literacy, inclusive green finance and digital financial services).

Dr. Hernández also shared how financial inclusion has been integrated into national strategies on financial inclusion and climate change.

“We are committed to promoting digital and financial literacy and IGF into every level of our work,” Dr. Hernández said.

Access to finance and energy was also presenting new opportunities, Laura Foschi, CEO of Appui au Développement Autonome (ADA) said at the webinar. Microfinance and inclusive finance were being used to build resilience, she explaining, providing examples of solar toolkits that were helping enable mobile banking by providing energy to keep phones charged. Foschi also highlighted the need for gender considerations in providing access to financial services.

Embrace new technology and innovation

Access to financial systems that provides long-term solutions and regulations should be open to innovation and the sharing of knowledge and resources, according to Prof. Dr. Dirk Andreas Zetzsche, chair of financial law and inclusive finance at ADA and head of the Center for Sustainable Governance and Markets at the University of Luxembourg.

Technology is effective for solving “last mile” issues, particularly through electronic Know-Your-Customer, mobile money and other FinTech and digital financial service products, Prof. Dr. Zetzsche said, underlining the role of academic institutions in shaping a more sustainable world.

“As a university, we are tasked with connecting research with practice, but we also have a job to learn from practice,” he said.

But the rapid pace of development was posing additional challenges in getting people to embrace new innovation by making it relevant to their daily lives, said Tom Theobald, director of development and promotion of the financial center at Luxembourg’s Ministry of Finance.

“We are trying to see how we can better connect existing financial technology for the benefit of addressing climate and sustainability issues,” Theobald said.

Despite these difficulties, panelists agreed that opportunities in innovation and new technology play a crucial role in moving the global climate action agenda forward.

“Countries worldwide are collaborating and developing FinTech solutions for various reasons, including to advance financial inclusion,” said Manuel Tonnar, director, directorate of development cooperation at Luxembourg’s Ministry of Foreign and European Affairs. “I commend AFI for pursuing an SDG-oriented agenda that considers inclusive green finance and gender”.

Close to 100 participants attended the third day of the JLP, which was moderated by AFI’s head of IGF, Johanna Nyman, and held in conjunction with the launch of the network’s Europe Representative Office in Luxembourg. The first two days of the virtual event saw participants discuss various aspects of FinTech, including the need for enabling innovative environments to increase the access to and quality of formal financial services, the importance of cross-border collaboration and regulations around cyberthreats.

AFI’s Inclusive Green Finance (IGF) workstream is part of the International Climate Initiative (IKI)  supported by the German Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU), based on a decision of the German Bundestag.