“Sustainable development is the pathway to the future we want for all. It offers a framework to generate economic growth, achieve social justice, exercise environmental stewardship and strengthen governance.” – Ban Ki-moon, United Nations Secretary-General

In the recently concluded 2016 Alliance for Financial Inclusion (AFI) Global Policy Forum (GPF) held in Nadi, Fiji, on 7-9 September, the issue of green finance and its linkages with financial inclusion was one of the key discussion topics. Green finance has become a prominent policy agenda among governments, regulators, policymakers, and developmental agencies. A central message across the definition of green finance is finding that right balance between investing and financing for development while protecting the environment.

In the quest for sustainable development, access to finance becomes a critical component in implementing international agreements and goals such as the UN Sustainable Development Goals (SDGs). Transformation of the financial system would be a locomotive in promoting green finance and needs to be complemented with enabling regulatory frameworks, adequate fiscal incentives, and appropriate pricing reforms. To ensure implementation of these policies and strategies for a greener economy, a genuine collaborative model needs to be adopted.

“Climate adaptation for us is not a matter of choice, but a matter of survival,” Deputy Governor Jennifer Sullivan, Central Bank of Seychelles, stated at the Forum.

In the context of Small Island Developing States (SIDS), a key challenge for the smaller nations is the reliance on external capital flows for major investment projects. In addition, the financial system is heavily concentrated on the banking sector. Thus, the initial thinking is that, innovation needs to be driven by this sector by collaborating with key stakeholders in greening the financial system. On the other hand, it also provides an opportunity for innovators in other industries such as capital markets to create green products. One of the key obstacles financial service providers and regulators in SIDS would face is the lack of technical and analytical capabilities with regard to the correlation between financial implication and environmental risks.

Thus, capacity building and awareness would be some of the very first steps for this process. AFI as a proven, successful global knowledge exchange platform in financial inclusion policies can contribute in building capacity of its members in the area of green finance. Being a globally recognized voice of the developing nations in the issues of financial inclusion, AFI can provide the necessary links to international partners and key actors in the area of green finance to further elevate AFI members’ knowledge and capacity.

The goal of sustainable investment cannot be treated as a stand-alone issue. Addressing the underlying barriers such as infrastructure, bureaucracy, corruption, legislative frameworks, and access to finance would be crucial to the progression of a green economy. While it seems as though lots of work needs to be done by relevant stakeholders at macro level, urgent attention must be focused towards those at micro level who are already facing the wrath of natural disasters.

One of the objectives of green finance is mitigation of the effects of climate change and post-disaster recovery needs. This was echoed in the discussion during the recent 2016 GPF, where forum participants agreed on the importance of green finance in mitigating impacts of climate change on the poor and vulnerable.  

Hence, there is a need to mobilize capital for the underserved and unbanked sections of communities. The small and medium enterprises (SMEs) that are the backbone of a number of SIDS constantly face barriers to finance and bottlenecks in their journeys to transform and contribute to inclusive growth. More often than not, these are the same vulnerable groups who are located in vicinities that are most affected by cyclones, drought and flooding. As such, the goal is to have a financial system that is not only inclusive, but one that is sustainable in promoting economic growth and development.

So a key question constantly posed to the policymakers is, how does financial inclusion fit in the agenda of green finance in the Pacific?

It is argued that access to inclusive financial products and services, along with being financially competent, can be a risk-mitigating strategy for a number of individuals, households, and micro-entrepreneurs in times of natural disasters. A recent example would be the devastation and panic caused by the Tropical Cyclone (TC) Winston in Fiji in February 2016. This was the strongest TC to make landfall in Fiji, resulting in loss of lives and affecting approximately 42 percent of the population. While the government and donor assistance have been at the forefront of helping those affected, there are villages and communities who are still recovering from the aftermath and rebuilding their lives. Over the last decade, the occurrence of these natural disasters has been on the rise. In the recent past, it has been noted that communities that have inculcated financial inclusion practices in their lives have been able to minimize loss during disasters.

For instance, a common practice among a number of households, particularly in rural and remote parts of Fiji (similar to other Pacific Island Countries, PICs), is investing in livestock as a mechanism of saving. When natural disasters such as cyclones and flooding occur, not only are there extensive damages to the property, but also a loss of assets through the destruction of livestock.

Financial inclusion can be a catalyst in cushioning these vulnerabilities and ensuring that if these savings were in the form of financial products and savings instead, households affected would still have the means to save funds during these trying times. Similarly, access to inclusive insurance can also be a means of preparation and protection from the adversities of natural disasters. However, the notion of supply and demand comes into play as to whether there are customized products tailored to the needs of the target segment and whether the people would be willing to purchase such products. Could private-public partnerships be the answer to the low penetration of insurance in the PICs? A concerted effort must be taken to address these adversities.

As a result, the Reserve Bank of Fiji (RBF) has taken the lead in this area by including green finance as part of its new AFI Maya Declaration Commitments that were announced at the completion of the 2016 GPF.

RBF made a commitment to work with partners on developing and promoting sustainable business models to support communities’ response to climate change. Green finance has also become an integral part of the AFI Pacific Islands Regional Initiative (PIRI) as they move forward in promoting sustainable financial inclusion in the Pacific. This is certainly aligned with the outcome of the 2016 Global Policy Forum where close to half of the audience agreed for the AFI network to prioritize the issue of green finance through its regional initiatives and working groups.

“The frequencies of natural disasters in the Pacific are on the rise and continuously threaten the livelihood of many. Greater awareness about the importance of sustaining and protecting the environment will create more demand for green financial products and services,” said Barry Whiteside, Governor at RBF.

Therefore, while international and national leaders map the way forward for green finance in ensuring sustainable growth and development, there is scope for policymakers to commence with some of the building blocks for green economies. While addressing the effects of climate change or natural disasters is just one of the many components of green finance, for those in the Pacific, this may be one of the most pressing issues. While frameworks and strategies are fine in the long run, immediate actions are necessary to ensure these SIDS are able to provide a reason to the younger generation to say no to migration and work toward a better and brighter future in their home countries.

ABOUT THE AUTHOR
Sameer Chand is a Senior Analyst at the Reserve Bank of Fiji, a member of the Alliance for Financial Inclusion.