Environmental finance

A Dictionary of Finance

How to turn nature from a charity case into a sustainable asset class.

Environmental finance uses financial tools for the good of the environment, working to determine the right price for the use of environmental resources and who should pay for them

What if we extended our outlook from the next quarterly results to the next few centuries? We would most likely find that the true cost of natural resources used in various commercial activities is not represented in most cost-benefit analyses of business plans.

Which is why, unlike commercial banks, the European Investment Bank carries out separate assessments of potential projects to make sure the real, long-term impact on the environment is mitigated or at least that compensation is made for it.

Besides introducing safeguards for projects that might not involve the environment, the bank also finances projects that have a positive environmental impact at the heart of their plans, such as conservation. One recent example is Rewilding Europe, a program that capitalizes on the commercial value of the natural environment by organizing safari tours, providing cabins for nature photography enthusiasts and offering other services that could generate cash to be reinvested into projects that protect pristine ecosystems.

But such financing is not just about the wild outdoors: environmental finance can also involve investment in the decontamination of a polluted industrial site in a city so it can be used for a real estate project. Taking care of the urban environment has surprising upsides – with increased urbanization, there will be more space available for nature to flourish outside of those cities.

Environmental finance tries to tackle difficult questions, such as who owns natural assets, how to measure social, economic and financial returns on those assets, and who should own those returns. We also learn how environmental finance relates to climate finance, and we are told that the ‘blue economy’ is not always green.

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