Robust green finance for developing nations. Zengamina hydro-electric scheme, Upper Zambezi river. Credit: Daniel Rea

+ If the rich, developed nations are to successfully help developing economies shift to renewable energy, the green bonds that finance these projects need more robust validation.

In 2015 at COP21 in Paris, 188 nations committed to mobilize $100bn per year in climate finance to developing countries. The finance industry has responded to this investment environment by incremental innovations such as “green” climate bonds  that are used to fund, for example, a new hydro electric project in sub Saharan Africa. I feel the current level of technical assurance provided to these projects can be improved by engineers external to the project – ‘external’ to avoid any conflict of interest. 

Green bonds are generating interest on the topic of climate finance and major development organizations, like the World Bank, use them to help support climate change projects in developing nations. 

Currently the finance industry is inclined towards reducing the transaction costs associated with these bonds in order to increase their popularity amongst investors. The dominant reason for these high transaction costs is defining what exactly classifies as “green”. For this reason, guidance and standards on defining green investment are currently some of the most trending topics in this sector.

The financial world is racing towards defining green assets and then using a “tick box” methodology to verify green investments. The obvious question that arises is whether this methodology is the best way forward to ensure a positive environmental impact for this investment, especially in transition economies, and avoid the risk of “greenwashing”.

In my opinion, in the case of “project specific” green bonds, verifying project activity (backed by independent assessors) and not just the end asset alone would help institutional investors to understand the risks climate change poses to their assets. For designers this could be a report or a tailor-made certificate that fosters understanding and transparency on all levels of a project. These assessments oppose the “tick box” methodology and raise transaction costs; however, it could be a gateway for new long-term investors and support existing fund managers by providing a higher level of assurance for their green investment portfolios. 

Traditionally engineers’ and designers’ focus has been to facilitate this process and help their clients achieve their sustainability targets by embedding low carbon designs in their core processes. However, commercial aspects such as project budget restrictions restrain their ability to implement innovative ideas. 

Hence, I feel, in order to develop a truly low carbon economy engineers and designers must not only continue to push the boundaries of low carbon design but also combine technical assurance with sustainable commercial models that can be replicated in transition economies.

What are your comments on this new service offering for engineers?