Global warming is continuing to cause significant risks to countries around the world, and the impact of climate change is more widespread and severe than anticipated. This has become a constant reminder to economies throughout the globe of the urgency of addressing and disclosing climate risks.
In Papua New Guinea, there are so many vulnerable communities impacted by climate change and so many people in vulnerable communities find it hard to cope with financial losses resulting from the impact of climate change.
Climate change, deforestation, pollution, and other environmental issues pose significant economic threats to businesses. In turn, this jeopardises financial stability in the banking sector.
Rising sea levels, extreme weather events, and resource scarcity can also disrupt supply chains, increase production costs, and lead to financial losses. In doing so, these threats compromise price stability within the financial sector and the economy.
To counter the ongoing effects of this economic risk, the Bank of PNG have embraced green finance to address such risks, proactively, investing in projects that mitigate environmental challenges and foster long-term sustainability.
Launching of the Inclusive Green Finance Policy in PNG: The Bank of PNG in partnership with the Center for Excellence in Financial Inclusion (CEFI) and it's development partners recently launched the Inclusive Green Finance Policy with the theme: 'Pathway to a Greener Economy for a Resilient Future' on Thursday 08th June, 2023 at the Hilton Hotel in Port Moresby.
The ceremony was witnessed by Prime Minister James Marape, who expressed his honor in inaugurating this significant policy. He encouraged government departments, state-owned enterprises, financial institutions, and MSMEs to collaborate and utilize this policy as a foundation for building a green business economy.
The Prime Minister expressed gratitude to the Bank of Papua New Guinea, the Global Green Growth Institution (GGGI), the New Zealand Highland Commission, financial institutions, and other technical and development partners for their collaboration in designing and developing the Inclusive Green Finance Policy.
"I am delighted to announce that this policy is being unveiled alongside the Bank of PNG's own Financial Inclusion Strategy, introduced in April this year. This visionary product represents a long-term commitment to Papua New Guinea," he added.
The Prime Minister commended the Green Taxonomy, a unique feature of this policy, which is the first of its kind in the Pacific and Papua New Guinea. He congratulated the Acting Governor of the Bank of PNG and the development partners for their contribution in establishing this crucial tool and service for the benefit of the people.
"The Inclusive Green Finance Policy serves as a reminder for all of us to conduct our business in an environmentally conscious manner. By offsetting our global and PNG carbon footprints and participating in the conservation of PNG's tropical rainforest and mangroves, we can mitigate the impacts of climate change," the Prime Minister emphasized.
Policy's Development: When outlining the progressive steps taken into developing the policy, Mr George Awap, Assistant Governor of the Financial System Stability Group at the Bank of PNG and Chairman of the Inclusive Green Finance Steering Committee, highlighted the policy's development and the discussions surrounding the impact of climate change on economics.
Mr. Awap provided a brief overview of the journey toward implementing the Inclusive Green Finance Policy in Papua New Guinea. He mentioned that the Bank of PNG engaged the Global Green Growth Institution through a bidding process, and the Agriculture for Finance (AFC) was involved in developing the concept note, funded by the New Zealand Government.
He further explained that a steering committee, chaired by the Bank of PNG and consisting of representatives from the Office of Climate Change, Department of Treasury, Alliance for Financial Inclusion, NZHC, and GGGI as observers, worked to develop the Inclusive Green Finance Taxonomy Policy.
"Inclusive Green Finance is a new concept in the region, requiring extensive collaboration between the Bank of PNG, domestic financial institutions, various ministries, and stakeholders," concluded Mr Awap.
What role can the Inclusive Green Finance Policy play in PNG?: During the launching of the policy CEFI and its stakeholders explained and highlighted what it has been doing to ensure that the financial sector plays its part in greening the financial system and support sustainable growth.
Inclusive green finance is an evolving policy area that countries are beginning to implement to mitigate or build resilience to sweeping environmental, health, social and economic effects of climate change.
This comes as a convergence of financial inclusion and climate change policy outcomes in developing countries are increasingly evident, and affordable financial services play vital roles in enabling vulnerable people to cope with financial losses that result from the impact of climate change and build resilient sustainable livelihoods.
In September 2020, CEFI requested the GGGI to support in developing an inclusive Green Finance Policy for PNG’s financial sector. The Global Green Growth Institute serves as the Secretariat for the project with support from Agriculture and Finance Consultants.
The policy's goal is to increase and facilitate flow of national and international funds and investments in a systematic manner towards businesses, projects and initiatives that would further the PNG government’s goals in growth or green and sustainable industries, financial inclusion, and climate change adaption and mitigation.
The policy aims to deliver two main outputs. First is a green taxonomy based on PNG's goals and priorities, which defines the conditions under which an economic activity can be deemed environmentally sustainable. It defines the technical criteria on environmental performance levels and social minimum safeguards for a list of activities that must be fulfilled if they are to be legally classified as environmentally sustainable.
Second is a diagnostic report on the state of green finance in PNG, which refers to financial investments and initiatives that promote sustainable economic growth, while reducing environmental impact. The goal of green finance strategy is to mobilise capital towards projects that have a positive impact on the environment.
Both aspects of the policy are expected to steer financial flows towards technologies and services that contributes to the government's financial inclusion and green growth goals
PM Marape's highlights: In his address, the Prime Minister stated, "Today, we celebrate the establishment of the Green Finance Policy by the Bank of PNG, which I believe is the first of many steps toward transitioning Papua New Guinea from a high-carbon economy to a sustainable and blue economy."
Mr Marape emphasized the policy's importance in addressing climate change and how it will benefit the people of Papua New Guinea. He stressed the need to develop the country's economy in a smarter and climate-resilient manner, fostering low-carbon, inclusive green growth.
"While we are currently on a high-carbon development trajectory, which has proven beneficial for our economy and supporting our rapidly growing population, we must acknowledge that the detrimental effects of climate change are accelerating. This necessitates a shorter timeframe for us to enjoy the benefits of our current pathway," said the Prime Minister.
BPNG Acting Governor on embracing green finance: Green finance is defined as a loan or investment that supports an environmentally friendly or sustainability-aligned activity, such as purchasing environmentally friendly and energy efficient goods and services or building environmentally friendly infrastructure such as renewable energy power plants.
Green projects not only include solar or wind energy, however. Sustainable land use, water, and urban waste management, green buildings, clean transportation, pollution prevention and control systems, and energy efficiency projects are some of the areas that are globally eligible to receive green financing.
With a focus on the mechanisms of Green Finance highlighted during her speech, Ms. Elizabeth Genia, Acting Governor of the Bank of Papua New Guinea, underscored the significance of embracing green finance and adopting a proactive approach to address environmental risks and invest in projects that promote long-term sustainability.
The Acting Governor emphasized the responsibility of financial institutions to integrate environmental and social factors into their investment decision-making processes. She encouraged the development of innovative financial products, such as green bonds and sustainability-linked loans, to facilitate green investments.
"To support financial institutions in this important journey, the Bank of PNG, in collaboration with its partners, will establish a Green Finance Center at the CEFI office. The center will provide necessary support, including staff training, technical assistance, and the design of innovative green lending products," stated Mrs. Genia.
“We also need to acknowledge that governments simply do not have the resources to meet all the demands on the public purse. As a society we need to find other ways to address society’s challenges.”
Investment Pathway: Green growth means achieving economic growth while reducing pollution and greenhouse gas emissions, minimising waste and improving efficiency in the use of natural resources. This requires long-term investment and sustained financing. Public budgets have traditionally been an important source of green infrastructure financing.
But given the strains on public finances, large-scale private investment will be needed for the transition towards a green economy. However, the Government has a key role to play in strengthening domestic policy frameworks to catalyse and mobilise private finance and investment in support of green growth.
One of the most frequently used terms in climate change discussions is environmental sustainability, with economic growth and foreign direct investment as supporting factors. In context, the government plays a vital role in enhancing sustainable pathways and addressing this incentives.
It is recommended that policymakers must push the financial sector to adopt the green finance policy to further the goals of long-term sustainable development through sound investment.
The Inclusive Green Finance Policy takes environmental, social and governance considerations into account when making decisions to invest. Environmental considerations include whether the investments would preserve biodiversity, prevent pollution, boost the circular economy or help climate change mitigation and adaptation.
Other considerations include human rights issues, labour relations, and investment in communities. So, what the policy aims to do is encourage and facilitate investments that contribute substantially to environmental objectives and promote wider sustainability objectives.
The challenge is how to effectively influence market stakeholders’ decision to invest in sustainable projects, activities, sources and supply chains.
References:
1) LAUNCHING OF THE INCLUSIVE GREEN FINANCE POLICY, Thursday 08th June, 2023 : Hilton Hotel, Port Moresby [Paul Oeka/PNG Business News]
2) Website: www.thecefi.org Link to Photos, Videos, Audios, Speeches & Media Release - https://drive.google.com/drive/folders/1hJfJxZ2pgkgEEbP5lETwtv4jbCyuiIiS?usp=sharing
3) The Inclusive Green Finance Policy (IGFP) Project (Copy of Policy outline). Centre for Excellence in Financial Inclusion https://www.thecefi.org › green-fina...
4) Bank of Papua New Guinea https://www.bankpng.gov.pg › media Releases | Bank of Papua New Guinea (PNG) Port Moresby,
