greening of finance can occur at the level of the product or instrument in question
(e.g. green indices, green loans or green bonds), or as regards the type of financial
services in question (green insurance, green banking or green investments).
13
Do definitions matter? The lack of clarity is certainly a risk for investors—definitions of green finance form the basis for internal budgeting, costings, accounting and
other financial performance evaluative processes. Without the reliability of such
important financial performance data, no prudent investor would be prepared to
underwrite the unarticulated risks by offering green finance. Moreover, the global
financial system is a mutually interlinked system whereby information and communication are crucial to attract other investors and to distribute the risk (for example, by
insuring the risk to a third party or a group of third party insurers). The lack of clear
definitions thus also impacts on the formulation of a clear corporate green agenda,
which in turn leads a loss of confidence by those third party stakeholders as to the
green credentials of the financial institution in question. However, on the other hand, it
is damaging to hold to a single but narrowly defined concept of green finance.
Different economies and different sectors have different contexts and priorities
which might not be properly supported by a green finance scheme which is rather
narrow and inflexible. Take the example of “cold ironing” namely the provision of
electricity to a vessel by drawing directly from the port’s electricity supply so that the
vessel’s auxiliary engines could be switched off at port thereby reducing the burning of
carbon based fuel and consequently, the vessel’s CO2 emissions.
14 The investments
needed to support the development of cold ironing or “alternate marine power”, as it is
sometimes called, could be substantial—a port side terminal for the supply of electricity, the retrofitting of ships to receive external electric power and the construction of
extra electrical capacity, conduits, and the “plug” infrastructure etc. If the “green”
criterion is applied narrowly, it would appear that such a project might well be worth
supporting. However, it is also important to assess the social and environmental cost of
the type of infrastructure needed to be built in that locality for the provision of cold
ironing. For example, if the extra onshore electricity is generated by coal powered
plants, clearly the proposed cold ironing project is not a good idea. In sum, if the green
finance terms fail to take into account the wider impact, it seems fair thus to argue that
the finance is not especially green.
It is argued that green finance should prefer neither a narrow nor a wide definition—a more useful approach is to adopt a mapping exercise involving different
interconnected areas of core and secondary activities which make a positive contribution to a sustainable socio-economic and physical environment. This is perhaps
best illustrated using a diagram (see Fig. 1), derived from the UNEP:
Finance providers or facilitators, public or private, can decide how far from the
“core” of those elements which are more commonly seen as “green” to the secondary
zone. The scope of what constitutes “green” will thus always be an integrated and
13 Ibid, at 3–5.
14 That was a practice which originated at ports in California, USA.
Legal Aspects of Green Shipping Finance: Insights from the European. . .
135
(e.g. green indices, green loans or green bonds), or as regards the type of financial
services in question (green insurance, green banking or green investments).
13
Do definitions matter? The lack of clarity is certainly a risk for investors—definitions of green finance form the basis for internal budgeting, costings, accounting and
other financial performance evaluative processes. Without the reliability of such
important financial performance data, no prudent investor would be prepared to
underwrite the unarticulated risks by offering green finance. Moreover, the global
financial system is a mutually interlinked system whereby information and communication are crucial to attract other investors and to distribute the risk (for example, by
insuring the risk to a third party or a group of third party insurers). The lack of clear
definitions thus also impacts on the formulation of a clear corporate green agenda,
which in turn leads a loss of confidence by those third party stakeholders as to the
green credentials of the financial institution in question. However, on the other hand, it
is damaging to hold to a single but narrowly defined concept of green finance.
Different economies and different sectors have different contexts and priorities
which might not be properly supported by a green finance scheme which is rather
narrow and inflexible. Take the example of “cold ironing” namely the provision of
electricity to a vessel by drawing directly from the port’s electricity supply so that the
vessel’s auxiliary engines could be switched off at port thereby reducing the burning of
carbon based fuel and consequently, the vessel’s CO2 emissions.
14 The investments
needed to support the development of cold ironing or “alternate marine power”, as it is
sometimes called, could be substantial—a port side terminal for the supply of electricity, the retrofitting of ships to receive external electric power and the construction of
extra electrical capacity, conduits, and the “plug” infrastructure etc. If the “green”
criterion is applied narrowly, it would appear that such a project might well be worth
supporting. However, it is also important to assess the social and environmental cost of
the type of infrastructure needed to be built in that locality for the provision of cold
ironing. For example, if the extra onshore electricity is generated by coal powered
plants, clearly the proposed cold ironing project is not a good idea. In sum, if the green
finance terms fail to take into account the wider impact, it seems fair thus to argue that
the finance is not especially green.
It is argued that green finance should prefer neither a narrow nor a wide definition—a more useful approach is to adopt a mapping exercise involving different
interconnected areas of core and secondary activities which make a positive contribution to a sustainable socio-economic and physical environment. This is perhaps
best illustrated using a diagram (see Fig. 1), derived from the UNEP:
Finance providers or facilitators, public or private, can decide how far from the
“core” of those elements which are more commonly seen as “green” to the secondary
zone. The scope of what constitutes “green” will thus always be an integrated and
13 Ibid, at 3–5.
14 That was a practice which originated at ports in California, USA.
Legal Aspects of Green Shipping Finance: Insights from the European. . .
135