Green Finance in 2021: Trends and Predictions

By Fire Labs Team | Mar 10, 2021

In connection with the latest events, many people are interested in the question of what to expect in 2021? The coronavirus pandemic in 2020 seriously affected the global economic, world economic situation etc. Many investors have ceased their activities as they feared that their investment would not pay off.

sustainable energy

The current situation suggests that the restrictions will continue to apply. This is due to the invention and introduction of the vaccine, the restoration of the economic position of the United States and European countries. But expert Daniel Klier gives positive forecasts for 2021 and believes that there is no reason for panic yet.

This article will explore the main green finance trends that have formed in 2020. They gradually flow into the new year and make it possible to determine which of them can be considered "green". Also, the article will consider the role of blockchain technologies in financial trends for 2021 and identify their main features.

What is green finance and why is it important?

Green finance is any financial activity that improves the environment. Nowadays, such investments and other financial mechanisms allow a large number of projects to be launched. Such projects are distinguished by environmental safety and energy efficiency.

For example, this includes financing of such areas of activity:

  • Development of a low carbon economy.
  • Investing money in the development of environmentally friendly transport (for example, electric cars).
  • Energy development based on renewable natural resources, etc.

In Europe and the United States, green finance is a special bond, privileges and subsidy. They are provided for projects that do not pose a threat to the environmental situation in the world. Thanks to such bonds, the development of environmental projects is much faster and more efficient. There are a large number of applications of green finance in world practice.

For example, in 2014 in France, a large firm Engie S. A. issued green bonds worth 2.5 billion dollars. The company operates in the gas and energy sectors while its bonds were used to invest in projects in the field of renewable energy sources.

In addition, in 2014 the company Toyota, which specializes in the production of cars issued 1.75 billion dollars of valuable green bonds. Investments are aimed at financing loans to consumers, which they issue for the purchase of electric cars or cars that have a low level of harmful emissions into the atmosphere, run on biological diesel fuel, etc.

The governments of many countries and leaders of the largest companies are embracing green finance. Official statistics suggest that in 2019 the green finance market worldwide totaled 528.9 billion dollars. Of these, 167.3 billion were used in 2018.

The average annual growth of such finance in the world has averaged 230% since 2007. This suggests that the demand for green finance is huge. More than 90% of the demand comes from the USA and European countries.

Why has green finance become so popular? There are many reasons for this:

  • Understanding of global environmental problems that lead to climate change. Desire to improve the environmental situation in the world.
  • The policy of developed European countries, which is aimed at preserving and restoring the ecology. Understanding the risks for humanity that climate change brings.
  • Active UN policy on environmental issues.

The main activity in the field of environmental improvement is observed in the developed countries of Europe and the United States. Developing countries are also gradually joining green financing.

Looking back: what we saw in 2020

Official statistics show that over the past 5 years, green financing has become a stable trend. Today it is in great demand all over the world. In five years, the volume of this market has increased fivefold, and reaches 257 billion dollars.

global ESG flows

Companies from Ireland and Germany have made a special contribution to popularizing green finance. For example, Irish company Digital Dutch Finco BV has placed 1.6 billion dollars in securities, while German energy firm E.ON has issued 1.4 billion dollars.

Financial corporations raised a total of 115.9 million dollars in 2020. CBI statistics for 2020 point the following numbers:

  • 34% (almost 5 billion dollars) of the funds was directed to the development of the renewable energy sector;
  • over 5 billion dollars was invested in the creation of environmentally friendly transport;
  • 700 million dollars was allocated to improve the water sector;
  • 100 million dollars was spent on efficient waste management.

Porsche, the American motor vehicle company, placed green bonds for the first time in 2020. Their total volume was 1.1 billion dollars. Also, similar bonds were issued by the British company National Grid (554 million dollars), the Red Eléctrica corporation from Spain (775 million dollars).

green bond market

Five ways blockchain will drive a sustainable future

Blockchain is an efficient and secure chain of blocks that is not interrupted and ensures the safety of all information about monetary transactions in the chain. Any changes are immediately reflected for each participant who is connected to the blockchain.

There are 5 reasons blockchain will secure the future of funding:

1.   Safety. All copies of the data in the chain are constantly checked, so the information is preserved even in case of hacker’s attacks.

2.  Effective financial transactions. Transactions, settlements, letters of credit and other operations are carried out quickly and safely. They can be anonymous or identified.

3.   Ease of use. The calculation can be performed with the traditional currency of any country in the world or cryptocurrency, that is, virtual coins. For example, bitcoin or any altcoin.

4.   Universality. Public, private, financial and non-financial companies can use blockchain technology. It is an efficient and versatile storage system.

5.    Popularity. Today this technology is used by more than 50 countries around the world. It continues to spread and gradually replaces the usual methods of storing information.

blockchain applications

How can blockchain foster green finance?

In 2018, the World Economic Forum conducted a large-scale study with PwC. It has been revealed that there are a large number of methods for using blockchain in order to solve environmental problems. In particular:

  • changing of the climate;
  • improvement of the planet's hydrosphere;
  • conservation of endangered species of plants and animals;
  • purification of the atmosphere;
  • counteraction to natural disasters, etc.

Researcher John Henry Clippinger believes blockchain can also be used to tackle harmful carbon emissions and prevent environmental disaster. All transactions and investments that go through the blockchain will definitely be directed in the right direction, will not be lost. The system stores all changes about all calculations, which, if necessary, can be easily found.

Today in the world a method for reducing emissions of harmful gases is widely used – a quota for environmental pollution. Restrictions are placed on the emission of harmful substances, quotas are issued over time. If the emissions were carried out without a quota, a fine is imposed.

Blockchain environmental sustainability

Blockchain technology is developing rapidly and is widely used in the field of ecology. This system is stable, so it can be safely applied in the field of green finance. Contracts that are based on special algorithms are easy to check, this was stated by John Henry Clippinger.

For example, if a solar station produces a certain amount of renewable energy, this is reflected in the database.Smart contract learns information and after analysis, it signs the quota permit. All information about each stage is stored in the blockchain system forever. This indicates a high stability of technology in the field of green finance.

Besides, there are some other advantages of blockchain in this area:

1. Safe system for use from any medium (computer, smartphone, laptop, etc.) regardless of the number of simultaneous requests.

2. The technology is useful for improving the environment and stores all information in the system.

3. The registry is independent, decentralized.

Transparent reporting to maintain trust

All information from the blockchain is available to the participants in the chain. If one person makes changes, adds new information, other participants will also know about it. It is impossible to remove data from the chain because there is a huge amount of backups. Even with hacker attacks, part of the data can be deleted, but then restored.

The state of sustainable finance in the United States

Many American companies are offering green securities and contributing to the improvement of the environment. Usually these are large corporations, manufacturers of road transport. Also, these are companies that work in the energy or gas sector, which are engaged in the development of electronics. Green finance isn't just about businesses. State-owned companies also place such bonds.

Predictions for sustainable finance in 2021

Information from statistics, expert opinions and authoritative publications allow us to make certain forecasts in the field of financing for 2021. Trends in 2020 remain, and the demand for green financing from developed and developing countries is increasing.

The main trends expected in 2021:

green finance prediction 2021

In addition, forecasts for 2021 relate to a wide variety of areas of human activity. They affect any activity that is associated with an environmental impact. For example:

1. Production of road transport. It is planned to increase funding by 20% for projects aimed at creating environmentally friendly cars. These cars run on electricity, biological diesel fuel or other resources that are distinguished by the minimum emission of harmful substances into the atmosphere.

2. Solar energy. The investments will be directed to the creation and maintenance of existing plants that process solar energy. This will save money and preserve the environment from harmful production products. Already, such stations are operating in some states of America and European countries.

3. Environmentally organic products. Gradually, many companies, countries and people are abandoning environmentally hazardous products. For example, they give up plastic bottles, bags, batteries and others. Instead, they use safe products that quickly decompose in natural conditions and do not release toxic substances into the soil, water or atmosphere. Today, edible glasses and plates are popular, which are made of pressed fruits and vegetables, textile bags and bags, which are great for everyday use and can withstand quite heavy loads.

4. Energy. The main investments are aimed at the development of environmental safety in the energy, oil and gas sectors. These are the main environmental pollutants that need to be optimized to prevent an environmental disaster. The state, non-profit organizations, and international funds also place green bonds to reduce the harmful impact on the environment.

The first results of green finance activities in 2021 will be visible in the second half of the year. At the moment, experts are confident that the demand for it will grow in the future.

Despite the temporary stagnation, which was caused by the coronavirus pandemic in 2020, the economy around the world is gradually recovering. Along with it, green investment is resumed, many investors are ready to invest in various environmental projects.

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