All About Green Finance: A Path to a Sustainable Future

Green finance is transforming the global financial landscape by channelling investments into projects that generate positive environmental outcomes. It encompasses a broad range of activities, from funding renewable energy and sustainable agriculture to restoring ecosystems such as peatlands. But what exactly is green finance, and why is it so crucial in today’s world?

What is Green Finance?

At its core, green finance refers to investments aimed at promoting environmental sustainability. These investments are typically directed toward projects that support renewable energy, combat climate change, or restore and protect natural ecosystems. Examples of green finance mechanisms include loans, equity, and innovative financial instruments such as carbon credits.

While green finance is often associated with "climate finance" - focused on reducing carbon emissions through energy efficiency, low-carbon technology, and carbon sequestration - it has a much broader scope. It includes nature-based solutions such as wetland restoration, flood risk management, and habitat restoration that contribute to climate resilience.

Peatland Restoration: A Green Finance Opportunity for Ireland

A prime example of a green finance initiative is the restoration of peatlands, including in regions like Ireland. Peatlands, which cover just 3% of the earth’s surface, are incredibly effective at capturing and storing carbon, holding around 25% of the world’s terrestrial carbon. Ireland is home to a significant portion of Europe’s remaining functional peatlands, but many are in a degraded state, emitting large amounts of carbon dioxide annually.

Restoring these peatlands presents a unique opportunity to both combat climate change and stimulate economic growth. Healthy peatlands could reduce Ireland’s national emissions by at least 5%, while providing additional benefits for biodiversity, flood management, and water quality. The European Commission estimates that every €1 spent on restoring landscapes could yield returns of €8 to €38 due to improved ecosystem services, including food security, climate resilience, and human health.

However, the financial resources needed to restore Ireland’s peatlands are substantial. Public funding is limited, and the estimated cost to restore Ireland’s peatlands under the EU Nature Restoration Law could reach €11.3 million annually until 2050. To bridge this gap, private finance plays a critical role, ensuring that the necessary capital flows into restoration projects.

The Role of Carbon Credits and Carbon Markets

To incentivise private investment in green projects like peatland restoration, financial tools such as carbon credits can be employed. A carbon credit represents one metric tonne of greenhouse gases (GHG) reduced or removed, often referred to as carbon dioxide equivalents (CO2e). By restoring peatlands, investors can generate carbon credits, which can then be sold to companies or individuals looking to compensate for emissions they cannot eliminate, or for their internal reporting obligations such as CSR (Corporate Social Responsibility).

Carbon credits are not just financial instruments but key tools in global climate agreements aimed at achieving net zero emissions.

Restoring vs. Rehabilitating Peatlands

It’s important to distinguish between peatland restoration and rehabilitation. Restoration aims to return degraded peatlands to their natural state, raising water levels and encouraging the return of native species. Techniques such as rewetting and reintroducing vegetation like Sphagnum moss help create the waterlogged conditions essential for peat formation.

Rehabilitation, on the other hand, focuses on highly degraded peatlands that no longer support new peat formation. While rehabilitation methods often overlap with restoration, such as rewetting and vegetation reintroduction, the result is usually a different type of habitat, like fens or reedbeds, rather than a true peatland.

Net Zero and Climate Positive: Key Concepts in Green Finance

The terms "net zero" and "climate positive" are crucial when discussing carbon reduction efforts. Net zero refers to balancing the amount of carbon dioxide emitted with an equal amount removed from the atmosphere, leading to no net increase in emissions. However, some companies go beyond this goal and become "climate positive," meaning they remove more carbon than they emit, contributing positively to the environment.

Avoiding Greenwashing

With the rise of environmental consciousness, the term "greenwashing" has become a growing concern. Greenwashing occurs when companies mislead the public by overstating their environmental efforts or using sustainability claims to distract from poor environmental performance. This can involve dubious claims about carbon reductions or the use of non-verified carbon credits.

To avoid greenwashing, companies must adhere to the "mitigation hierarchy" of avoid, minimise, restore, and offset. Carbon credits should only be used as a last resort after all other measures to reduce emissions have been exhausted. By using verified carbon credits and prioritising emissions reduction, companies can credibly contribute to achieving net zero without engaging in greenwashing.

The Power of Green Finance

Green finance is a powerful tool for combating climate change and restoring ecosystems while offering significant economic opportunities. In places like Ireland, private investment in peatland restoration not only helps reduce greenhouse gas emissions but also supports biodiversity, improves water quality, and enhances human well-being. By utilising carbon credits and promoting responsible financial practices, green finance can unlock the potential of nature-based solutions and lead the way toward a sustainable future.

As the global demand for sustainable investments grows, the principles of green finance will continue to play a critical role in shaping a low-carbon, resilient world.