Financial institutions are increasingly grappling with the implications of climate change and striving to align their operations with environmental goals. Fostering green finance literacy, adapting to regulatory changes, developing educational tools for financial institutions, and adopting an integrated approach can better shape an environmentally sustainable future for the financial sector. Towards that end, here are four core questions to consider when engaging in green finance projects:

[Image: Left to right: two farmers, Alexis Nyamugira, and two loan officers from the Finance Trust Bank in Uganda. Photo credit: GOPA AFC.]

1. How is the project advancing green finance literacy for end users?

A major challenge – and opportunity for success of green investments – is incorporating efforts to increase end users’ green finance literacy. Elena Yunatska, Senior Project Manager at GOPA AFC, explains: “Households and micro, small, and medium-sized enterprises need to understand that making this investment in new technology or in methods to improve energy efficiency in their homes, farms, or businesses, brings positive results in the long term. These end users won’t see immediate gains but need to make the investment up-front, which is often a challenge, especially in emerging markets where political and economic situations are volatile and unpredictable.”

In Armenia, GOPA AFC’s KfW Development Bank-funded project involved – among other components – 14 commercial banks and credit organizations providing affordable loans to families for energy-efficient housing investments. In a country where political instability and geopolitical tensions in the region have impacted economic development, helping families be comfortable with long-term investing was a core element to the project’s success.

The project also contributed to establishing an energy efficiency standard for newly constructed buildings and developed an innovative web-based tool to assess and monitor the impact of green investments in the mortgage sector across the country. The data being generated by this tool will help make a stronger case for green mortgage finance and contribute to raising public awareness of the benefits of investing in energy efficiency.  

2. What is the regulatory context within which the project is being implemented, and how is that context changing?

The green finance sector is experiencing rapid growth and transformation. Regulations, energy tariffs, and trends in the financial landscape are constantly shifting, influencing the lending capabilities and risk exposure of financial institutions. Organizations and companies must navigate these evolving dynamics while also seizing the opportunity to influence and shape regulatory changes and emerging trends in the sector.

In Papua New Guinea, GOPA AFC, through close partnerships with the Bank of Papua New Guinea and the Centre for Excellence in Financial Inclusion, shaped the framework for the country’s first Inclusive Green Finance Policy. Once fully developed, this policy will be critical in supporting Papua New Guinea’s transition from a conventional to a sustainable financial system.

Financial institutions are increasingly recognizing the strategic value of integrating environmental objectives into their business development projections as a way to enhance the stability and resilience of their investments amidst the challenges of climate change. “A deliberate engagement of national stakeholders is key to ensure that advisory operations are sustainable in the long run,” says Yunatska. “Still, not everyone is convinced that green finance makes sense. But ‘green’ finance shouldn’t be considered as a separate operation. In fact, every financial solution for businesses and individuals should consider environmental and social contexts.”

3. How is knowledge sharing and capacity building being integrated into the project to ensure its long-term sustainability?

Financial development projects are uniquely complex because they involve multiple layers of stakeholders, from government and financial institutions to loan officers and end users of products and services. Beyond raising public awareness on the benefits of investing in renewable and cleaner energies and more energy-efficient technologies, financial institutions also need to be equipped with tools and expertise to ensure the long-term success of new green finance solutions.

“At GOPA AFC, we talk face-to-face with final beneficiaries, but we also train the front-line workers of financial institutions, which are the loan officers and relationship managers who travel to often remote rural areas to work with customers in the field,” explains Alexis Nyamugira, Project Manager in GOPA AFC’s Financial Sector Development department. Understanding the nuances and unique complexities of the local context is key to ensuring that the knowledge shared with loan officers and customers is adequately integrated.

On behalf of KFW Development Bank, GOPA AFC developed an e-learning course, “Climate Finance, Resilience and Financing for Biodiversity,” which has been utilized by the East African Development Bank and its partners across East Africa as a training tool for local financial institutions’ staff. “The course stimulated my awareness of financial players’ critical role in interventions geared towards biodiversity conservation,” says Kayita Dan Davis Lule, Agriculture Lending Manager at Uganda’s Finance Trust Bank.

“It will take time for financial institutions to start rewarding their loan officers based on environmental indicators rather than having incentive mechanisms that purely target financial performance,” notes Nyamugira. Trainings like AFC’s e-learning course are not only an important contributor towards that shift, but also help ensure that new staff can be quickly brought up to speed on the importance of considering the environment when offering financial products and services.

How is the project adopting an integrated approach to development?

Depending on the purpose of financial products and services, finance intermediaries intersect with other industries, such as energy, water, agriculture, infrastructure, health, and others. Therefore, adopting a holistic integrated-development approach is crucial to avoid fragmentation while maximizing the synergies between green finance and broader sustainable development goals.

To ensure that green finance projects are not being implemented in a vacuum, implementing organizations and companies need to engage stakeholders from diverse sectors relevant to the financial products and services being offered. For instance, in Moldova, GOPA AFC collaborated with the Ministry of Agriculture and local banks to support small-scale renewable energy investments for farmers on behalf of the European Investment Bank. A core component to the project’s success was the seamless integration of cross-sectoral expertise from organizations working in the financial, agricultural, and energy sectors.

As a member of GOPA Consulting Group, GOPA AFC benefits from being a member of Germany's largest group of consulting firms in development cooperation. The group combines technical specialists from various industries under one roof – infrastructure development at GOPA Infra, energy efficiency at GOPA Intec, climate change and depletion of natural resources at GOPA Worldwide Consultants, among others.

As a result, GOPA Consulting Group companies can leverage in-house expertise from diverse sectors to address the multifaceted challenges inherent in sustainable development projects. This in turn leads to more comprehensive solutions that are not only more effective but also more robust in the face of our ever-changing world.