2020.12.02 11:29

Bringing green investment to the Baltics – what will it take?

LRT.lt2020.12.02 11:29

While in some countries, such as Sweden or Finland, green finance is often a priority when investing, consumers in the Baltic states are not as interested, according to a press release by FinTech hub Rockit.

"The Baltic consumer is very price-driven, as a result, one of the tasks of sustainable finance is to create incentives to move to more sustainable consumption and production patterns,” said Remy Salters, chief financial officer at Swedbank in Lithuania.

“One of the ways of doing that is to introduce new products,” he added. “We've introduced new lending products for solar panel installations, green leasing. We're in the process of bringing over our Nordic colleagues' sustainability-linked loans,” he added.

Although incentives motivate some of the market participants, it takes time to educate the consumer to prioritise sustainable solutions over affordable ones.

Marius Jurgilas, board member of the Bank of Lithuania, said that consumers would be more involved if they had a chance to better understand investments in sustainable finance and the long-term return.

"Only 3 percent of the population, at least in Lithuania, understand what the sustainable development goals are,” he said. “Sometimes, markets don't work for the critical reason that there are no markets.”

Read more: Lithuania unveils €6.3bn 'DNA of the Future' economic stimulus plan

Regulating green investment

Regulators such as the European Commission play a significant part in establishing sustainable finance practices in Europe and the Baltic region.

Not only are regulators needed to monitor business and governmental activities, but they also take the lead in educating and motivating consumers.

According to Marius Jurgilas, three factors are needed to ensure consumer involvement and regulatory practices.

“The first one is to assess how the financial market facilitates the risk-taking activity from the sustainability perspective. The second one is disclosure. There's a driving force of the European Commission and regulations to ensure that everything is measurable,” he said.

“The idea here is that if I can understand the impact of my financial actions, I'll be more responsible when I'm doing those. The third one is making incentives,” he added.

“Those incentives should be very pragmatic, like we're pushing the financial market participants to fund small and medium-sized businesses, we've introduced the so-called ESMs factor,” said Jurgilas.

“And maybe it's time to introduce the sustainability factor,” according to Jurgilas.

Read more: Lithuania needs ‘big, fat’ climate change tax – OECD

Sustainable finance in practice

There are examples for the Baltics to draw from.

“The case in India, there's a green bond we issued in 2019, which contributed to growing lots of mango trees, wild honey production,” said Tom Duncan, head of EarthBanc, a green digital banking platform.

“This will help bring financial yield back to investors in the green bond, but importantly, reforest mangoes which protect those communities' homes from dangerous storm surges,” said Duncan.

Similar initiatives are also gaining more attention from large corporations and traditional banks, he added.

“Multilateral banks are talking with us, we have a contract with a multilateral bank to help them come to grips with this problem. This is also how the carbon offset mechanism works, whether it's going carbon neutral or the EU target, or it's nationally defined contribution of the private markets,” according to Duncan.