Financial markets are notoriously imperfect in at least two ways. First, they deny credit seekers without valuable collateral access to the capital market, thus, violating the principle of inclusiveness. People with a low income are mostly affected by this. Second, for projects with a long time horizon and probably high positive externalities (which are hard to measure in most cases) risk assessment is very difficult and therefore, financial institutions are not willing to grant credits on this basis. But many sustainable and eco-friendly projects fall under this category.
Green Finance can make an important distribution to sustainable development of developing and emerging countries. Especially when dealing with a resource efficient economic development and the reduction of carbon dioxide emissions, the financial industry can play an important part and can influence the development path of those countries substantially.
Inclusive Finance refers to the accessibility of financial products by everyone (including poor individuals). Microcredits are one example how financial inclusiveness can be achieved; crowd-funding is another. Modern communication systems could dissolve information asymmetries, which are one reason why loans for the poor fail frequently.
Increasingly, a set of rules for the financial sector is required, which takes the objectives of sustainability and inclusiveness into account.
How to design financial governance to achieve sustainability and inclusiveness? Who should be in charge to formulate and implement such rules? How to balance the financial market’s needs for collateral and the attempt to foster green and inclusive investments?
The project group of the FMV Erenkoy Isik High School Istanbul is working on the topic “Financial Governance: Making Global Finance Inclusive and Green”. The project group is supported by an expert team of YES! 2016.
Pictures (from top to bottom): (c) Shutterstock /Florence-Joseph McGinn, (c) FMV Erenkoy Işık High School Istanbul