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INTEGRATING INCLUSIVE GREEN FINANCE POLICIES INTO NATIONAL FINANCIAL INCLUSION STRATEGIES
In the past, financial policymakers and regulators, handled green finance and inclusive finance mostly as two separate agendas. But there is an increasing awareness among financial regulators on the links between the effects of climate change and the stability of the financial sector. Moreover, key target groups for inclusive finance (women and youth), tend to be disproportionally exposed to the risks and impacts of local and global environmental changes while also playing an important role in mitigating environmental change.25 The actions financial policymakers and regulators can take include: enhanced monitoring of climate-related risks through adequate mappings and stress tests; developing new methodologies to improve the assessment of climate-related risks; inclusion of the ESG criteria in their pension funds; helping to develop and assess the proper taxonomy to define the carbon footprint of assets more precisely (e.g. “green” vs. “brown” assets commonly known as “greenwashing”); working closely with the financial sector on disclosure of carbon-intensive exposure to assess potential financial stability risks, and focusing resources on studying how prudential regulation can address the financial stability risks linked to the impacts of climate change. Additionally regulators in the AFI network have begun responding – often in an urgent matter –with strategies, policies and regulations to mitigate and build resilience against the impacts of climate change in their respective countries. There is also a growing recognition of the intersectional nature of these policies and regulations, and the need to build in gender sensitivities from the outset.26
B. INCLUSIVE GREEN FINANCE
This guideline note aligns most of its components to AFI’s 4P policy framework (promotion, provision, protection, prevention) on Inclusive Green Finance. Although financial regulators have taken a variety of approaches to advancing IGF, they have found that there is often no need to reinvent the wheel. Often, existing policy tools and techniques for low-income populations and micro, small and medium enterprises (MSMEs) can be refined and repurposed with a gendersensitive and green focus. This allows policymakers to act swiftly while laying the groundwork for innovative policies. These policies are presented here in the IGF framework: Promotion, Provision, Protection and Prevention, known as the AFI 4P framework. All policies under the 4Ps either catalyze financial services from the private sector or use financial infrastructure to deploy finance for climate action and some of them are interrelated .27 Although these four categories sometimes overlap, the 4P policy framework provides financial regulators with an intuitive way to think about the full range of policy actions they can take for IGF.
Many AFI network members have indicated that climate change is a problem in their country which imposes a high cost on low-income and vulnerable populations. Some expressed concerns that, in extreme cases, climate change could undermine financial stability so regulators would need to step in where disruptions could spread. Therefore, there is an emerging trend in the AFI network to link financial inclusion and climate change on a national strategic level, either via an NFIS or other financial sector strategies, to formulate a holistic policy for the national financial sector.
25 Banque de France. 2020. Bolton, P., Morgan Despres, Luiz Awazu Pereira Da Silva, Frédéric Samama & Romain Svartzman. The green swan: Central banking and financial stability in the age of climate change. Available at: https://www.bis.org/publ/othp31.pdf 26 AFI. 2020. Inclusive Green Finance: A Survey of the Policy Landscape (Second Edition). Available at: https://www.afi-global.org/publications/ inclusive-green-finance-a-survey-of-the-policy-landscape-secondedition/ 27 AFI. 2020. Inclusive Green Finance: A Survey of the Policy Landscape (Second Edition). Available at: https://www.afi-global.org/publications/ inclusive-green-finance-a-survey-of-the-policy-landscape-secondedition/
