Conceptual framework of the role of green finance in greening the economy

Abstract

This research is dedicated to highlighting the role of green finance in the environmental protection and development of the financial sector. The novelty of the research lies in the developed conceptual framework of the role of green finance in greening the economy. The conceptual framework covers three main elements of the green economy: the real green economy, green finance, and providers of green finance – the green financial sector and public funds. Conceptual framework is developed by applying the methods of content analysis and synthesis, comparison and logical modelling, model as a research design proposed by Jaakkola (2020), system test proposed by Arnold and Wade (2015) and the main features of the conceptual framework presented by Jabareen (2009). The green real economy covers green investment and public policies on greening the economies. The green financial sector and public funds provide financing for the implementation of green investments and the support of public policies. Green finance stands between these two systems. It covers financial tools and instruments that are (i) necessary to finance the green real economy; (ii) supplied by the green financial sector and governments. Matching supply and demand for financing is important for assurance of greening the economy and reaching the main goals related to environmental protection. The conceptual framework not only presents the role of green finance in greening the economy but also reveals the interconnections between the pool of different concepts. In order to achieve environmental protection goals and to reach the target effectiveness of green investments, we have to overcome a lot of challenges, such as the “greenwashing” phenomenon; pricing, forecasting, and modelling of financial instruments and tools; choosing the best (most efficient or effective) financial instrument or tool; making green finance more attractive for investors; changing the behaviour of investors towards more environmentally friendly, etc.