Green Financing Grew 100x in a Decade: Here Is How Businesses Can Tap Into It

Green financing is a term that refers to the use of financial resources to support projects or activities that have a positive environmental and social impact.

Based on a report from the Global Sustainable Investment Alliance, at least $30.7 trillion is invested in sustainable or green investments, up 34% since 2016. These figures show that there is a growing demand and supply of green financing across various sectors.

In this article, we will delve into the intricacies of green financing, exploring its advantages and obstacles, and highlighting instances of successful green finance initiatives globally.

What is green financing? 

Green financing is a financial concept that revolves around creating and distributing financial products and services to encourage investments with environmental considerations. 

In a broader sense, it signifies financial investments directed towards sustainable development projects, specifically those related to the environment and policies supporting sustainable economic development.

Green financing differs from traditional financing methods in several ways, such as:

• It emphasizes the environmental and social outcomes of projects or activities, going beyond mere financial returns.
• It mandates greater transparency and disclosure from issuers and investors regarding the environmental and social performance of their investments.
• Involvement in green financing may carry higher risks and lower returns compared to traditional methods due to less available information about the environmental and social impacts of certain projects or activities.

Green Finance vs. Sustainable Finance

Green finance is often used interchangeably with sustainable finance, but the two are not the same.

A green bond is always a sustainable finance instrument, but a social bond funding affordable housing is not green finance.

Types of green finance

Some examples of green financing instruments are as follows:

• Green finance loans: These loans fund projects or activities with positive environmental or social benefits. For instance, a bank might extend a loan to a solar energy company for installing rooftop solar panels.
• Green bonds: These are debt securities issued by governments, companies, or other entities to gather funds for projects or activities with positive environmental or social benefits.
• Green funds: Investment vehicles that channel funds into assets contributing to positive environmental or social outcomes. An investor, for example, could purchase shares in a green fund specializing in renewable energy companies.
• Green insurance: Insurance coverage protecting against losses or damages arising from natural disasters or climate change events. An insurance company might offer a policy covering crop failure due to drought.
• Green derivatives: Financial contracts deriving their value from assets with positive environmental or social benefits. For instance, a trader might acquire a futures contract related to carbon emissions reduction.

Benefits of green financing

Adopting green financing delivers advantages that go beyond environmental compliance, from operational efficiency to workforce growth to broader social impact. Some of the key advantages include:

• Cost savings: Green loans and sustainability-linked bonds typically carry lower interest rates and extended repayment terms, while reducing long-term exposure to penalties tied to environmental regulation breaches.
• Environmental impact: Capital channeled through green finance directly funds decarbonization initiatives, such as renewable energy installations, energy-efficient infrastructure, and carbon capture projects,  translating into measurable GHG emissions reductions.
• Reputation and stakeholder trust: Green financing signals a company’s commitment to ESG principles, attracting sustainability-conscious investors, customers, and regulators who increasingly scrutinize environmental performance.
• Job creation: Investment in renewable energy and green infrastructure generates employment across manufacturing, installation, maintenance, and financial expertise at scale.
• Social equity and energy access: Green financing extends the low-carbon transition to underserved communities through microcredit, off-grid solar, and clean transport — making economic growth more inclusive alongside more sustainable.

At a global scale, the impact is already measurable:

Baca Juga: Environmental, Social, and Governance (ESG) for Sustainable Business

How green financing supports sustainable projects

Money acquired through green financing can be directed towards sustainable projects. The following methods illustrate how this can be achieved: 

1. Support the public sector

Utilizing green finance to back public sector endeavors concentrating on sustainability is one avenue. It extends to aiding regulatory enhancements that endorse eco-friendly practices, for example, energy efficiency. 

Moreover, it facilitates aligning financial decisions in the public sector with the environmental aspects of the Sustainable Development Goals.

2. Promote public-private partnerships

Green finance can be used to support joint efforts between the public and private sectors, like building environmentally friendly toll roads or power plants driven by renewable energy. 

Moreover, it promotes initiatives to share best practices among public and private entities, which could include organizing conferences, workshops, or training programs to improve understanding and involvement in green projects.

3. Community empowerment

Green financing can empower community businesses through microcredit, providing small loans to individuals or small business groups for green initiatives such as organic farming or renewable energy projects. 

It also includes offering technical guidance in implementing green technology and sustainable business management, tailored to the needs and potential of local communities.

Green Financing Regulations in Indonesia

Businesses operating in Indonesia navigate green financing within a structured regulatory framework anchored by three OJK instruments.

• POJK No. 51/POJK.03/2017: Requires financial institutions, issuers, and public companies to implement sustainable finance principles, including sustainability reporting and environmental risk management.
• Indonesia Green Taxonomy / TKBI (2022, updated 2024): Classifies 2,733 economic sectors into green, transition, and non-qualifying categories, serving as the practical reference for determining project eligibility and avoiding greenwashing claims.
• POJK No. 60/POJK.04/2017: Governs green bond issuance specifically, setting requirements for eligible environmental activities and capital-raising terms.

For businesses seeking green financing, alignment with these regulations is not optional. It is the baseline lenders and investors will check before committing capital.

Companies in Indonesia who Implemented Green Financing

Several companies that have successfully implemented green financing in Indonesia are:

1. Bank Mandiri

Bank Mandiri is actively creating a range of sustainable offerings, including funding options like sustainability bonds and green bonds, as well as ESG reports. Additionally, the bank is involved in sustainability projects and facilitates consumer credit for the acquisition of solar panel and electric vehicles. 

2. Unilever

Unilever has committed to investing €1 billion (£900 million) over the next decade in environmental initiatives aimed at enhancing the overall health of the planet.

The allocation of its €1 billion “Climate & Nature Fund” is to support a diverse range of projects, including landscape restoration, carbon capture, wildlife protection, and water preservation. Additionally, the company commits to achieving a “deforestation-free” supply chain within the next three years. 

Risks and challenges associated with green finance

Green finance, while contributing to sustainable development, encounters various risks and challenges. These include:

1. Limited number of sustainable projects 

The first challenge is the limited number of sustainable projects in Indonesia. This may be due to a lack of awareness or incentives to shift to more environmentally friendly practices in various sectors.

Efforts are needed to increase understanding and support for sustainable projects across sectors. This could include outreach, government incentives, or campaigns highlighting the positive benefits of adopting environmentally friendly practices.

2. Relatively low green financing portfolio

The portfolio dedicated to financing sustainable projects remains relatively small, underscoring the need for further development of financial options that endorse environmentally friendly business practices.

Diversifying and creating more flexible green financial instruments can be the way to fix this. This could involve introducing specialized financing schemes, offering tax incentives, or fostering the growth of greener financial markets.

3. Insufficient supporting data

A lack of adequate data on sustainable projects can be an obstacle in identifying, assessing and monitoring the impact of sustainable business practices.

Companies need to invest more on the collection and distribution of accurate and relevant data on sustainable projects. This will help stakeholders make more informed decisions and support the overall development of green finance.

4. Greenwashing risk

Not all financing marketed as “green” delivers genuine environmental impact. 

To mitigate this, businesses should align with the Green Bond Principles (GBP) or Green Loan Principles (GLP) maintained by ICMA, which set requirements for use of proceeds, project evaluation, and independent reporting.

How to access green finance

To access eco-friendly financing, entrepreneurs can follow these steps:

1. Identify eco-conscious projects

Recognize initiatives that align with the environmental goals of green financing providers or programs. The project should offer clear environmental advantages, such as reducing greenhouse gas emissions, conserving energy, preserving water, or enhancing biodiversity.

2. Develop a project proposal

Articulate the objectives, scope, costs, benefits, risks, and anticipated outcomes of the eco-friendly project. The proposal should also showcase how the project adheres to relevant environmental standards and regulations.

3. Submit an application

Seek a loan or potentially a green bond from a suitable green finance provider or program. The application should encompass details about the company’s financial performance, creditworthiness, and track record in environmental stewardship. Additionally, it should present evidence of the environmental benefits and impacts of the proposed eco-friendly project.

4. Negotiate terms and conditions

Engage in negotiations regarding the terms and conditions of environmentally conscious loans or bonds with the relevant financing provider or program. These terms and conditions may vary based on the nature and scale of the green loan or bond, including:

• Loan or bond amount and duration
• Interest rates and payment schedule
• Utilization of proceeds and allocation criteria
• Reporting requirements and verification methods
• Monitoring and evaluation mechanisms
• Exit strategies and contingency plans

Start green financing in your company with the right foundation

Green financing is no longer a niche instrument. It is becoming a baseline expectation for businesses that want to remain competitive, attract capital, and contribute meaningfully to sustainability goals. 

From aligning with OJK regulations to meeting international standards like the Green Bond Principles, the groundwork a business lays today directly determines its ability to access green capital tomorrow.

Executing on that groundwork requires more than financing alone. Businesses need digital infrastructure that connects financial data, automates reporting workflows, and gives decision-makers a consolidated view across functions. 

Mekari’s unified software ecosystem automates business processes, streamlines workflow integration, and consolidates operational data into intelligent reports that support faster, more informed decisions.

Accelerate your sustainable business strategy with Mekari unified software ecosystem right now!