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24/03/2023

Author: Marijana Mitrović Mijatović, Director of the Department for Financial Stability, Research and Statistics

Today, financial education and financial literacy imply and include knowledge, attitudes and behaviour aimed at direct financial interest and positive impacts on the environment and social development. The collective activities of people have changed over time and led to a situation where negligent behaviour toward nature highly affects the Earth’s ecosystem. The possibilities for mitigating and remediating the resulting damage are decreasing, while there is not enough determination to limit further harmful impact through creative policies at all decision-making levels.

The financial sector plays a significant role in shaping and transforming economic activity towards sustainable principles. Today, the term “green financing” is widely used. It refers to including environmental protection elements in decisions related to payments at all levels. We cannot say that previous generations once endeavoured a lot on the implementation of promoted and declared green goals. Back then, they had not raised those goals to the present awareness level of environmental protection importance and the alarming climate change situation. Therefore, it is clear that the time for green action has come now because today’s generations have already been warned about the dangers and risks brought by climate change. Rising awareness of the need to respect nature and the limited use of resources increases concern for the planet’s well-being so that one’s behaviour, decisions and choices may affect economic and sustainable financial development.

There are several channels to transmit the green financing policy to the operational level with concrete results. Namely, the financial sector’s contribution to preserving the country’s ecosystem should be based on financing investments in the products and services output and on contributing to consumer habits changes. Banks in Montenegro approve the following categories of loans for different purposes and each of them can include a component of contributing to the natural environment preservation - liquidity for working capital; implementation of investment programmes; construction and adaptations of construction facilities; refinancing obligations towards other banks; shares purchasing; land purchasing; procurement of fixed assets; preparation of the tourist season; cash - non-earmarked loans; purchasing consumer goods; buying a car; purchasing and adaptation of apartments; loans for agriculture; loans for education, etc. By creating conditions, primarily the interest rate and loan conditions and the level of collateral, banks and other institutions can influence an individual or company to direct their behaviour towards green choices.

Specifically, what does that mean? Prioritising funding should be set through the relaxation of funding standards and conditions specifically for activities not causing damage to the environment. A systemic approach means that the supervisor and banks are involved in creating lending policy and that there are incentives in the regulatory framework for loan burdens and initiatives to finance green projects with fewer requirements and ultimately with fewer costs. Moreover, international financial institutions - creditors, i.e., sources of financing for domestic banks, already offering more favourable funds for such lending should be used. It will channel funds to final consumption towards “greener” projects. Awareness, knowledge and the spread of the “green” culture thus channel and transmit in all stages of goods production and consumption.

Namely, the leading factor in financing “green” projects should relate to environmental protection in all output stages – at the output start, using materials not harming nature (renewable energy sources power, existing waste recycling, the greater use of natural materials and equipment that does not emit harmful substances, etc.) and choosing packaging with the least detrimental impact on nature, such as paper, glass, renewable and biodegradable materials. In the marketing phase, it is necessary to show social responsibility in environmental protection through social campaigns, employee motivation, the green environment image, and promoting commuting to work by public transport, bicycles or electric scooters. The distribution phase should reduce transport with harmful gas emissions.

In their daily habits, consumers should be aware of the importance of saving and its contribution to financing and the positive impact on environmental protection on the other hand. The main lesson in reducing consumption is focusing on products’ quality, not quantity. In addition to using energy-efficient materials and products, a tip would be to use products from nature or own production, buy from local producers and spend as much free time as possible in nature.

Finally, it is necessary to show a clear example of environmental protection. Therefore, banks and other financial institutions should correct their operations and follow green principles.

This way of thinking may have its price in comfort in the short run. In the long run, applying such principles would definitely bring multiple benefits for human health and environmental protection for the entire community and future generations.