The European Green Deal programme, adopted as its main strategy by the European Commission, affects the EU's financial and fiscal policy. At the same time, the importance and role of central government in boosting environmentally sustainable investments strengthens in Finland.
Boost from state ownership policy and leverage from central government funding
According to the government resolution (2020), the government as a shareholder requires companies to demonstrate strong corporate social responsibility. For example, companies must identify the impacts of their operation on climate, the environment and biodiversity and set ambitious measurable goals in relation to reference companies. They must report the measures they have taken and the achievement of measurable goals to the owner.
The state-owned companies with special assignment form a category of their own. Finnvera, which provides guarantees for risks related to export financing reports that it updated its management of environmental risks in 2019. Finnfund, which offers investment loans and risk capital for projects private companies carry out in developing countries, reported in May that its investment portfolio had achieved carbon negativity. The state-owned venture capital investment company Tesi (Finnish Industry Investment Ltd) appears to be still considering the situation.
The most recent newcomer is Climate Fund, which was founded in 2020 to replace the Finnish State Development Company Vake Oy. It funds larger projects aimed at combating climate change and boosting low carbon solutions in industry. The funding takes place either as a capital loan or through special financing instruments, and the prerequisite is that it would not be possible to implement the project – at least not on an equally large scale – without the input of the fund.
The Developing Finland’s Sustainable Finance Ecosystems project coordinated by the Ministry of Economic Affairs and Employment develops tools that companies can use to measure effectiveness and take advantage of sustainable development funding. The aim is to pilot solutions in projects concerning offshore wind power, water solutions that are sustainable from the point of view of climate, and sustainable production of food protein, among other things. The aim is also to provide the public sector with capacities to introduce financial instruments that boost investments in sustainable development.
Environmental risks are also examined by the NAOF
As the operating environment changes, the National Audit Office also examines environmental risks and responding to them as part of the economy as a whole. For example, we can check whether the use of central government funds meets the environmental criteria set for it. Or whether the criteria are suitable for ensuring and verifying the desired result in the first place. For example, whether it is possible to use the set climate criteria to measure not only the used amount of money but also the actual climate impacts achieved with the funds.
We can investigate the coherence of the activities. We can examine the mutual synergies of different policy goals, and possible unwanted side effects and external costs. This is important in situations such as when the root causes of the problem that should be solved with the funding are spread across several sectors. For example, the objective to halt biodiversity loss cannot be achieved merely by financing environmental protection. Sometimes, the fragmented use of central government finances and partial optimisation by individual actors impairs effective use of funds.
We also try to look at matters from a more long-term perspective. For example, how it can be ensured that the investments are economically sustainable or continue after the funding has ended or that the current recovery measures are not just emergency aid to boost the economy but genuinely improve the sustainability of the general government finances and the green transition also in the long term.
This is the latter part of the two-part blog series on greener fiscal and financial policy. Read the first part here: Environmental aspects becoming part of fiscal and financial policy – European Green Deal speeds up the change.