Imagine the train that you take to get to work or to travel not running, or that the buses are charging increasingly high fees. While these might sound impossible, it is a potential concern faced by the DC transit system. As the Washington DC region’s transit system struggles to regain ridership to pre-pandemic levels, it is facing a $750 million budget shortfall in 2025.

So how can they keep the public transportation system, a relatively environmentally clean way to travel, operating with such an enormous budget cut? Perhaps, green finance may offer the answer. 

What is green finance? According to the United Nations, green finance is financial flows/investments from private and public sector entities (governments, central banks, corporations, households, and international organizations) to sustainable environmental projects. These investments can come in many different forms. Funds for green finance can come from private investors, institutional investors such as insurance companies or venture capital firms, and even the government, like the Inflation Reduction Act of 2022 which is aimed to incentivize green projects. There are many ways in which green finance can happen and green projects can be supported. 

This is exactly what the Washington Metropolitan Area Transit Authority (WMATA) did. It sold a $798 million green bond, financed by both institutional and individual buyers, to raise money. Specifically, the bond will be used to create “a 100% zero-emission bus fleet by 2024, deliver 10 megawatts of renewable energy to local communities, and finance a plan to annually reduce the authority’s carbon dioxide emissions by 160,000 metric tons by 2025”, all of which are detailed in the bond documents to assure investors that the money will actually go toward environmental or social purposes.

Opportunities for green finance are growing rapidly. For example, climate start-ups in the US raised nearly $20 billion last year, topping 2021’s high of $18 billion and nearly tripling 2020’s $7 billion. And 135 funds focused on climate investing have been created since 2021, managing $94 billion of assets.

When we think about sustainability, we often associate it with sustainable actions such as recycling or taking public transport instead of driving to work. But some consequential ones are these investments: At the end of the day, it would be bizarre if we commit to all the environmentally friendly actions, but unknowingly invest in Exxon through a pension fund. Sustainable actions aren’t just choosing to ride the transit but also investing in ways that enable the transit to run or to run cheaper so that everybody has a way to access them. This semester, I will explore how climate change is an engine for economic growth, and how we can support the green transition through our financial decisions as well.