GREEN FINANCE: CASE OF LITHUANIA

Abstract

The rapid degradation of the natural environment lays the foundation for policymakers to implement new mechanisms to stimulate the transformation of the economy. The financial system being the allocator of financial flow, the economy is able to boost the green modernisation process, and green finance is the key term in the context of sustainable development. For financial institutions, the concept is emerging as a new regulatory framework where financial intermediaries are required to accept responsibility for investing in green projects. The entire financial system hasto introduce innovative financial products into the market, and each operation must be environmentally friendly. The European Union is issuing a lot of new documents and regulations to force structural changes for the entire financial system. In this context, Lithuania is ambitious to be a leader in developing green finance in the region. Lithuania has drafted the Strategy and Action Plan (2021) for developing green finance in the country and pursuing to be a hub for sustainable finance locally and internationally. The foundation of the new Green Institute is the main element for creating new knowledge of this phenomenon. Based on such external context, the article aims to evaluate the progress of Lithuania in the greening financial system. Two objectives were set: to discuss the definition of green finance and the theoretical background of green financial products; based on theoretical observation, describe the current level of the development of green finance in Lithuania. The authors used the scientific analysis of literature and comparative analysis of statistical data from the Bloomberg database for 2009-2022. The research revealed that despite the ambitious goal and the high quality of the Strategy and Action Plan, Lithuania is not currently the leader in providing real green financial products, even among the Baltic countries. The Baltic financial market is very small and inconsistent, hence not attractive to investors. The public sector should significantly improve the process following the Strategy and Action Plan over the next two years.