China Seizes Global Green Finance Leadership

By Sunny Lewis

SINGAPORE, November 17, 2017 (Maximpact.com News) – Trillions of dollars will need to be deployed each year to finance climate action and sustainability, and China is leading the way toward raising these funds, finds new research released Thursday. “China has become a new growth driver in the global green bonds market,” states the report by the United Nations‘ environment agency and the Beijing-based International Institute of Green Finance.

The report, “Establishing China’s Green Financial System: Progress Report,” reviews China’s development in green finance, and makes recommendations for future development.

The researchers found that China has established itself as a “global leader on green finance,” both domestically and internationally, but the country still faces serious challenges to mobilize its full potential.

The country’s leaders have acknowledged that the rapid growth of their economy, second-largest in the world after the United States, has brought expensive health and environmental problems to China – outdoor and indoor air pollution, water scarcity and pollution, desertification, soil pollution and biodiversity loss.

Speaking at the 19th National Congress of the Communist Party of China in October, President Xi Jinping said the construction of “ecological civilization” and the maintenance of ecological security are the keys to China achieving stable and sustainable development.

“Green finance is essential to realizing China’s national strategic objectives in green development and ‘ecological civilization,'” said co-author Wang Yao, professor and director-general at the International Institute of Green Finance, a think tank established at China’s Central University of Finance and Economics in September 2016.

“Through approaches in practicing green credit, green bonds, green insurance and industrial funds, as well as implementation at local levels, China’s green finance development has contributed significantly to social and economic structural reforms and gained widespread recognition internationally,” said Wang.

The report finds that China, which put green finance on the G20 agenda during its 2016 presidency, is following through on its political commitment to boost the financing required to do this.

Ratings agency Moody’s predicts that, globally, green bonds could exceed US$200 billion this year, driven by the Paris Agreement and reform in China.

Let’s look at China’s recent activities as a way of gauging the country’s progress.

In the first half of 2017, China issued 36 green bonds worth RMB77.67 billion (US$11.7 billion).

In one year, China’s green bonds grew in number by 278 percent and in value by 28 percent, according to the report.

There are 7,826 green and low-carbon projects, at investment of RMB6.4 trillion (US$0.96 trillion), are listed in the public-private partnerships catalogue, and 121 new green regional development funds were set up in 2016, the report states.

The green and low-carbon projects account for 57.7 percent of all the projects and 39.3 percent of the investments in that catalogue.

In addition, many Chinese provinces and cities have established regional green development funds.

By the end of 2016, 265 green funds were registered with the Asset Management Association of China; of these 215 were green industry funds, and 121 of these were established in 2016.

China has demarcated five distinct green finance pilot zones to explore different development models for the local green financial system against different backgrounds.

The Chinese government and the business community have started to attach great importance to developing a green industry chain for outbound investment.

With the Guidelines on Promoting Green Belt and Road, the APEC Green Supply Chain Network, and the Initiative on Environmental Risk Management for China’s Outbound Investment, China is going global in its green investment practices, according to the report.

The Bank of China plans to issue its third set of green bonds in the offshore markets in the near term. The bank states, “…all the net proceeds of its offshore Green Bonds issuances will be used to fund new and existing green projects with environmental benefits.”

Dr. Ma Jun, who chairs China’s Green Finance Committee and serves as special advisor to UN Environment on sustainable finance, said, “China has made huge strides through government leadership to create a domestic green finance market, and has inspired many other countries in developing a green finance policy roadmap. However, to keep this momentum going, China still needs to overcome some challenges.”

The green finance progress report pinpoints where the work needs to be done for China to establish a fully functioning green financial system.

It recommends that China clearly define the term “green.” This would lower the costs of identifying truly green projects and preventing “greenwashing,” the report states.

In this critical recommendation, the report says authorities should clarify lenders’ responsibilities, litigation eligibility, and liabilities by improving laws and regulations on environmental protection. The authors say this would urge commercial banks to incorporate environmental risk analysis into the loan application process.

The authors recommend that China set up statistical systems for green finance, and construct performance evaluation systems for local green development.

Efforts should be made to improve the green finance database and expand channels for international investors to access information about China’s green finance market to help boost their confidence, the authors recommend.

And finally, they recommend that green indexes aligned with the international market should be developed as benchmarks to attract international investors to invest in green bonds and stocks in China.

The report is coauthored by the International Institute of Green Finance of the Beijing-based Central University of Finance and Economics, and UN Environment’s Inquiry into the Design of a Sustainable Financial System.

The Inquiry was launched by UN Environment in January 2014 to improve the financial system’s effectiveness in mobilizing capital for sustainable development.

In October 2015, the Inquiry published the first edition of “The Financial System We Need,” with the second edition launched in October 2016.

The Inquiry has worked in over 20 countries and produced many briefings and reports on sustainable finance. It serves as secretariat for the G20 Green Finance Study Group, co-chaired by China and the United Kingdom, as well as for the Sustainable Insurance Forum of regulators.

In its 2017 Leaders Declaration, the G20 countries committed themselves to sustainable development, declaring, “A strong economy and a healthy planet are mutually reinforcing. We recognise the opportunities for innovation, sustainable growth, competitiveness, and job creation of increased investment into sustainable energy sources and clean energy technologies and infrastructure. We remain collectively committed to mitigate greenhouse gas emissions through, among others, increased innovation on sustainable and clean energies and energy efficiency, and work towards low greenhouse-gas emission energy systems.”

The UN Environment Inquiry and its partners this week launched another report on the state of play in green finance and upcoming investment opportunities.

On November 13, at the UN climate negotiations in Bonn, they issued “Roadmap for a Sustainable Financial System,” with the World Bank Group. This report is aimed at helping governments and the private sector design a global financial system for the era of sustainable development.

It finds that the transition toward a sustainable financial system is already taking place through the interaction of market-based, national and international initiatives.

“Sustainable growth must be the only growth option for the planet and will require sustainable financial systems that are inclusive, deep, and sound,” said Hartwig Schafer, World Bank vice president for Global Themes.

This report makes three key points:

• Policy and regulatory measures targeting sustainability have grown 20 percent year on year since 2010
• Climate action has opened up initial investment opportunity of US$22.6 trillion from 2016 to 2030
• The next 24 months are crucial to build on existing initiatives and finance sustainable development

“The financial system has enormous transformative power, and has the potential to serve as an engine for the global economy’s transition to sustainable development,” said UN Environment head Erik Solheim. “The roadmap tells us who needs to do what, and when, for this to happen. Here we can see the very real potential to improve the lives of billions of people around the world.”

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Featured Image: All three Chinese note-issuing banks are in this shot: Bank of China, HSBC (Hongkong and Shanghai Banking Corporation), and Standard Chartered Bank, at dusk in Hong Kong, July 27, 2010 (Photo by Brian Sterling) Creative Commons license via Flickr