Green fi­nance grows and flour­ishes

China Daily (USA) - - BUSINESS - By CE­CILY LIU in Lon­don ce­[email protected]­nadai­

As global lead­ers gather at the Ka­tow­ice Cli­mate Change Con­fer­ence this week, the ques­tion of how to ful­fill the Paris agree­ment com­mit­ment of keep­ing the tem­per­a­ture rise this cen­tury close to 1.5 C again en­tered the me­dia spot­light.

One unique so­lu­tion to ad­dress­ing this tough chal­lenge is green fi­nance, which has be­come a hot topic in the fi­nan­cial sec­tor, es­pe­cially this year due to its un­prece­dented growth rate.

Ten years ago, when the World Bank is­sued the first-ever green bond, it was such a nov­elty that it only at­tracted tens of mil­lions of dol­lars. In com­par­i­son, by June 2018, the world had $1.45 tril­lion of cli­mate-aligned bonds out­stand­ing.

Still, such in­cred­i­ble growth is re­ally just the be­gin­ning of the story. In late Novem­ber, a to­tal of 28 lead­ing global com­mer­cial banks signed a com­mit­ment that they would pri­or­i­tize fi­nanc­ing for en­vi­ron­men­tally friendly projects. This month, nine multi­na­tional de­vel­op­ment banks fol­lowed suit and signed their own cli­mate align­ment dec­la­ra­tion.

If all these banks keep their word, mean­ing that they pro­vide loans to green projects such as re­new­able en­ergy, elec­tric ve­hi­cles and en­er­gy­ef­fi­cient build­ings, then the world may well be on track to achieve the 1.5 C vi­sion.

China has led the growth of green fi­nance and will con­tinue to do so, for three im­por­tant rea­sons.

First, China has in­cred­i­ble po­lit­i­cal sup­port for this sec­tor’s growth at home and abroad. China be­came the first coun­try to make it com­pul­sory for all listed com­pa­nies and bond is­suers to, by 2020, dis­close the en­vi­ron­men­tal, so­cial and gover­nance risks as­so­ci­ated with their oper­a­tions.

In­ter­na­tion­ally, China has led the ad­vance­ment of green fi­nance reg­u­la­tion. In 2016, it used its pres­i­dency at the G20 Lead­ers’ Sum­mit to put green fi­nance on the agenda for the first time, and Bei­jing has since worked closely with cen­tral banks around the world to ad­vance green fi­nance poli­cies.

Se­cond, China’s large fi­nan­cial sec­tor pro­vides abun­dant room to grow green fi­nance so­lu­tions. In 2016, when China of­fi­cially launched its green bond mar­ket, la­beled green bonds is­sued in China reached a whop­ping 205.2 bil­lion yuan ($29.77 bil­lion). That made China the world’s largest is­suer of green bonds and re­spon­si­ble for 40 per­cent of green bonds is­sued glob­ally.

One of the 28 banks that promised to pri­or­i­tize green fi­nance is In­dus­trial and Com­mer­cial Bank of China, which also hap­pens to be the world’s big­gest bank by as­sets. When a large bank such as ICBC puts its mind to a green com­mit­ment, the im­pact is sig­nif­i­cant.

For in­stance, ear­lier this year ICBC launched a $1.58 bil­lion green bond on the Lon­don Stock Ex­change, which marked the big­gest green bond on the bourse. In 2016, ICBC de­vel­oped a model for en­vi­ron­men­tal stress test­ing, the first of its kind for banks. In­ter­na­tional banks and pol­i­cy­mak­ers have since taken in­spi­ra­tion from this method.

Third, and per­haps most im­por­tant, China feels a re­spon­si­bil­ity to take a lead­er­ship role on cli­mat­e­change is­sues in­ter­na­tion­ally. Many of the world’s new in­fra­struc­ture projects this cen­tury have been in­spired by the Belt and Road Ini­tia­tive and China feels it should play a role in en­sur­ing these new projects are sus­tain­able.

This mes­sage was made clear by Pres­i­dent Xi Jin­ping at the 2017 Belt and Road Fo­rum for In­ter­na­tional Co­op­er­a­tion in Bei­jing. He shared a vi­sion of green­ing the Belt and Road re­gion, and said that China will pro­vide sup­port to re­lated economies in adapt­ing to cli­mate change.

This vi­sion has gained praise and sup­port from in­ter­na­tional part­ners. The United Na­tions signed an agree­ment with China to pro­mote sus­tain­able de­vel­op­ment in con­nec­tion to the Belt and Road Ini­tia­tive, and the UK’s City of Lon­don joined the Peo­ple’s Bank of China to launch a set of guide­lines to en­cour­age banks to fi­nance green BRI projects.

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