Press release from the Center for Finance and Development, Tsinghua University
For immediate release
35 Countries Join Global Green Finance Leadership Program in China
(May 26, 2018 Beijing) The Global Green Finance Leadership Program (GFLP) was launched earlier this week in Beijing by the Center for Finance and Development of Tsinghua University in collaboration with the IFC-supported Sustainable Banking Network (SBN) and China Council for International Cooperation on Environment and Development (CCICED). After six days of intensive in-house discussion and site visits in Beijing, Huzhou and Shanghai, the program came to a successful conclusion.
The GFLP is developed as a platform for knowledge-sharing and capacity building on topics related to green and sustainable finance. This inaugural event last week has attracted 120 policy makers, financial regulators and practitioners from over 35 countries in Asia, Africa and Latin America. Experts from regulators as well over 50 international organizations and commercial entities, such as the Chinese central bank and regulators, UN PRI, Climate Bonds Initiative, ICMA, New Development Bank, China Development Bank, Silk Road Fund, UNCTAD, Inter-American Development Bank, AIIB, Asian Development Bank, ICBC, Natixis, SEB, MSCI, S&P, APG Asset Management, Hermes, BlackRock, UNFCCC, Mizuho Bank, the World Bank and Ant Financial presented their green finance initiatives and shared best practices with the participants.
Urgency of green finance
The program started with a few keynote speeches including those by Dr. Zhu Min, President of Tsinghua National Institute of Financial Research and former Deputy Governor the PBOC and former Deputy Managing Director of the IMF; Dr. Ma Jun, Director of Center for Finance and Development at Tsinghua University and Chairman of China Green Finance Committee and Co-chair of G20 Sustainable Finance Study Group; Mr. Peter Betts, Director of International Climate and Energy of the British Government; and Mr. Kairat Kelimbetov, Governor of Astana International Centre and former Governor of the National Bank of Kazakhstan. The keynote speakers highlighted the urgency of fighting climate change and addressing the pollution problem through collective action and knowledge sharing of innovative financial schemes and instruments. “China has been actively promoting international cooperation to fight climate change. Over the past few years, China has also developed some unique practices in greening its financial system. Knowledge sharing on green finance can help speed up the development of the green financial system”, said Dr. Zhu Min.
Policy signals and coordination are key to success
The discussion on establishing national roadmaps for green financial systems identified a number of barriers related to regulatory policies, green definition, awareness raising, capacity building and data collection. Dr. Ma Jun, who led the drafting of China’s green finance guidelines in 2015-16, shared China’s practical experience in overcoming these barriers. “It was extremely important for senior government leaders at the highest level to send a strong policy signal to regulators and market participants on the importance of green finance to the economy. Policy coordination among ministries, development of taxonomies, and information disclosure are also key to success,” he highlighted in his speeches.
Ye Yanfei, Director General at China Banking and Insurance Regulatory Commission, shared China’s experience in greening the banking sector. He said that the NPL rate for green credits is much lower than for non-green loans, which proves the benefits of extending loans to green business. The discussion on green banking culminated on lender’s liability, which is viewed as a useful legal measure by some motivate banks to curb lending to polluting sectors. “But in crafting such a legal framework, it is important to well define the scope of liability and the due diligence requirement for banks, otherwise the introduction of lender’s liability may lead to credit grudging”, said Ma.
Environmental stress tests already underway
Presentations by the Industrial and Commercial Bank of China (ICBC) and the Dutch Central Bank illustrated how environmental risk analysis could enhance financial firms’ ability to manage environmental risks and to encourage greening of their portfolio. At the event, ICBC demonstrated how it has conducted environmental stress tests on its loan portfolio, showing rising NPL ratios for loans to polluting sectors such as coal-fired power sector on assumptions of tougher environmental regulations and carbon price increases. The Dutch central bank (DNB) presented its scenario analysis on how climate changes may impact financial institutions especially insurance companies.
Potential for green bond issuance to grow ten-fold
According to Sean Kidney, CEO of Climate Bond Initiatives, the green bond market took off over the past couple of years, with China and the US leading the global market. The Chinese experience demonstrates that developing a clear green bond taxonomy, verifiers, and disclosure rules will help avoid the problem of green washing and also paves the way for smooth accreditation and verification on bond issuance and proceeds management. A policy innovation in China is preferential treatment of the banks that have issued and hold green bonds – they enjoy better weights in macro prudential assessment (MPA) and are allowed to use their green bonds as collateral for borrowing from the central bank at preferential rates.
Christopher Kaminker, Head of Sustainable Finance Research at SEB, told the audience that although green bond issuance is only about 1% of global bond issuance today, this ratio is some smaller European countries have exceeded 10%. This, together with the rapidly rising demand for green assets including green bonds, suggest that “the green bond market have the potential to grow 1000%”, a statement made by Zhu Min in his opening remarks
Strong trends of ESG investing
On the institutional investment side, there is a strong momentum of asset managers incorporating ESG into investment decision making. The cases presented by APG, Blackrock, Hermes, and Hwabao during the 6-day GFLP demonstrate that a holistic approach that caters to SDGs does not compromise financial performance; on the contrary, it enhances the investors’ ability to manage environmental and social risks and thus gaining a competitive advantage on long-term investment return. In parallel, regulators in many countries such as China, India, Indonesia, Singapore and South Africa are beginning to require companies to disclose ESG information and thereby making information available for ESG investment.
Green finance is doable: eye-opening experience from Huzhou pilot program
In Huzhou city of Zhejiang Province, one of the cities and provinces selected to pilot green finance in China in 2017, the GFLP participants witnessed green finance in action.
Many initiatives contained in the 2016 China green finance guidelines, including Green Macro-Prudential Assessment (high MPA scores for banks with better green performance), PBOC green relending facility (low-cost liquidity provided by the central bank to commercial banks for green loans), interest subsidies for green projects, first-loss guarantees for green loans, and government-backed green funds are already implemented in Huzhou with concrete results.
In site visits to a roof solar project and an industrial park, the GFLP participants witnessed local banks’ green financing business such as “solar project loans” and “green industrial park loans”, supported by government guarantees and interest rate subsidies. For the solar projects funded by “solar loans”, the project owners do not have to invest their own money, as project cash-flows can fully cover repayment of interests and principals.
Another innovation that impressed many GFLP participants is the “green loan match-making platform” launched by the Huzhou government, which uses Internet and big-data technology to connects green corporate borrowers with green loan products from banks with a substantially reduced processing time.
The successful application of green finance boosted many participants’ confidence on its feasibility. A senior central official from a central Asia country reflected on his Huzhou trip: “the Huzhou visit was eye-opening, as it completely reversed by my previous impression that green finance was too complicated. The Huzhou experience showed me that it is very doable”.
On day-6, the GFLP brought the participants to meet with the Shanghai Green Finance Committee, the New Development Bank, the Shanghai Stock Exchange, and Ant Financials in Shanghai Tower, the tallest green building in the Pudong area of Shanghai. Mr. Leslie Maasdorp, Vice President of the NDB, told the participants that multilateral development banks and international collaboration forums can play a catalytic role in mainstreaming sustainability, and policy changes and regulation can do a magic job in kicking off green finance. “This was clearly demonstrated in 2016 when China decided to put green finance on the agenda of the G20 Summit in Hangzhou”, he said. “The G20 Green Finance Study Group co-chaired by Dr. Ma Jun played a tremendous role in catalyzing policy changes and starting a green revolution in the major economies and developing world.”
Financial institutions based in Shanghai are driving green finance with many product innovations. Clair Liu, head of international business of Shanghai Stock Exchange elaborated the exchange’s experience in promoting environmental information disclosure, green bonds and green index development. Helen Huang, CEO of Hwabao Asset Management shared with the participants the company’s experience in developing green portfolios that can significantly outperform traditional indices and reduce volatilities. Ant Financial’s Representative presented the company’s innovative internet payment and micro lending services which have now reached 800 million customers globally. Ant Financial has also developed an innovative system for calculating the carbon footprint of a few hundred million customers, which could provide the basis for a green finance business with consumers.
In closing the week-long program, Ma Jun summarised several key factors for successful building of a green financial system. First, the governments must attach great importance to green finance and send a strong signal to business and society; Second, green finance associations, networks, and alliances can play a key role in promoting consensus on green finance in countries and globally; Third, the government should allocate some fiscal and policy resources to catalyze and mobilize private capital; Fourth, both governments and financial institutions must nurture innovative capacity in system design and product development, and should attract, develop and retain talent who understand how green finance works.
Future of the GFLP
During the entire program, participants expressed great interest and enthusiasm in its content, deep interactions with speakers, as well as the field trips. The overwhelmingly positive feedback from the 120 participants - mostly from developing countries - was that the program substantially boosted their confidence in the feasibility of introducing green financial policies in their own countries, it reinforced their understanding of the environmental benefits that green finance can deliver to the society, and, made them significantly more aware of the availability of impressive capacity building resources from the GFLP and its knowledge partners.
Participants are hoping that the GFLP will deliver more capacity building services in the future. “This kind of knowledge-sharing is critical for scaling up green finance at the global level”, one participant said, “please take the program to my country”. Representatives from countries including Pakistan, Mongolia, Indonesia, and Egypt have requested specific knowledge sharing collaborations with the leadership program.
At the request of the participants, Ma Jun announced the establishment of nine working groups led by them – to discuss issues such as green taxonomy, financing green agriculture, financial green SMEs, green incentives, and green fintech applications. He said that the program would deliver more knowledge exchange activities and further develop its website (www.gflp.org.cn), newsletters and e-learning products. “I expect the leadership program to become a global knowledge sharing platform and play a key role in catalyzing policy changes and product innovation in green finance”, Dr. Ma said.
About the Center for Finance and Development of Tsinghua University
The Center for Finance and Development of Tsinghua University, led by Dr. Ma Jun, sponsors and conducts research and capacity building programs with the aim of addressing practical policy issues in area of finance and sustainable development. Its current research priorities include green finance, global financial governance, financial risks, and investment in the Belt & Road region. Dr. Ma is also the Chairman of China’s Green Finance Committee, Co-Chair of G20 Green/Sustainable Finance Study Group, and member of the Central Banks and Supervisors Network on Greening the Financial System (NGFS).
About the SBN
The Sustainable Banking Network (SBN) is a knowledge and capacity-building platform of financial regulators, banking associations, and environmental regulators from emerging markets committed to developing sustainable finance frameworks based on national context and priorities, as well as international good practices. The International Finance Corporation (IFC) acts as the Secretariat of the Network, playing the role of facilitator and technical adviser to the SBN. For more information, please visit www.ifc.org/sbn.