China has been a pioneer in green finance and fintech solutions. So what can Europe learn from China, and how can the two collaborate to help drive ESG investment?
The Chinese Finance Forum on Tuesday, held by Luxembourg for Finance with a number of partners including the Financial Times, aimed to answer some of these questions.
It’s indeed a challenging time: just last month China’s premier Li Keqiang said it would be “very difficult” to maintain its 6% growth rate. Trade wars with the US have intensified, adding pressure on the world’s second economy. But the country is also opening up: earlier this year, China announced it would lift some of the foreign investment restrictions in 2020, earlier than expected.
As Dr Ma Jun, director of the Centre for Finance & Development, Tsinghua University, and co-chair of the G20 green finance study group explained during one of Tuesday’s keynotes, there will be mandatory disclosure requirements for companies listed in China in 2020 as a means to keep the market transparent.
Europe is currently working towards a green taxonomy, and both Jun and finance minister Pierre Gramegna, also a keynote speaker, agreed that harmonisation of green standards will be increasingly important moving forward, particularly in the face of growing climate concerns.
Anthony Hobley of Carbon Tracker, London, reminded participants of Greta Thunberg’s activism.
“Financial markets are critical,” he said, in dealing with what he called the “existential crisis” of climate concern. China has been what he termed a “powerhouse in green finance”, despite concerns with the country’s Belt and Road Initiative which, according to the World Bank, sees projects planned or underway to the tune of $575bn, ranging from railways to ports and other infrastructure.
Hobley questioned whether it would be possible to scale at speed so all finance becomes sustainable without the need to label it as such.
“China has one of the most important green bond markets,” said Julie Becker, Luxembourg Stock Exchange, who was instrumental in the creation and setup of the Luxembourg Green Exchange.
She added that the total issuance of new green bonds in the first half of 2019 reached $21bn, or +60% compared to the same period last year. But of this, only 15% were issued outside of China. Nevertheless, as Esther Law (Amundi) pointed out, there was an increasing demand and by 2021 there was a target for all funds–green or not–to be fully ESG compliant.
With the Shanghai bond channel, international investors not only have access to information and pricing in English, but there is the aim to close the information gap on Chinese domestic green bonds and securities, simplify execution and encourage the convergence of standards to harmonise green finance taxonomy.
Becker added that she was “absolutely convinced” that investment could eventually all be green by default, with a caveat: “We need a quick change of mindset and education. 68% of investors are still very confused about sustainable investment terms.”
Multilateral institutions may also help bridge a gap. Aldo Romani, EIB head of sustainablity, was part of the high-level committee charged with cataloguing China taxonomy back in 2017 “with eyes for a shared approach on green and sustainable activities.”
The EIB was itself a pioneer in the green bonds market, having issued in 2007 the world’s first climate awareness bond, which has helped over 160 renewable energy and energy efficient projects globally. Romani called for a cross-fertilisation approach but added that there was a “need to agree on core features and sustainable objectives with a cooperative approach. This is the essence of healthy markets.”