Beijing, China, November 8, 2018 - The Global Green Finance Leadership Program (GFLP, www.gflp.org.cn) held its second event this year, the Seminar on Policy Frameworks for Sustainable Finance, in Beijing on November 6-7.
Co-hosted by the Center for Finance and Development of Tsinghua University, the IFC-supported Sustainable Banking Network (SBN), and China Council for International Cooperation on Environment and Development (CCICED), the seminar convened more than 100 representatives from 38 countries and regions across the world, including policymakers, financial regulators and practitioners from the financial industry.
Pioneers and innovators in sustainable finance from central banks, governments, international organizations, financial institutions, and NGOs shared their experiences and insights and discussed future roadmaps for developing green finance policy frameworks. This Seminar was supported by the UK Government, CFA Institute, ClimateWorks Foundation, and Growald Family Fund.
Dr. Ma Jun, Director of the Center for Finance and Development at Tsinghua University and Member of the People Bank of China(PBOC)’s Monetary Policy Committee, inaugurated the event. He expects the GFLP to become a global platform for knowledge sharing and capacity building on green and sustainable finance.
“Demand for green finance capacity building is rising strongly from so many countries. It is the right time for policy makers, regulators and financiers from different countries to exchange knowledge and best practices”, said Ma Jun.
Rhys Gordon-Jones, First Secretary of the British Embassy in Beijing, advocated that with knowledge shared, new skills developed, and relationships made, the GFLP program would have a lasting impact across a multitude of national green finance programs, and the UK could contribute its expertise to this process.
Pressing Need for Green Finance and Capacity Building
Nena Stoiljkovic, Vice President for Asia and Pacific of IFC, underlined in her opening remark the vast investment opportunities in emerging markets (US$23trillion) that the Paris climate change targets could create, and the transformative potential that green finance, when supported with right business conditions and financial sector innovation, can deliver.
Paul Smith, President and CEO of the CFA Institute, challenged the industry to connect finance back to its purpose of adding benefits to the society, and to focus more broadly on the whole of ESG investing. “Asset owners and investors have a responsibility to engage; they cannot be innocent bystanders.” Said Smith.
The Making of Policy Frameworks
Since the G20 called for strategic policy signals for scaling up green finance in 2016, many countries and regions have introduced policy roadmaps for green and sustainable finance, but the lack of capacity for developing policies and products remains a key bottleneck for most countries, according to Ma Jun.
Speakers from China, EU, UK, Mongolia, France, Nigeria, and the SBN shared their first-hand experiences in developing policy frameworks in their own country and region. They identified four key elements in building an ecosystem of green finance: taxonomy, incentive, disclosure, and capacity. Many also emphasized the need to effectively engage with all stakeholders at the national, regional and international levels during the process.
Green Taxonomy Under Way
Almost all participants agree that a unified classification system (“taxonomy”) on what can be considered environmentally sustainable is a first and essential step in the efforts to channel investments into sustainable activities. Without a clear taxonomy, it is difficult for investors to distinguish between green and brown projects. The lack of definitions may also create “greenwashing” risks.
Speakers from China, Brazil, and Bangladesh, the only three countries in the world that have introduced a national definition of green loans, shared the details of their green taxonomies and the experience of developing these taxonomies.
China also has a taxonomy for green bonds, and the EU has been working to develop a standard definition and taxonomy of sustainable finance for all the 28 member countries, which is set to launch next year. China and EU experts suggested that the drafting of the taxonomy and the consultation process could be time-consuming and involve many different governmental agencies and industrial associations.
To “make one's life easier”, Ma Jun suggested that, for most of the “pure green sectors”, regulators could adopt existing taxonomies already used elsewhere, and focus their energies on the more complex issues (the few “grey areas”) that are specific for their economies.
Environmental Information Disclosure: Why & How
Policy requirements on the disclosure of environmental information, both voluntary and mandatory, already exist in many countries, but there are considerable discrepancies regarding their substance and methodologies.
During the session on Environmental Information Disclosure as a Policy Instrument, representatives from China, the UK, France, Japan, and South Africa introduced progress in their country’s disclosure requirements, and discussed how environmental information can be used to inform corporate decision-making, particularly for fixed income investors.
The China Securities Regulatory Commission (CSRC), for example, recently issued a policy that requires all listed companies to disclose environmental information by 2020. The EU is also active in promoting the implementation of the Task Force on Climate-related Financial Disclosures’ (TCFD) recommendations within all of its member countries. In addition, 10 financial institutions from China and the UK are participating in a pilot project that is expected to be a pioneer and standard-setter for information disclosure practices.
A number of participants also mentioned the challenges associated with implementing the TCFD recommendations, particularly in Africa, which ranged from the establishing the system of disclosure, coordination between financial institutions and their supervisors, and the incorporation of data into subsequent monitoring activities and analyses.
Experts stressed that many studies have showed positive relationships between ESG performance and financial performance, and a growing number of regulators – including the 19 members of the Central Banks and Supervisors’ Network on Greening the Financial System (NGFS) -- have developed or begun to develop policy signals on the need for improving environmental/climate information disclosure and for conducting environmental risk analysis by supervisors and financial firms. Meanwhile, as investors gradually acknowledge the role of environmental information in managing risks, the demand for disclosure will drive up its usage ultimately.
Capacity Building and the Role of GFLP
Recognizing the importance of capacity building for developing green finance on national, regional and international levels, representatives from Pakistan, Kazakhstan, Argentina, Morocco, and the U.S. exchanged their thoughts on the specific needs for knowledge exchange from policy makers, regulators, CEOs of financial firms and mid-level managers in the financial industry, and the difference in priorities in different countries and regions. The participants have also made specific recommendations on how the GFLP could play a more important role in organizing policy seminars, e-learning products and technical assistance programs for countries that need help.
Some participants voiced the need for more regional collaboration, e.g., in Africa or Central Asia, considering the similarities of local conditions in neighboring countries. Participants from Morocco, Nigeria, South Africa, and Ghana explicitly expressed their interests in co-hosting the African Green Finance Forum with the GFLP and launching the African Green Finance Association, which could serve as a platform for promoting green finance development and potentially a unified green finance market in the African continent.
Committed to fostering knowledge exchanges on the global scale, the GFLP announced its plan to host a few more major events on green finance that will bring hundreds of global leaders and practitioners together in 2019. These events are tentatively scheduled to be in Morocco, Astana, Chengdu and Beijing.