Calling something a ‘win-win’ is one of Beijing’s favorite phrases, and whether it is derided as a slogan for China’s external relations or is explained as a core principle in China’s foreign policy approach, there is no doubt that it is firmly part of Beijing’s official lexicon. Finding situations where everybody wins is not easy, especially at the global level, but with green finance, China has come quite close to fulfilling the true meaning of the term.
China’s role as a global leader in green finance really took off in 2016, when it put the topic on the G20 agenda as part of its rotating presidency. Ma Jun, chief research economist at the People’ Bank of China (PBOC), came through Hong Kong recently to talk about his experience as co-chairman of the G20’s Green Finance Study Group (GFSG). His commitment to building a green finance industry in China was clear, and his excitement about the momentum that is developing was palpable. His apparent nickname, “Mr. Green Finance,” suits him well. Ma explained that when the GFSG first started talking about the issue, there was a wide distance between those who thought that government should not do anything to promote green finance to those, like China, who thought it was an excellent use of government effort. Today, he said, convergence is starting around the idea that government can make a difference, without taking on the burden of bankrolling green investment. “A signal does not cost anything,” he declared, and governments need to send strong signals to the private sector that it supports green finance because the risks can be high.
In this regard, promotion of principles that help guide the industry are an important step at a global level, said Ma. That has started with the GFSG’s Green Finance Synthesis Report. The Report lays out options for governments to enhance the ability of the financial system to mobilize private capital for green investment, including providing strategic policy signals and promoting voluntary principles for green finance. Other options presented by the Report include ways to support the development of local green bond markets and suggestions for facilitating cross-border investment in green bonds. The report was specifically recognized by the G20 leaders in their September 2016 communiqué and Germany is supporting the Study Group’s work and expanding the initiative as part of its 2017 presidency. Through its G20 work, which it continues to co-chair with the United Kingdom, China is showing that it can lead to quality, results-driven innovation at the highest levels.
China is also leading by example. Just prior to the release of the Synthesis Report, the PBOC and other central authorities announced Guidelines for Establishing the Green Financial System. The ten guidelines rely explicitly on public-private partnerships to find the $600 billion that Ma has estimated is needed each year if China is to meet its 2030 environmental commitments. He says the central government can only contribute fifteen percent of the amount. But the central government is making tangible steps to boost the industry outside of financial support, Ma is sure to note. In Hong Kong, he highlighted the importance of rule-setting so that industry can operate, observing that it only took three months to draft a green bond catalog with (his emphasis) industry participation. The catalog, released in December 2015, set forth standards for what makes bonds ‘green,’ taking international standards as a reference point.
China’s example is making a difference. Nick Robins, Co-Director of the United Nations Environment Programme (UNEP) Inquiry into a Sustainable Financial System, calls 2016 “the best year ever for green finance,” giving credit to China for being in the “vanguard” with its program for greening the domestic financial system. Ma highlighted France’s January 2017 launch of a 22-year seven-billion-euro green bond as “an important signal in driving green finance.”
By taking up development of a green finance industry in China, Beijing is moving towards winning the battle to protect the environment. By putting the issue in front of the G20 and then driving tangible deliverables in cooperation with other governments and actors, Ma Jun and his colleagues are showing that China can wield soft power in a win-win way.