How China became a global leader in green finance

Ahead of the Macao International Environmental Co-operation Forum & Exhibition from April 12-14, hosted by the Government of the Macao Special Administrative Region of the People’s Republic of China, Dr. Ma Jun, chairman of Green Finance Committee of China Society for Finance and Banking, speaks to Eco-Business about how China got so far ahead in green finance innovation.

Dr Ma Jun, chairman of Green Finance Committee of China Society for Finance and Banking
Dr Ma Jun, chairman of Green Finance Committee of China Society for Finance and Banking, also known as 'Mr. Green Finance'. Image: MIECF

A concerted approach to sustainable development has been gaining traction in China over the past three years and increasingly, countries in the West are looking to Beijing for cues on green investment. At the bilateral level, economic and financial dialogue between China-UK and China-France has already begun; and the Bank of England is working with China to develop green finance instruments.

One man who is frequently credited as the driving force behind China’s green finance success is Dr. Ma Jun, the chairman of Green Finance Committee of China Society for Finance and Banking.

Ma, who has been dubbed Mr. Green Finance for his work, has over the past few decades contributed to China’s finance sector through a range of roles spanning the public, private, and academic sectors, including: special advisor to the governor of the People’s Bank of China, chief economist of the People’s Bank of China, chairman of Green Finance Committee of China Society for Finance and Banking, and co-chair of G-20 Green Finance Study Group.

Ma, who is a session keynote speaker at the upcoming Macao International Environmental Co-operation Forum & Exhibition (MIECF) to be held from April 12 to 14 in Macao, tells Eco-Business in a recent interview that China’s financial sector is leading the world in green finance.

This is thanks to a concerted effort by “Heaven, Earth, and the ‘accord of Men’”, Ma tells Eco-Business, referring to policy makers, individuals, and financial institutions respectively.

“I think the Chinese government, the general public and financial institutions have vigorously supported green finance by introducing financial policies and encouraging product innovation,” he says.

He adds that a key catalyst that accelerated action on green finance in China was the PM2.5 Air Quality Index, which was a subject of numerous conversations in Beijing in 2013-2014, eventually becoming China’s call for action. It mobilised people at all levels to press ahead with green finance development.

“China has now grown into a country with the most complete set of data on the PM2.5 AQI in the world, which is released hourly in more than 200 cities across the country,” he says. “This transparency has enabled people to pay greater attention to environmental issues around them and anything contributing to the improvement of the environment, including green finance.”

In 2016, when China officially launched its green bond market, labelled green bonds issued domestically reached a whopping RMB205.2 billion (USD32.4 billion), making China the world’s largest issuer of green bonds, which accounted for 40 per cent of green bonds issued globally.

Raising China’s green finance bar

He says with some initiatives at the government and institutional level the market can grow further. For instance subsidies and incentives will make green bonds more attractive to investors. Transparency and full disclosure of environmental information will also go a long way in helping green business to flourish.

Ma says that financial institutions must also publicise the benefits of a green bond market to potential customers. “(Many) have not yet issued green bonds for lack of a clear understanding of the market and how it could benefit them.”

He adds that financial institutions and rating agencies need to clarify how green bonds can help potential customers improve their market reputation, win future customers and obtain government support for the green industry.

Standards on green bonds should be updated as soon as industrial policies and technologies change, adds Ma. This means issuers should strengthen their green performance and due diligence into projects, and maintain a high quality of assessment and certification for the bonds. Green bond issuers should fully disclose information pertaining to the use of proceeds and the environmental impact of their investments, and banks should be equally transparent about where green loans are being invested to avoid greenwashing, he recommends. A pilot program was recently launched by China-UK Green Finance taskforce, co-chaired by Ma and Sir Roger Gifford, chairman of the City of London Green Finance Initiative, to encourage disclosure of environmental information by six Chinese financial institutions and four UK financial firms.

Ma also advocates innovation in green bond products to make them more attractive to investors, through measures like securitising green assets and supporting green buildings. He suggests that more efforts need to be devoted to developing Green Asset-Backed Securities (ABS) which are supported by the cash flow of underlying green assets instead of the overall credit standing of an enterprise. Ma says: “green ABSs can create a passway for institutional investors to access a huge amount of green assets.”

At present, green credits or green bonds are mostly issued for green energy, green transport, and environmental protection, and only a very small proportion is devoted to green buildings. That needs to change, says Ma.

He suggests a two-pronged approach to encourage green buildings where on the one hand, the government strengthens the compulsory enforcement and detailed standards for green buildings and on the other, financial regulators work with ministries and commissions to explore specific measures to promote support from financial instruments such as green credits, green bonds and green building insurance.

At the investor level, Ma recommends establishing and improving the compulsory environmental information disclosure system of listed companies, bond issuers and institutional investors. He adds that long-term institutional investors with ties to the government should take the lead in facilitating green investment and the government should support third-party institutions in carrying out ratings and assessments on green assets.

Ultimately, green bonds will only move the needle on the global need for green finance if there is international cooperation to finance and develop sustainable projects, says Ma.

This would require countries to develop marketable securities in green bonds that can be traded overseas so one country can take partake of green development in another country. For instance, Chinese institutions can issue green bonds abroad and foreign institutions can issue green panda bonds in China to further expand China’s green businesses and benefit from its growth.

Indeed, many countries may want to benefit from China’s stellar growth in green finance, for as Ma says, “China’s green finance has been propelled onto a fast track.”

To hear more from Dr. Ma Jun and other renowned speakers, register for the upcoming Macao International Environmental Co-operation Forum & Exhibition (MIECF) held from 12-14 April 2018.

With an exciting lineup of an international conference, exhibition, business matching and networking activities, MIECF offers access to opportunities from the Pan-Pearl River Delta Region of China (PPRD Region), Asia-Pacific and Portuguese-speaking countries and beyond.

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