2 September 2016 - Ahead of the G20 leaders summit this weekend in the Chinese city of Hangzhou, China's State Council approved a set of guidelines described as an essential next step for implementing the country's strategy for "ecological civilization".
The decision accelerates China's existing policy of greening its financial sector. "Guidelines on Establishing the Green Financial System" were issued on 31st August by seven government agencies. These included the Peoples' Bank of China (PBoC) with which UN Environment co convened China's original Green Finance Taskforce in 2014/15. In addition, UN Environment is working with the PBoC and the Bank of England, which are co-chairs of the G20 Green Finance Study Group (GFSG).
In a statement the PBoC, said: "The Guidelines stress that the primary purpose of establishing the green financial system is to mobilize and incentivize more social (or private) capital to invest in green sectors, while restricting investment in polluting sectors."
Commenting on the importance of this area, Zhou Xiaochuan, Governor of the People's Bank of China, said: "In China, establishing a green finance system has become a national strategy."
Erik Solheim, Head of UN Environment, which is also secretariat to the GFSG, said: "The commitment by China's most senior leadership to greening the country's financial system reinforces the country's ambition to both reshape its domestic financial system and serve the needs of green inclusive development. We hope this will encourage other nations to do likewise."
A total of $600 billion per annum is needed to finance green projects such as environmental remediation and protection, renewable energies, energy efficiency and green transportation. Less than 15 per cent of this total will come from public or government sources, highlighting China's senior leadership's motivation to approve guidelines capable of retooling the country's financial system to provide the necessary investment.
The decision will reverberate among G20 leaders arriving ahead of the Hangzhou Summit beginning on Sunday. It is widely expected that green finance will be high on the agenda with G20 central bankers and finance ministers having already declared a joint determination to accelerate what the UN Environment's Inquiry called a "quiet revolution" in its first global report, The Financial System We Need, released in October 2015.
NOTES TO EDITORS
UN Environment's Inquiry was established in January 2014 with a mandate to advance options that would improve the effectiveness of the financial system in supporting sustainable development. During September, the Inquiry will:
- Support the release of the G20 Green Finance Study Group's Synthesis Report.
- Release a short briefing note about financing for sustainable development ahead of the 71st session of the UN General Assembly.
- Publish a follow-up global report looking at progress being made to align the financial system with sustainable development. Download the first report at: http://unepinquiry.org
BACKGROUND: Green finance and the G20
- It is estimated that financing for sustainable development will require annual investment flows of between $5 and $7 trillion. At present, less than 1 per cent of global bonds are labelled green and less than 1 per cent of the holdings by global institutional investors are green infrastructure assets. Only a small fraction of bank lending is explicitly classified as green according to national definitions.
- A fundamental challenge is to scale up green financing which will require the deployment of tens of trillions of dollars over the coming decade. The G20 Green Finance Study Group (GFSG) was launched in January 2016 to support the G20's strategic goal of strong, sustainable and balanced growth. Its mandate is to "develop options on how to enhance the ability of the financial system to mobilize private capital for green investment".
- "Green finance" can be understood as financing of investments that provide environmental benefits in the broader context of environmentally sustainable development. To name but a few, these environmental benefits include reductions in air, water and land pollution and reductions in greenhouse gas emissions.
- Various obstacles have been identified to scaling up green finance. These include difficulties in internalizing environmental externalities, information asymmetry (e.g., between investors and recipients), inadequate analytical capacity and a lack of clarity of green definitions.
- Options to address these challenges are emerging. Over the past decade, national-level financial sector options have emerged in many G20 countries. These include voluntary principles for sustainable lending and investment and enhanced environmental disclosure and governance requirements. International collaboration among central banks, finance ministries, regulators and market participants is also growing, focused in large part on knowledge sharing of country experiences and capacity building.
- The GFSG has developed a number of voluntary options for the G20 and country authorities aimed at enhancing the ability of the financial system to mobilize private capital for green investment. These include: providing strategic policy signals and frameworks; providing clearer environmental and economic policy signals for investors regarding the strategic framework for green investment; promoting voluntary principles for green finance; expanding learning networks for capacity building; supporting the development of local green bond markets; promoting international collaboration to facilitate cross-border investment in green bonds; encouraging and facilitating knowledge sharing on environmental and financial risk; improving the measurement of green finance activities and their impacts.
