UK and China join forces to grow international green bond market

14 Sep 16

The UK and China are to work together to grow the global green bond market after a commitment to scaling up green finance was included in the G20 communiqué for the first time this year.

In a report published today, the two leading financial centres outlined the measures they would take to promote and remove barriers to the growth of green bonds, which will play a key role in generating the $100tn in green finance needed up until 2030.

The news comes after leaders of the world’s major economies committed to scaling up green finance in the G20 communiqué, published after leaders met in Hangzhou, China earlier this month.

A Green Finance Study Group, launched under the Chinese presidency of the G20 and co-chaired by China and the UK, has put together a report identifying the barriers to mobilising private capital to fund green initiatives.

Speaking in London today, Michael Sheren, senior advisor at the Bank of England, said that the fact the GSFG sits in the so-called “finance track” of the G20, compromised of finance ministers and central bank governors, evidences the group’s seriousness when it comes to meeting this commitment.

He said China’s first green bond, due to be listed in the UK, will “really start moving the money” to markets like London, where a broad base of institutional investors, experienced bankers and the needed infrastructure are in place.

This is a good example of how “strong policy can be quickly adapted to the real economy”, he continued, noting that China, India and other emerging markets are going to be the centres of green finance in the coming years, with 60-70% of all green finance up until 2030 likely to be within those markets.

“If we can be helpful for China, India and other emerging markets in solving the problems [with scaling up green finance], that’s an important thing for London and other financial centres of the world,” he said.

To grow the green bond market, the two nations have agreed to scale up cross-border green bond issuance, increase market awareness of the benefits of the bonds, and firm up definitions of what constitutes green finance.

Also speaking in London, Nick Robins, co-director of the United Nations Environment Programme Inquiry, highlighted that governments need to work to send strong policy signals and build the capacity of their financial sectors to manage green finance initiatives.

A recent report from the GFSG also stressed that governments have a number of options to enhance the ability of the financial system to mobilise private funds for green investment. These include: scaling up local green bond markets via the development of green bond guidelines; disclosure requirements; and through the use of demonstration bonds to show investors the benefits.

While London is already considered a world leader in green finance, enthusiasm is also growing in China, where president Xi Jinping has made growing green flows a personal priority.

Simon Kirby, economic secretary to the UK’s Treasury, confirmed today that despite turbulent change in the country recently, the UK’s new government is committed to cementing its role as a world leader in the area.

“We want to promise today that this government will back the City of London’s Green Finance Initiative all the way, champion our financial sector and go further and faster to halt climate change in its tracks,” he said.

According to Sean Kidney, the chief executive of Climate Bonds Initiative, the world needs “active, activist global leadership” in order to meet this challenge.

“The expertise on how to make things financially viable, which will lead to green solutions and will lead to green bonds, is actually the main game of the next five years. And that’s something where a partnership between the UK and China could be a game changer.

“Because of the nature of climate change, because of the speed of action required, we must run not walk.”

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