Washington DC: A couple of blocks down from the White House, the World Bank and IMF buildings on Pennsylvania Avenue were buzzing last week with activity, as top policymakers, private sector actors, development banks, and civil society organizations descended on the city for the annual World Bank/IMF Spring Meetings this week.
On the Wednesday we gathered a top cast for our own event, “Scaling up Debt Capital Markets for Sustainable Development”, organized together with the World Bank Group, OECD and the UNEP Inquiry into the Design of a Sustainable Financial System. We had over 40 people around the table, including:
• Ma Jun, Chief Economist at People's Bank of China
• Mario Sergio Vasconcelos, Febraban, the Brazilian Banking Association
• Evelyn Hartwick, Senior Finance Officer, IFC
• Christopher Knowles, Head of Climate Change & Environment, European Investment Bank (EIB)
• Shaun Tarbuck, CEO, International Cooperative Mutual Insurers Federation (ICMIF) (representing US$8 trillion of assets)
• Charles Haswell, HSBC Global Head of Financial Sector Policy
• Kenneth Lay, ex-World Bank Vice President and Treasurer, now at Rock Creek Group
• Peter Ellsworth, Ceres Investor Network on Climate Risk
• Brooks Preston, Vice-President, US Overseas Private Investment Corporation (OPIC)
Our co-convenors – Nick Robins, Alison Harwood and Chris Kaminker – were of course also in the room, along with representatives from the World Bank Group, the InterAmerican Development Bank, the European Central Bank, Willis Re, the World Resources Institute and Ceres.
The workshop was Chatham House Rules, so unfortunately we cannot disclose all the juicy details, but we can assure you it was all incredibly exciting for the green bond agenda going forward! We'll be feeding the discussion into a series of reports coming out in coming months.
To give you an idea of the level of ambition around the table with just one example we can disclose that Chief Economist from People’s Bank of China, Ma Jun — our hero since he declared his support for green finance and green bonds last June — continued to raise the benchmark for government action by offering concrete examples of what China is doing to push green finance and green bonds at scale and speed.
Preferential risk-weighting for green bonds in capital requirement ratios is no longer just a nice idea; the discussion about implementation is underway. Same for tax incentives that will make corporate green bonds, unlike non-green ones, tax-equivalent to treasury bonds for investors. And (yes, there is more!) the bond issuance approval process, which can be a bit onerous in China, will have a fast-track lane for green bonds. Talk about bringing out the boat on green bond policy!
Our lips are sealed on another hugely exciting piece of China green bond gossip that emerged in the workshop, but what we can say is that this is the year China will be a game changer for the green bond market, big time, just as S&P stated in their report a few weeks ago.
Once we somewhat recovered from the excitement of our Wednesday workshop, another highlight of the week here in DC was the UNEP Inquiry’s panel on how to design a sustainable financial system, placing the green bond developments in a broader context, as of course, shifting capital to climate investments is not all about green bonds.
A key takeaway: China is not the only emerging economy that is leading the way on green finance. Others are equally ambitious, and are in many ways outdoing their Western counterparts. And it’s on the ground, concrete actions we are talking about, not just high-level ideas.
To give you one example, Murillo Portugal, Head of Febraban (the Brazilian Banking Association) and ex-Deputy Managing Director at the IMF, listed the environmental risk assessment requirements for banks regulators Brazil has successfully implemented over the last few years and made it clear where climate sits on his agenda by stating that “climate change is the biggest challenge of this century”. Not a climate scientist or environmental minister saying that mind you, but the Head of the Banking Association in one of the world’s largest economies.
The leadership of emerging economies was also evident in a separate EIB/World Bank event on the public-private dialogue for scaling climate finance. Atiur Rahman, governor of Bangladesh’s central bank, said he and the central bank there are “converted” on the climate issue and the central bank’s role in this, but stressed the importance of converting other central bankers. We hope the European Central Bank and others are taking notes.
Of course, the central bankers are not the only ones that need to step up their game to shift capital to climate. The important role for the Ministries of Finance was highlighted by Andrés Arango Escobar, Colombia’s Vice-Minister of Finance, who talked passionately about the shift in responsibility for climate resilience investments in the country from being solely under the realm of the environment ministry to being a priority area for the Ministry of Finance.
Leaders from developed economies did not sit quietly at the sidelines either, though. A particular statement that really made us sit up in our chairs was when European Commissioner for Economic and Financial Affairs, Pierre Moscovici, said “all economic planning needs to be aligned with climate goals”. Oh, and he made a nice little add-on that the issuance of green bonds is a promising action in this context.
The wide integration of climate concerns across the board for EU investment and planning is exactly what we argued in our recently launched report for the EC, by the way: the EUR315bn Juncker Plan and Capital Markets Union are just two examples where we identified lots of specific actions for EU policymakers to integrate green in their investment and financial reform agendas.
The Governor of the central bank of Bangladesh made an excellent additional point here: that the EU and other rich, but ageing, economies need to integrate climate in their investments across the board globally, not just within their own economies. The fast growing emerging economies that have immense capital needs for green infrastructure also offer high yields — an attractive option for investors in the EU and US these days.
The domestic investor base in many of the countries with the largest investment needs is simply not there: Bangladesh has no private pension schemes, for example. Making this connect of Europe’s pension funds to green investments (including green bonds) in Bangladesh – and Brazil, Colombia, China and so on – will require some risk bridging from development banks for currency and political risk and alike, but based on the conversations we have had this week, we’d say the development banks are with us on that one.
Seems the green bond adventure is only just starting, as policymakers are entering to scale up the game.
Our blogs are written by a team: Sean Kidney, Tess Olsen-Rong, Beate Sonerud, Kazutaka Kuroda, Rozalia Walencik and Justine Leigh-Bell.
