Caixin
Oct 15, 2021 04:24 PM
OPINION

Opinion: Green Transition Unlocks Investment Opportunities for First Movers

China has been encouraging investment in climate mitigation and adaptation efforts. Photo: VCG
China has been encouraging investment in climate mitigation and adaptation efforts. Photo: VCG

I first lived in Beijing from 2004 to 2009. When I returned to Beijing in 2017 to take my current position as the country manager for China, Korea and Mongolia at the International Finance Corporation (IFC), I noticed two big differences.

First was the growing confidence in China. The country still welcomed foreigners, but there was no longer a feeling that China needed foreign expertise or foreign know-how to develop. Second, China’s growth had clearly begun to change, from all-out growth by any means, to a higher quality growth focused on the green economy. And that second point, the greater focus on the green economy, has accelerated in the past two years. For example, in September 2020, at the United Nations General Assembly, the Chinese government made commitments to accelerate its nationally determined contribution to reach peak greenhouse gas emissions before 2030, and to reach carbon neutrality by 2060. In October 2020, five Chinese government ministries and regulators jointly issued the “Guidance on promoting investment and financing to address climate change,” encouraging investment in climate mitigation and adaptation efforts while reducing financial risks.

In June 2021, the China Banking Association called for Chinese banks to act on China’s carbon peak and net-zero goals and launched a new expert working group to support the country's plans to accelerate peak emissions and reach carbon neutrality by 2060. The IFC is very pleased to be an international partner for this initiative.

Last month, at the United Nations General Assembly, President Xi Jinping pledged that China would stop financing and building coal-fired power plants overseas, which could nudge neighbors like Mongolia and Vietnam to transition more quickly to renewable sources of energy. And this month, China is hosting the U.N. Biodiversity Conference in Kunming. Green finance is one of the key topics, and the focus is on the role of financial institutions in implementing the protocols of the Convention of Biological Diversity.

As the private sector arm of the World Bank Group (WBG), the IFC has been a leader in climate finance as well as in setting standards for environmental and social sustainability.

Finding ways to combat climate change is a strategic priority of the WBG. Between 2016 and 2020, the WBG provided over $83 billion in climate finance to developing countries. And last December, the WBG announced that over the next five years, 35% of its financing will have climate co-benefits.

As we have witnessed in China and other parts of the world, a decisive move toward a green transition often helps unlock new investment opportunities for first movers.

IFC was among the first international investors to help Chinese banks expand into green finance. In 2006, the IFC began to train banks on energy efficiency financing, and since 2011, IFC has partnered with the China Banking and Insurance Regulatory Commission and the China Banking Association to introduce good practices for banks to manage their environmental and social risks. The IFC supported the first three Chinese banks to adopt the Equator Principles.

In 2012, the IFC partnered with the CBIRC and banking regulators from nine other countries to launch the Sustainable Banking Network. Since then, the SBN has grown into a leading force for sustainable finance by convening financial sector regulators and banking associations from 43 countries representing $43 trillion, or 86 percent, of the banking assets in emerging markets.

As we celebrate the remarkable developments in green finance, I would argue there is also an urgent need to help those carbon-intensive companies on their transition journey. High-carbon sectors such as steel and cement production, often lose out on sustainable financing opportunities because they do not immediately fit into the green finance taxonomy, so cautious investors may be reluctant to provide financing. “Transition finance,” helping companies move from high carbon intensity operations to low carbon intensity operations, is targeted directly at these hard-to-abate sectors. However, banks need to understand the risks associated with transition finance, including what constitutes a science-based pathway for such a transition.

Green building is another exciting segment with enormous opportunities in China and globally. At the IFC, we have set up the Green Buildings Market Transformation Program, which aims to create a virtuous cycle of supply and demand in emerging markets for resource-efficient partners in building design, construction, and ownership. Moreover, the IFC has developed EDGE, an online platform that allows design teams to estimate the efficiency of a building by using practical solutions.

While we are excited about these opportunities, we are also mindful of the risks. I am pleased to share our approaches to managing the risks.

At the IFC, biodiversity risk considerations are mainstreamed into all projects through the application of our Environmental and Social Performance Standards. These performance standards have become a global benchmark for sustainable finance and sustainable production practices for financial institutions, corporations, and policymakers.

The application of Performance Standards requires IFC’s clients to avoid, minimize or manage negative impacts. For example, Performance Standard No. 6 on Biodiversity Conservation and Sustainable Management of Living Natural Resources and Performance Standard No. 3 on Resource Efficiency and Pollution Abatement have contributed to preservation of forests and species, maintenance of soil health, reduction of air pollutants, conservation of water, and other positive benefits to biodiversity.

The IFC is now developing sector-wide approaches to integrate biodiversity at the earliest stages of landscape planning to avoid ecologically sensitive areas for project development, particularly in high impact sectors such as energy and agribusiness.

In addition to applying our Performance Standards to every project, the IFC is also developing investment projects and financial products to encourage activities that generate positive biodiversity outcomes.

• Just recently, IFC committed its first blue loan to Indorama Ventures for plastic recycling in Indonesia, Vietnam and the Philippines to help address the problem of plastic pollution.

• The IFC is supporting Bank of Qingdao to issue a blue bond in line with international best practices and IFC’s Performance Standards. Among other things, the blue bond will provide financing toward sustainable fishing and marine eco-system conservation. 

• And the IFC was first to issue a Forest Bond, which is directly focused on preservation of forests. Investors in the forest bond can choose to get paid in cash or carbon credits. We expect the market for this type of product will grow quickly, as many corporations have made net zero carbon commitments.

Channeling financial resources toward nature-positive practices offers tremendous opportunities for growing the economy, improving people’s lives, and maintaining terrestrial and marine ecosystems.

It is not an easy task, and that’s why platforms like the Caixin Roundtable are important for us to exchange new ideas and lessons learned.

We are committed to supporting China’s sustainable development and look forward to working on more innovations with Chinese partners. Thank you.

Randall Riopelle is IFC’s country manager for China, Korea and Mongolia. The article is adapted from his remark at Caixin Roundtable “Green Recovery.”

Contact editor Michael Bellart (michaelbellart@caixin.com)

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