Scaling up Chinese investor capacity for green finance – the PRI’s plans to meet the challenge
By Sagarika Chatterjee, Associate Director, Policy and Research and Edward Baker, Senior Policy Advisor, Climate and Energy Transition
China has emerged as a driver of green finance and climate action. The lesson from this is that countries that act early can attract green investment – China’s green bonds being a case in point. The longer-term market opportunity for China is significant. The Peoples’ Bank of China estimates that US$600bn of investment per year will be needed between now and 2030 to meet Chinese government commitments on climate change and environmental pollution – 80% of which will need to come from the private sector.
This raises issues for the US – reeling from Hurricane Harvey (which has a projected US$180bn clean-up cost) and now Hurricane Irma. Will the US be left behind as other countries surge ahead with new technologies and climate resilient infrastructure?
China still faces its own challenges. Replacing coal with renewables cannot happen overnight. The World Health Organization estimates that economic costs of air pollution, including health costs and loss of productivity, range from 3-6% of China’s GDP each year.
Chinese and global investors have a clear and welcome policy signal from China’s Guidelines for Establishing a Green Financial System. Nevertheless, to innovate in green investment, investors need better environmental data, company disclosure, green definitions – and financial returns.
We will be scaling up our work in China, with a view to overcoming the hurdles Chinese investors face.
In October 2017, the PRI will appoint Ms Luo Nan to a new role, head of China, based in Beijing. Ms Luo, whose previous role was head of energy and infrastructure at the British embassy in Beijing, will drive forward the PRI’s work with investors in China, with China Asset Management Corporation already a PRI signatory.
Ms Luo will focus on building Chinese investor awareness and action on responsible investment. This will include improving disclosure, research with the International Institute of Green Finance on ESG in China and collaboration with the CFA Institute to build investor capacity, as well as practical tools for portfolio managers to implement responsible investment.
In addition to China, the PRI will support investor action on climate change across geographic markets. The Paris Agreement requires peaking emissions by 2020. The PRI’s priorities will include supporting investors in understanding physical and transition risks of climate change, and potential investment opportunities. This will include a focus on implementation of the FSB Task Force recommendations.
The PRI’s climate policy work is headed by Sagarika Chatterjee, with two new appointments including Edward Baker, who previously led the UK Foreign & Commonwealth Office’s green finance work in China and Blandine Machabert, who previously worked on Article 173 at Caisse des Dépôts (France).
The scale of the challenge to green investment in China is considerable. The PRI looks forward to contributing towards China’s leadership in this area by building investor capacity.