The green bond market made further strides in 2017, but green finance must scale up much more rapidly if the Paris climate targets are to be met, argues
Sean Kidney
A look back at 2017 from the last days of December sees a year in which progress seemed slow but gained momentum month by month, to end in a burst of announcements and initiatives crowded into the final months.
At the most basic level, investor awareness of the adverse effects of extreme climate change on assets and portfolios is now a given. Those risks can no longer be ignored, downplayed or passively managed. The conclusions of the Financial Stability Board Task Force on Climate-related Financial Disclosures (TCFD) have put an end to any lingering notions that institutional investors and corporations can sit on the climate sidelines.
What was seen as a series of voluntary recommendations early in 2017 will now be adopted in Swedish and French legislation and has gained support and endorsement from over 250 major businesses, investors and banks.
As disclosure regimes grow, greener investment decisions will follow.
A similar pattern can be seen with China, where regulatory changes in the early part of the year were followed by a flurry of offshore listed green bonds from the giant Chinese banks, including the world's biggest, ICBC. 'Greening the Belt and Road' moved from being the subject of speeches and feature articles to the first of what will be a series of multiple, multi-billion bond issuances.
Green finance centres have been designated, green finance agreements with the UK and France have been strengthened, and late December saw the launch of China's long-foreshadowed national carbon trading scheme. Climate Bonds figures for 2017 show China maintaining its number one position in terms of the value of issuance in every quarter, and our projections for 2018 also have it at the top of league tables.
India's path in 2017 reinforces this pattern. Regulatory change was followed by large offshore issuance from state-backed entities later in the year. The Indian Renewable Energy Development Agency (IREDA) and Indian Railways Finance Corporation (IRFC) are huge entities that have made their first green issuances in 2017.
2017 saw the starter's gun fired on what is clearly becoming a global green finance race
The year also saw the starter's gun fired on what is clearly becoming a global green finance race. A quick scan wider afield in Asia sees Singapore re-positioning itself, with a particular focus on capturing new green bond listings on the Singapore Exchange, while Hong Kong has flagged the possibility of issuing a sovereign green bond in 2018 and is building new green finance initiatives. Discussions are also continuing apace for Malaysia to extend its dominance as a global centre of Islamic finance to that of green Islamic finance.
London, Paris, Luxembourg and Frankfurt are all actively working at business, corporate and climate levels to position themselves as the green finance hubs of the future.
Casablanca has adopted a similar posture in relation to northern Africa, while a group of European and Chinese financial centres have recently committed to cooperative action on building green and sustainable finance networks.
Green finance is also moving up national political agendas.The EU High-Level Expert Group on Sustainable Finance (HLEG) process gathered pace and institutional support during the year. Its final report, slated for late January is eagerly awaited.
The biggest global shift of our time – the move from high-carbon economies to low-carbon economies – is happening, but not nearly fast enough
The UK Government, not to be outdone, has launched its own Green Finance Task Force, and across the Atlantic a group of Canadian investors and financial institutions are lobbying the Trudeau government for a similar examination of green finance opportunities to be convened as soon as possible.
On the sovereign green bond front, France stood out in January, Fiji stood up for island nations before the climate conference (COP23) and Nigeria has taken the lead for Africa. Belgium and Hong Kong have foreshadowed action in 2018. Those closely observing President Macron's One Planet Summit in Paris in December would have heard a big hint from Sweden for next year. Overall, it was a disappointing result for the year. The onus now rests with EU and G20 nations in 2018 to move more quickly.
Total green bond issuance for 2017 will land close to Climate Bonds' $130 billion estimate from early in the year. While this figure will be another record, and one worth celebrating, the Mission 2020 target of $1 trillion in green finance by the end of 2020 is a reminder of the acceleration and scale that the financial sector and all its stakeholders must be aiming for, with trillions to follow that!
Thinking small now represents systemic failure on climate action.
The biggest global shift of our time – the move from high-carbon economies to low-carbon economies – is happening, but not nearly fast enough. Global finance is still not aligned with the Paris 2°C target, let alone the ratchet to 1.5°C that must come before the end of the decade.
The next round of major climate science reports will confirm that dangerous impacts are now baked in to global climate patterns in coming decades.
In this light, 2017 at best must be seen like the proverbial Curate's Egg – good in parts. Fiji and COP23 President Frank Bainimarama repeatedly said during the Climate Conference: "We are all in the same canoe".This includes the global financial sector, the banks, asset managers and pension funds that have some pretty big oars.They need to start paddling faster and faster.
Sean Kidney is CEO of NGO the Climate Bonds Initiative.