Financing the Future

When Mark Carney was the governor of the Bank of England, he found that the number of extreme weather events had tripled and the cost of these disasters increased fivefold in the past 25 years. The financial sector must do something to make a change, he thought.

Since then, with climate change today threatening human survival, both governments around the world and the financial sector are promoting climate finance, which is local, national or transnational financing from public, private and alternative sources to support mitigation and adaptation actions for addressing climate change. The ultimate objective of climate finance is to promote low-carbon development and achieve the goals set for nationally determined contributions – efforts by countries to reduce national emissions and adapt to the impacts of climate change.

Carney, now special envoy of the United Nations for climate action and finance, and chair of Brookfield Asset Management, calls the “net zero” goal set by governments the biggest business opportunity of this era. People are using climate finance to develop green technologies, innovate new business models and create new values. “The whole society has gradually recognized the great value of reaching net zero emissions. Investors and loan providers, as well as high-tech firms will gain long-term returns,” Carney told the Financial Street Forum 2024 held in Beijing in October.

Climate finance was a hot topic at the forum, which also gave perspectives on China’s ongoing financial reforms and its commitment to opening up. To achieve net zero goals, Carney suggested including finance into climate solutions. Banks, funds and asset management companies should all do that. Also, firms should disclose their carbon emissions in production, and restrain carbon emissions in energy use, and other emissions in the whole value chain.

Multinationals have an additional task. They should invest in developing countries and help them to reduce carbon emissions. “The financial sector should play an active role in providing funds, investment and loans for those firms that plan to succeed in net zero transition,” he stressed.

China’s green finance moves

Carney lauded China’s role in the world’s green transition with its massive investment in clean technologies and their export to other countries, as well as building a financial system for green transition. He referred to the green finance policies in the Guangdong-Hong Kong-Macao Greater Bay Area in south China, calling them impressive.

However, he said the world still needs trillions of dollars of additional investment. It is therefore necessary to establish more green financial centers and develop international common standards to allocate funds to places in need.

He also stressed the role of clean energy. To achieve the climate goal set at the Paris Agreement, it is essential to invest in clean energy. Fortunately, investment in green technologies, such as wind energy, photovoltaics, batteries, energy storage and electric vehicles, has seen a dramatic boom. Eight years ago, the investment in new energy technologies was US $500 billion every year globally. In 2023, the figure soared to US $1.8 trillion, almost four times as much, with China contributing 45 percent of it.

However, the International Energy Agency has called for still more, an annual investment of US $4.5 trillion in green energy. The huge gap between demand and reality highlights the urgent need for cost-effective products, advanced technology and effective resource allocation. And this shortage mainly exists in developing countries, which urgently need financial and technical assistance from the international community to achieve low-carbon transition and tackle the challenges brought by climate change.

Technological achievements, such as China’s rapid development of photovoltaic power, have greatly reduced the cost of clean technology and energy, and provided more services to the international community. “We need to reduce the cost of these technologies and expand production capacity,” Carney said. “What the financial system should do is transfer funds to enterprises and individuals in need to help them develop and purchase these technologies.”

A greener Belt and Road

In October, Beijing hosted a second event to discuss sustainable finance, bringing together participants from over 150 countries and regions. The SWIFT (Society for Worldwide Interbank Financial Telecommunication) International Banker’s Operation Seminar 2024, or SIBOS 2024, also known as the “Olympics” of the financial world, was held on the Chinese mainland for the first time.

The Bank of China (BOC) spearheads China’s opening up in the banking sector. It is the first financial institution in China to open SWIFT services, and the first Chinese participant at SIBOS’s annual meeting. BOC Chairman Ge Haijiao said China’s industrial structure upgrade and technological innovation opens up a “blue ocean” for financial institutions, a new market with little competition or barriers for innovators. The rapid growth of demand for asset management services will bring huge market opportunities, and China’s overall green economic and social transition need more diversified financial products and services. Moreover, the internationalization of the renminbi will enrich the global monetary system and provide more options for the financial market, with better conditions and broader space for foreign companies in the Chinese market.

In June, BOC issued a batch of sustainable development bonds to facilitate projects under the Belt and Road cooperation. It said this was the first such series in the world, with a total scale of US $940 million, to be used to build projects along the Belt and Road routes. Funding raised from the bonds will be provided to green projects and those for the wellbeing of the public, whose loans have been approved by BOC. They include a project in Hungary, the first European country to join the Belt and Road, to manufacture batteries for new energy vehicles; a wind energy project in Uzbekistan; and a sustainable fishery project in Chile.

In recent years, developing countries have higher demand for investment in green development. It is through such green or sustainable bonds that China has been leveraging private capital to support the high-quality development of countries along the Belt and Road. According to a green bond report issued by the Climate Bonds Initiative, an international non-profit, China was the world’s largest green bond issuance market for 2022 and 2023.

Finance plays a key role in promoting fair and inclusive climate transition. Transitional financial tools are often used for climate mitigation and adaptation projects. Financial and fiscal incentive policies in the transitional financial system will promote more capital investment and support global climate change without soaring costs and risks.

“The combination of the insights from the Financial Street Forum and the opportunities at SIBOS will support real progress toward a more integrated and resilient global financial system, which will help to shape a sustainable future that benefits everyone,” Carney said.