Towards a common language in Green Finance: progress is made at COP24 in Katowice

• The Green Finance Committee of China Society for Finance and Banking and the European Investment Bank publish a second edition of the White Paper “The Need for a Common Language in Green Finance”
• Comparability and transparency are key to develop green finance as an engine driving the transition to a low-emission and climate-resilient economy
• With the EU and China being two of the biggest green bond markets globally, developing compatibility between the two can set a precedent for harmonisation on a global scale

The Green Finance Committee of China Society for Finance and Banking (GFC) and the European Investment Bank (EIB) jointly released a second edition of the White Paper “The Need for a Common Language in Green Finance” during the United Nations Climate Change Conference (COP24) in Katowice, Poland. This is a further step towards a better understanding, at a global level, of the nature of investments in green projects and transparency for the international community. This increased transparency and comparability of criteria is a welcome news for capital markets and green project promoters alike, as more and more public and private issuers and investors internationally access the green bond space.

Ma Jun, Chairman of GFC and Member of the PBOC Monetary Policy Committee pointed out that greening global capital markets requires a common language for green bonds and the underlying green activities. This is increasingly important from a Chinese perspective, since the maturing national green bond market is experiencing a rapid expansion of cross-border issuance and investing. As similar trends are observed across global markets, a greater compatibility of standards is essential for seamless international integration. With the EU and China being two of the biggest green bond markets globally, developing compatibility between the two can set a precedent for harmonisation on a global scale.

Jonathan Taylor, Vice-President of the EIB, highlighted that the recent EU-China Leaders’ Statement on Climate Change and Clean Energy underlines the need for EU and China to cooperate in developing green finance to drive the transition to a low emission and climate resilient economy. The ongoing work in the series of white papers helps create the conditions for a clearer comparison and mutual compatibility between the EU and Chinese green bond standards as these standards are developed and updated in the future. This ultimately should facilitate European issuers launching green bonds in China, and vice versa.

In September 2018, EIB launched its first Sustainability Awareness Bond (SAB), which, for the first time, links allocations with objectives rather than activities. It extends EIB’s green bond accountability to areas of environmental and social sustainability other than climate, and foresees gradual expansion of eligibility to further objectives and activities in line with the developing EU legislation. The EIB plans to adopt an analogous open-ended approach also for its Climate Awareness Bonds; the new documentation could be tested with a landmark transaction – possibly EIB’s first green panda bond – in early 2019.

The White Paper summarises the progress China and the European Union (EU) have accomplished in promoting green finance standardisation in the past year and indicates tangible steps on how to continue this work in the future. The first edition (or Phase I) was published at COP 23 in Bonn last year.

The core recommendation of this second edition of the White Paper (Phase II) is, that the GFC-EIB joint research should now develop a clear translation framework (Phase III) between the soon-to-be-established China and EU green standards by the time of COP25 next year (in the area of Climate Change mitigation), while a possible EIB green panda bond issue could tie the standards together in practice. By doing so, Phase III of the GFC-EIB joint research and practice could provide the necessary clarity and demonstration effect required to internationalise the Chinese green bond market and establish a baseline for the further harmonisation of green bond and green finance standards on a global scale.

Background information:

The European Investment Bank (EIB) is the long-term lending institution of the European Union and is owned by the EU Member States. It makes long-term finance available for sound investment in order to contribute towards EU policy goals both in Europe and beyond.

The European Investment Bank is active in around 160 countries. It is the world’s largest multilateral financier of climate-related investment with USD 100bn committed for climate action in the five years up to 2020 in support of the Paris Agreement. The EIB has committed at least 25% of its investments to climate change mitigation and adaptation, rising to 35% in developing countries by 2020. With EUR 19.4bn dedicated to climate action in 2017, the EIB exceeded its target for the eighth year running.

At COP24 in Katowice, EIB climate experts and senior management highlight the EIB’s broad support for climate investment in diverse sectors, announcing a number of new policy initiatives and project investments. A regularly-updated agenda of EIB events and contacts can be found here.

Source: eib.org