How China and India are changing the climate action narrativeNigel Topping, CEO of the We Mean Business coalition and Nick Robins, Co-Director, Inquiry into the Design of a Sustainable Financial System at UNEP
We Mean Business talks to Nick Robins, Co-Director, Inquiry into the Design of a Sustainable Financial System at UNEP, about how developing countries like China and India are changing the narrative of climate action.
Nigel: Because climate change is a global problem, we often assume that it’s viewed the same everywhere?
Nick: Yes, that’s certainly the assumption. But it’s far from the truth. This struck me recently when I was talking to an economic adviser to Narendra Modi, India’s Prime Minister. In a conversation about the global financial crash, he referred to it as the ‘North Atlantic Crisis’, which, if you think about it, is exactly what it was.
This difference of perspective is the same with climate change action. In the West, the discourse in financial circles is mostly risk-based. Financiers are focused on issues like environmental disclosure and stranded assets and so forth. In fast-growth emerging economies like India and China, the conversations are very different. There, the narrative is all around development.
Nigel: Just so we’re clear, what’s the connection here between green finance and development?
Nick: The connection, it’s very tangible. Issues like building cities, constructing transport infrastructure, expanding national power networks – these are all critical development considerations. And so the question being asked in these countries is how can the green finance agenda be used to advance measures like these. How, for instance, can countries like China and India use it to access higher-quality capital at a lower cost for precisely these development ends?
I’m not saying that risk considerations aren’t there, but I think they are very much secondary drivers for many emerging markets. There is also a lingering feeling in the global South that the industrialised West is using the climate agenda to pull the development ladder up, not the other way around. Call it ‘carbon imperialism’, if you will. In the West, I think it’s fair to say that we lack this sense of finance driving development. So the two mentalities are just very different. Compared to the West, countries like China and India have very different starting points.
Nigel: When it comes to infrastructure investment, China’s vision for international expansion – its so-called ‘One Belt and One Road Initiative’ – is set to be the biggest game in town for the next 20 years. Will it drive green growth, do you think?
Nick: It’s difficult to say at this stage. But what we definitely can say with confidence is the very extensive programme China has in place to green its financial system. It’s a genuine leader when it comes to putting together what we call a ‘Sustainable Finance Roadmap’. By that I mean, thinking seriously about the right financial policies, about the right financial regulations, about the right disclosure rules, about mobilizing retail investors through labeling, and so on. One clear area where this is already hitting home is in the Green Bond market. China is at the top of the leader board here, no question. Last year, China issued around $36bn in green bonds. That’s about 40 per cent of the total issuance globally. And this is capital that is destined to build out green infrastructure as part of the One Belt and One Road Initiative.
Nigel: So you’re confident that China’s development trajectory is going to put decarbonisation front and centre?
Nick: Again, it’s probably too early to say. The main point to recognise, though, is that there’s momentum behind carbon finance in China. Of course, it’s important to be realistic. The China Central Bank might have issued lots of green bonds recently, but these still only make up a minority of the total. Most of the bond market is still going to be neutral or gray. So there’s clearly still a long way to go in term of extending sustainability principles into foreign direct investment. All the same, what we’re seeing in China is a huge commitment to green finance. If we’re going to be serious about green finance in the next decade, then the One Belt and One Road has got to be one of the places where we succeed.
Nigel: To what extent is energy security a driver for green finance? Both China and India are heavily reliant on oil imports, after all.
Nick: It’s a good question, and again it comes back to where we started about the different perspective of developing economies. Take India. It has announced its intention to phase out combustion engine vehicles by 2030. The reason for this isn’t its NDCs [Nationally Determined Contributions] under the Paris Agreement. It’s because of air pollution and smog. If your only lens for understanding decarbonisation is climate mitigation, then you’ll miss these other drivers, which are often just as important if not more so. So is energy security one of those drivers? For sure. Is technology leadership? In the case of the Chinese, then yes, definitely.
Nigel: Looking forward, do you expect India and China to play a significant role in driving the development of green finance in the future?
Nick: I always think it’s helpful to step back a little with questions like this. I did a thought experiment the other day. I imagined I was at the first Earth Summit, back in 1992. The two major conventions coming out of that historic meeting were about Biodiversity and Climate Change. In terms of which would have gone on to have the biggest impact on the world, you would almost certainly have said Biodiversity. We’d had nearly 100 years of international cooperation on the issue. Climate change, in contrast, was very new. Plus, it was scientifically complex and politically charged. Yet, we stand here in 2017, and it is climate change that is on the top table everywhere in the world – driving new sectors of the economy, mobilizing business action, energizing citizens across the planet. I see countries like China and India surprising us in a similar way. I mean, look at the progress China has already made in terms of its energy shift, both on the clean tech side and on financing. Consider India’s progress on the whole EV [electric vehicle] question. A lot of the early running on climate finance has occurred in the West, but I can easily see a scenario where countries like China and India take up the baton and become front-runners in the future.