Green should be the color of banking

UN official says there is more cohesive approach to environmental issues in China than in West

Simon Zadek believes China could be soon at the vanguard of delivering a sustainable future for the planet.

The co-director of the United Nations' Inquiry into the Design of a Sustainable Financial System says one area where the country is taking a lead is in building a greener financial sector.

He believes China's work in this area will take center stage after next year. United Nations Climate Change Conference in Paris, the first since Copenhagen in 2009.

"I think it would be a very remarkable leadership step for China in demonstrating the role of central banks and financial regulators in shaping the financial markets toward achieving the post-Paris goals," he says.

Zadek, 57, was speaking in the lobby of the Jinjiang Hotel in Beijing, ahead of a symposium on green finance at Renmin University, co-hosted by the People's Bank of China and his inquiry, which was launched earlier this year.

Climate change was high on the agenda at the APEC meeting on Nov 12 when the US and China agreed a landmark pact.

Zadek believes China is in a strong position to build a financial system that delivers sustainable outcomes since much of it is still being developed and many of the rules and regulations have yet to be finalized.

"What you can do with financial systems is a little bit like you now can do with physical infrastructure. You can focus more intensively on public transport rather the car and choose low carbon options.

"You have the same options when shaping financial systems. You can build a system that encourages more capital allocation toward tomorrow's economy."

Zadek says many of China's leaders are much more switched on to the issues than their counterparts in the West.

"We established a working group with the PBOC looking at 17 different possible areas where policies and regulations in the financial markets could accelerate the flow of green financing into the Chinese economy. There is no other central bank on this planet even asking this question."

He says there is also a much more cohesive approach to these issues in China than in the West.

"There is much more interconnection within different parts of government here. The minister of environmental protection, for example, works much more closely with the PBOC and the regulators in a way that would simply not happen in other countries."

Zadek says that although the concept of green investment (such as funds that only invest in environmentally-friendly companies) have been around for at least 30 years and the big multinationals carry corporate social responsibility audits in their annual financial reports, there remains little joined-up thinking on green issues.

"They almost happen in two completely different parts of the brain. People talk about financial market reform completely absent of any discussion about the environment.

"You can read thousands of pages of discussion documents from various institutions about where financial markets could go after the financial crisis without any mention of climate change or rising inequality within nations. Yet these same institutions will have discussions about climate change and environmental degradation completely separately."

Zadek says this would not be so bad if financial systems were not actually now creating more damage to the environment and not less.

"The carbon intensity of the world's major stock exchanges - London and New York - far from reducing over the past five to 10 years, continues to increase. This tells us that investors are still continuing to bet on a carbon-intensive economy and are not shifting their capital toward clean technology."

Zadek, who is originally from London but now lives in Amsterdam, began his career as an economic planner for the St Lucia government in the Caribbean.

He became involved with environmental issues in the 1990s when he worked for the New Economics Foundation, a UK think tank that was concerned with the effects on human well being of economic decisions. It used to hold its own annual summit parallel to the then G7 nations.

"My work there involved building a huge program of work focused on corporate accountability and, in particular, social and environmental accountability."

Over the past five years he has held a number of positions focusing on how the financial sector could play a role in sustainable development.

"I reached the view that the last real frontier to bringing sustainability into economic decision making was the financial sector itself," he says.

His work has brought him to China, where the environmental damage caused by economic development is often far too evident. Last year he was a visiting scholar at Tsinghua School of Economics and Management.

Zadek believes the high levels of air pollution in Beijing at the beginning of last year marked a major turning point in the Chinese government's own thinking.

"I think it was a moment where the currency of the environment became significant in the political and economic process in a way it had never been before," he says.

He is confident that Beijing could have PM2.5 levels at acceptable levels by the middle of the next decade or by 2030.

"I am not a scientist but if you read the reports, analysis and proposals from those who know more than me a timescale of 10 to 15 years seems very possible," he says.

He believes one area in which China may get its pollution levels down and lead the world is in the development of electric cars.

"Although the first wave of electric vehicle development in China is not as successful as everyone had hoped, the second wave that is now coming with fiscal subsidies and a far more sophisticated array of policies will lead to China becoming the world's largest market for electric vehicles in a very short period of time."

Zadek admits there was a lot of skepticism when corporations began to talk green in the 1980s and 1990s.

"I think we are moving through that. I think there is a difference between being skeptical and being cynical which is not a healthy condition," he says.

He says companies have to be aware of their environmental responsibilities and that it is no longer a matter of ticking a box.

"I think overall travel is in the right direction. It is inconceivable that today a major international corporation will not be managing environmental and labor issues in its global supply chain but 15 years that was completely unheard of," he says.

Zadek adds that is not just companies but countries that have to be aware of the risks because having bad environmental policies could affect is credit rating and ability to borrow. Standard and Poor's, the leading credit rating agency, has recently introduced climate risk into its sovereign credit ratings.

"It could be climate catastrophe such as the effect of changing temperatures on agriculture, the effect of carbon prices on an economy, generally of the ability of an economy to innovate and bring in new (cleaner) technologies," he says.

Zadek believes next year's Paris conference could be a pivotal event and he is confident it will prove more successful than Copenhagen, where no deal was reached.

"I would say the conditions were not right last time for either the US or China to make any move."

andrewmoody@chinadaily.com.cn

(China Daily European Weekly 11/14/2014 page38)