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Plenary 2: Green New Deal and Green Finance(Eng) 2020-11-27조회수:225

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Plenary 2: Green New Deal and Green Finance

 

▣ Date / Time: November 27, 2020/ 10:10-10:55

▣ Moderator:Park, Kwangwoo (Head of KAIST Graduate School of Finance)

 Speaker

 - Ma Jun (Director of Center for Finance and Development, Professor of Tsinghua University)

 - Park, Hyoungkun (Financial Institutions Manager of Green Climate Fund (GCF))

 - Michael Sheren (Senior Advisor of Bank of England) 

 - Yoo, Kwang Yeol ( (former) First Senior Deputy Governor of Financial Supervisory Service)

▣ In Plenary 2, distinguished green finance experts from across the world joined to discuss each country and organization’s plans and efforts to transition into a green economy, along with international collaboration efforts to establish a green financial system.


◎ [Main Speakers’ Presentation]

 -  Ma Jun:
Dr. Ma first noted the importance of this year’s conference at a moment when many countries, including Korea, Japan, and China have declared carbon neutrality. He gave a speech on what China has done in the realm of green finance, and the international initiative China is participating in.
Starting with what China has done, he explained the 5 pillars of the Chinese green finance system, developed by himself and his colleagues in the Chinese Central Bank. The five pillars are green taxonomies, policy incentives, green financial products, and regional pilot programs. Fist, taxonomy pillar aims to prevent green washing and ensure transparency of companies. Second, disclosure pillar aims to address the information asymmetry by ensuring sufficient environmental information disclosure of companies. Third, policy incentives leverage the private capital and incentivize private sector to participate in the green financial transition. Fourth pillar is the switch of financial products to meet financing demands of the green investments. The final pillar is the innovative approach of use of local pilots, since China is such a large country.
After explaining the 5 pillars, Dr. Ma moved on to discuss exemplary policies for each of the pillar. First, on taxonomy, China has 3 kinds of green taxonomy toolkits, which developed over time. In 2013, the first document on the guidelines of green taxonomies was developed, which was very simple. This was on the green credit statistics standards. Next in 2015, the Green Finance Committee of China Society of Banking and Finance developed a green bond endorsed project catalogue. Finally, the third category of taxonomy, which is on the industry level guidance was developed in 2019.
Secondly, Dr. Ma introduces China’s multiple disclosure guidelines for listed companies. The Ministry of Ecology and Environmental made mandatory requirement of disclosing environmental information for key pollutant-discharging entities. Also, between China and the UK pilot projects to implement TCFD guidelines have been underway, with four UK firms and 9 Chinese firms working together to disclosed environmental information. Three years of action plan has been released and is expected to form an environmental information disclosure template for financial institutions to follow.
Next, he introduced the example of a Chinese green transition policy incentive for companies. He gave one example of a policy incentives launched by the PBoC and Local Governments in China to encourage banks to scale up green loans.
Fourthly, Dr. Ma explained the types and magnitude of green financial products in China.  In the past 4 years, Chinas has issued10.6 trillion green loans, 1.1 trillion green bonds, and of this 700 green funds, in innovative product forms such as Green ABS, Green ETF, Green Insurance, and carbon finance.
In the second half of his speech, Dr. Ma discussed China’s international collaboration efforts on building a green finance system. He mentioned that the Chinese efforts hit its high point in 2016 when China led G20 Consensus on “Scaling Up Green Finance Globally”, along with UK. In this study group, the two countries initiated 7 voluntary options, which became a global consensus since then. In the following years, the study group introduced other important concepts in green finance such as the Environmental Risk Analysis(ERA) and ABS and CROs. Later in his speech, introduces a new working paper published by himself on the ERA called ‘The NGFS Occasional Paper on ERA: Case Studies of Environmental Risk Analysis Methodologies’. This document consolidated more than 30 methodologies, modules and tools on how to quantify the financial risks of exposure to climate change.
He also explained that China was a founding member of the NGFS (Network for Greening the Financial System). In 2017, 8 countries’ central banks came together and formed NGFS, which now has more than 70 members, and is still growing. He expects the NGFS to become a very important platform for green financial policy makers in developing a consensus on how to improve and regulate the green finance market.
Next, he introduced the Green Investment Principles for the Belt and Road which was initiated by the China Green Finance Committee and City of London. These principles called for global investors to embed sustainability into their corporate governance. These principles were adopted from 37 large institutions in 14 countries. Under the GIP, three working groups have been developed. The first group develops tools to measure environmental impact, such as the recently developed carbon calculator. The second group develops templates to measure and disclose environmental and climate related information. The third group is working to launch a green project database in the Belt and Road area.
The final international collaboration effort of China that Dr. Ma introduced was the China and EU led working group that works to promote harmonization of sustainable finance taxonomies under IPSF(International Platform for Sustainable Finance). Dr. Ma hopes to create common taxonomy between China and EU, so that Chinese issuers can use this new green common taxonomy to issue green bonds in UK and vice versa.

 -  Michael Sheren
Dr. Sheren mainly discussed the importance of a carbon neutral financial system and specific methods to transition the financial system. He first shared his positive outlook on the international cooperation efforts to make a green financial system going onward, especially with the new government to take over in the US. He particularly mentioned that you cannot have green finance without a green economy, and that for this reason the net zero commitment of each country is important. A carbon net zero economy requires changes in how products are made, how services are done, and how banks flow money as well.
In the next part of his speech, he discussed several methods to translate this will for transition into action. He first introduced UK’s new law of a total ban on internal combustion engines which will be enacted from 2030. From 2030, one will not be able to export or manufacture new internal combustion engines in UK. Therefore, in less than 10 years, the mobility sector in the UK will provide a tangible area for green finance.
In regards to harmonizing the taxonomy and disclosure, he also introduced that UK will start to mandate the implementation of TCFD guidelines for its firms from 2025. This will help provide data and information.
Next, he discussed another aspect of green finance, which is collecting data from the banks. In the case of UK, the Bank of England did a detailed study about mortgage and found out that mortgage on green assets had a lower default rate and higher recovery rate. This means that not only is green investment good for the environment, but it is also good investment for the banks.
He further explained that UK is focusing on green products, namely bonds, loans and technology, as well as the carbon trading system as major transition devices that will bring upon a green economy. Especially, Dr. Sheron noted that the carbon trading system is important making a carbon ‘net’ zero economy. Since we are discussing of a ‘net’ zero emission world (and not an ‘absolute’ carbon zero world) he emphasized that financial markets have a key role to play in reaching that goal, through making the right financial products. He adds that such financial products, along with bonds will play an important role in the transition to a green economy. In the case of UK, the country has decided to issue green sovereign bonds next year.
He concluded his speech with a positive outlook for the COP 26 conference. He particularly mentioned that with the commitments of three countries in Asia (Korea, Japan, and China) on a carbon neutrality and changes in US, he believes that the international community would have new opportunity to discuss diverse agendas on facilitating the green transition and putting the green finance opportunity to work.

 - Park, Gwangwoo
Professor Park thanked Mr. Sheren and asked him to further elaborate on his prospects on cop 26, especially regarding the main agenda of green financial system.

 - Michael Sheren
Dr. Sheren answered that COP 26 is going to make Glasco a catalyst position since it is expected to bring about the international collaboration that was not present in the past few years. He also emphasized that it will be the first conference to stress test green finance for UK and the world. Therefore, he concluded that in COP 26, one would be able to o see a lot of familiar faces from the green field come together in international collaboration.

Park, Hyuggun:
Mr. Park focused his speech on introducing the support GCF has been providing to establish green financial systems across the world. He first introduced the supply side and demand side barriers to break down to transition into a green economy. On the supply side, he pointed out the lack of climate strategy and limited capacity to evaluate climate projects as the first barrier. Other barriers included the long payback period of climate projects, and deficient regulations to create an enabling environment. On the demand side, he pointed out that there is still a lack of awareness n green business opportunities and climate technologies, and that this is the area where GCF can help small businesses. Other demand side barriers included high upfront costs of climate technology and limited technical capabilities to access climate finance, especially for developing countries.
He then introduces the three instruments GCF is using to green the financial system. The first pillar is to the funding proposal and PPF, which offers concessional and affordable credit lines for a green transition. The second pillar is the readiness support program, which is the grant funding provided to the policymakers, including central banks for the green financial policy design. The last pillar is awareness raising and outreach, which focuses on partnering with international initiatives to promote green finance.
In the latter half of his speech, he introduces the project case of Mongolia’s Green Finance Corporation(MGFC), which has many unique features. This project is the first case where public and private sector invests in together; MGFC will be funded through GCF and private sector financing as well. GCF used all 3 instruments mentioned before, to support the success of this program. He then moved on to discuss the case of Korea. In Korea, the Special Act on the Promotion of Green Finance in Korea has been launched. Although Korea is not a recipient country of GCF, GCF has helped the National Assembly in drafting the new act, one of which includes the creation of the Korea Green Investment Bank, development of a national green taxonomy, adoption of the mandatory climate-related information disclosure by financial institutions in line with the TCFD recommendations, and identification and management of climate risks in line with the NGFS recommendations.

◎ [Discussion]

 - Yoo, Kwang Yeol
Dr. Yoo mainly discussed Korea’s efforts to make a green financial system. He shared his experience of working in a working group of experts on best practice in climate finance and also follow up on TCFD and NGFS in his former organization, Financial Supervisory Service(FSS) since last year. He also mentioned that the working group is developing a stress test model to measure the impact of environmental shocks in the capital assets.
Dr. Yoo mentioned that major government agencies in Korea are taking action recently, as can be evidenced by the announcement of the Green New Deal package, and Korea’s commitment to carbon neutrality. He introduces the four main pillars for green finance in the pipeline. The first is strengthening the risk management caused by climate change by defining and quantifying the risks. The FSS is trying to internalize the risks in their operation in the finance companies. The second pillar is about enlarging the disclosure of environment-related information by listed companies. The FSS is preparing a training program for the companies. The third pillar is about increasing green investment and improving the incentive structure. The final pillar is making the infrastructure that will sustain the momentum of green investment and green finance drive.

Hwang, Suk-Tae
Dr. Hwang mainly discussed the interlink between Korea’s Green New Deal, its’ carbon neutrality ambition, and green finance. Since its launch in July, the Korean New Deal plan hhas been monitored closely by president himself. With the election of Biden as the new president of the US, the interest has been increasing. Dr. Hwang explained that the Korean Green New Deal is basically a fiscal investment roadmap until 2025, which would also need periodic updated to align the short and long-term goals. He added that more plans for the circular economy and sustainable agriculture also needs to be specified. Although the government injection will be the pump primer, Dr. Hwang emphasized the need for private investment as well. To promote such a green financial system, Dr. Hwang explains that the ministry of environment is focusing on three main tasks. First is on developing the Korean version of green taxonomies, to give incentives for green investment to private businesses. To make the incentives work, defining what is green and what is needed to receive incentive is important. The Korean Ministry of Environment is referring to EU and ISO to define these concepts. Based on this, green investment guidelines will be developed by 2021. The second task is about developing a framework for non-financial reporting, or the ESG assessment. The framework is being made, with the goal of being introduced by 2022. The last task is strengthening the public disclosure of the companies’ environmental information. Korea is now setting the scope of financial institutions and businesses who will be subject to the disclosure scheme. Dr. Hwang finally added that Korea also aims to nurture green finance experts and institutions for these future tasks as well.

◎ [QnA]

 - Park, Gwangwoo
He thanked Dr. Hwang and asked a question to Dr. Sheren about his thoughts on the collaboration of the US and China, the two biggest polluters on the environmental agenda, with the return of US to the Paris Agreement.

 - Michael Sheren
Dr. Sheren answered that with US coming back and China committing to net zero, green would become the new common denominator in these two countries, and that in all the venues to come, it will become the new agenda that will sit the two giants down together.

 - Park Gwangwoo
He then asked for Dr. Sheren’s response on the collaboration between China, Korea and Japan.

 - Michael Sheren
Dr. Sheren shared his view that he believed the development engine of the world was in Asia, and therefore the collaborative leadership in these 3 countries would lead to participation from other parts of Asia. He state that such movements would eventually result in growth in jobs in the region as well.

 - Park, Gwangwoo
He asked about GCF’s excitement towards the return of US to the Paris Agreement.

 - Park, Hyunggun
Mr. Park stated that GCF is excited, and that in terms of further green financing, the GCF is looking forward to bringing US on board to the NGFS.

 - Park, Gwangwoo
He asked Dr. Yoo to share his thoughts on how working with the democratic party government of the US will turn out.

 - Yoo, Kwang Yeol
Dr. Yoo responded that he has high expectations for Biden, and that there is a much higher higher momentum for a green finance system than when he was working in the government. He also emphasized that now is a great time to organize the trilateral meetings with China and Japan to sustain this momentum.

 - Park, Gwangwoo
He asked Dr Hwang what the impact of the new administration in US will be for the Korean government in organizing international collaboration efforts.

 - Hwang, Suk-Tae
Dr. Hwang noted that the current president of Korea has a strong commitment to carbon neutrality and that he talks about the importance of international collaboration between EU, Korea, and US. Therefore, with Biden, Dr. Hwang expect that US will help facilitate the efforts in Korea as well.


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