(reposted from Climate & Capital Media)
China’s Ma Jun sees a new path to Net Zero
As president of the Beijing-based Institute of Finance and Sustainability, Ma Jun is one of China’s foremost leaders advocating for green and sustainable finance in China and globally, and has chaired many domestic and international initiatives. He is also the co-chair of the IPSF Taxonomy Working Group; chairman of the capacity-building Alliance of Sustainable Investment; former co-chair of the G20 Sustainable Finance Working Group, and the former chief economist at the People’s Bank of China, the nation’s central bank. He recently joined Climate & Capital Media founder Peter McKillop for a conversation in Hong Kong. The following are excerpts:
McKillop: What is the impact of US government funding on global sustainable development?
Ma Jun: Even if the US federal government’s contribution to international climate finance drops to zero, the impact on the international climate process will be limited. Why? From an international aid perspective, the climate finance mobilized by developed countries for developing countries in recent years is less than $100 billion. Within this $100 billion, the US contribution accounted for about 10%. Also note that the actual amount of global sustainable investment, most of which is climate-related, has already reached about $3 trillion per year, and the demand for sustainable investment could be as much as $6 trillion per year. This means US federal government funding for climate finance in other countries represents a tiny portion of the global sustainable investment demand.
Q: The 180-degree US reversal has undermined the confidence of US private institutions, including pressure to withdraw from global initiatives like GFANZ. Are you concerned?
MJ: As long as other countries, governments, major financial institutions, and NGOs work together to more actively mobilize private capital participation in climate mitigation, adaptation, and other sustainable investments, the impact of the US withdrawal can be offset — if we can successfully enhance the propensity for the private sector to invest in sustainable assets by 1%, of additional financing.
US federal government funding for climate finance in other countries represents a tiny portion of the global sustainable investment demand.
Q: What is the effect of the US pulling out of the Paris Agreement?
MJ: I see some light. In December, before Trump took over, EU officials told me they expected Trump to leave the Paris Agreement again. Therefore, they were looking forward to strengthened collaboration between China and Europe, and taking a greater leadership on climate. The same is true in the United Kingdom, where I was involved in drafting the green finance part of the China/UK dialogue, and I could feel an eagerness to reach new agreements with China on climate and sustainable finance. And recently, I was invited by Australian colleagues to join a conversation on green finance collaboration as well. All these happened around the time the US departed from the Paris Agreement and was alienating its allies with tariffs.
Q: Is the US renouncing climate engagement an opportunity for China?
MJ: After the withdrawal of the US, China, as the world’s second-largest economy and market, should rightfully play a stronger role to enhance market confidence in sustainable finance by working together with partners such as the EU and BRICS, and to leverage more private sector capital to address climate change.
Specifically, the international community, including China, should play a larger role by doubling efforts in areas such as harmonization of standards, disclosure enhancement, improving carbon market functionality, advancing green technologies, providing credit enhancement, and capacity building.
Q: One key area for progress in climate finance is global compatibility and interoperability of taxonomies — the common language and framework for defining and labeling what constitutes a “green” investment. Why do we need a global taxonomy? And how to achieve that?
MJ: The need for harmonization and interoperability of taxonomies has now become a global consensus in the sustainable finance community. If every country develops its own green finance taxonomies independently and without alignment, it can lead to market fragmentation and higher certification costs, thereby hindering cross-border flows.
After the withdrawal of the US, China, as the world’s second-largest economy and market, should rightfully play a stronger role to enhance market confidence in sustainable finance.
Take green bonds as an example. If the two major economies, Europe and China, use different taxonomies, Chinese green bonds cannot be sold in Europe, as European green definitions are different from the Chinese green definitions.
If we let the market’s numerous market participants try to agree on a way to harmonize taxonomies, it would take 100 years! But we do not have the time to wait.
Therefore, coordination between regulators has become so important here. If regulators from major economies can sit down and agree on an approach to introducing interoperability of their taxonomies — namely, developing a common language to define and label sustainable assets for cross-border transactions, it would be much more efficient than thousands of market players trying to reach a consensus.
Q: What is the goal of China and the EU in promoting interoperability of taxonomies?
MJ: Back five years ago, China proposed to the EU to jointly develop a common ground taxonomy that both China and Europe can recognize. At that time, Europe had a taxonomy with a few hundred items, and China had a taxonomy with a few hundred items. They were not identical, but I said to my colleagues in China and Europe that “when you put them together, some of them are the same or very close to each other. That overlapping portion is a common ground taxonomy.”
At that time, Europe was initiating the International Platform for Sustainable Finance (IPSF) and invited China to join. In 2020, China and the EU jointly launched the IPSF Sustainable Finance Taxonomy Working Group, with the mandate to produce the Common Ground Taxonomy (CGT) to enhance comparability, compatibility, and consistency of taxonomies across jurisdictions. I was the co-chair of this working group on behalf of China, and Marcel Hagg from DG FISMA [Directorate General for Financial Stability, Financial Services and Capital Markets Union) is currently the co-chair of the EU.
We were very fruitful in the past few years. We published the Common Ground Taxonomy with 72 items in 2022. But I did not want this to sit on the website for entertainment, just as a “comparative analysis.” So I worked with the People’s Bank of China to push for implementation and market adoption in China. Together with a few central bank departments, we organized meetings with mainly Chinese banks, telling them, ‘please, use it,’ and they used it.
In the last two years, all major Chinese financial institutions and some corporates that issued green bonds internationally have used the Common Ground Taxonomy as a label. Some domestic issuers also choose to label their green bonds issued domestically as CGT aligned. Currently, CGT-labelled green bonds issued by Chinese issuers have raised about $20 billion. The benefits of using CGT labels are three-fold: avoiding duplicated verification costs against multiple taxonomies, increasing subscription rates (as investors believe CGT-labeled bonds are greener than bonds using other labels), and therefore reducing fund costs for issuers.
This is an example of how a proactive government can use a new tool to create a market. You tell them to do something that actually benefits them, and they find the benefits.
Q: And I hear Singapore has joined the CGT initiative?
MJ: In 2023, we invited the Singapore authorities to join the CGT and named it a Multi-jurisdictional Common Taxonomy (MCGT). We released the MCGT at the UN Climate Conference (COP 29) Last November in Azerbaijan. The MCGT, co-produced by China, the EU, and Singapore, now covers 110 jointly recognized sustainable economic activities.
Our goal is to make the MCGT a global baseline that serves as a reference for countries developing or updating their taxonomies, as well as a labeling tool for cross-border green investments.
Q: What happens now?
MJ: The next step would be to expand the group of countries participating in the MCGT development by inviting new members to join the development (and be owners) of the next version of the MCGT. I think the good candidates are Brazil, Indonesia, South Africa, Australia, and Hong Kong SAR. This will significantly enhance the credibility and influence of the MCGT in serving as a global baseline for taxonomies and as a tool for international green asset labeling for cross-border transactions.
My discussions with representatives from the above-mentioned countries and jurisdictions show they are interested, but some need a better understanding of the framework and potential benefits.
Q: How would a global baseline for green finance taxonomies work?
MJ: The current landscape of sustainable finance markets, which are segmented by different taxonomies and other regulations (such as disclosure rules, ratings, verifications, etc.) needs to converge and become interoperable so that cross-border capital flows become easier. This is particularly important to emerging markets and developing economies that still rely heavily on external funding.
My idea is to design an Asia-based green trade bloc that includes China, Japan, Korea, ASEAN countries, as well as Australia and New Zealand
Given my many years of experience co-chairing G20 discussions on sustainable finance, there is no way to force all countries to adopt the same standards. A few leading jurisdictions, such as members of the MCGT, should stand up and be conveners of new approaches, tools, and standards, and convince the other members of the global climate community to use them voluntarily. Once enough countries use a new approach, it will become the de facto global benchmark.
I call MCGT a baseline, rather than a standard, because we are not aiming to produce and introduce a single taxonomy globally — which is unrealistic given local contexts of environmental objectives are quite different in different countries — but most jurisdictions can agree to use the same principles and core elements which are provided by the MCGT. And the MCGT can be used mainly for cross-border fundraising for sustainable projects, rather than domestic usage. This is the type of “international baseline” that I envision for the MCGT.
The actual working of the “baseline” approach can be divided into two levels. Level one is the role of members of the MCGT: they are the producers of the MCGT and obviously have the incentive to use MCGT in their cross-border transactions with others. Level two is the role of MCGT members in promoting the use of MGCT as the core or baseline for developing regional taxonomies such as those in Latin America, Africa, and ASEAN.
Q: You are also working on a proposal to develop a green trade bloc in Asia. Can you tell us more about that?
MJ: My idea is to design an Asia-based green trade bloc that includes China, Japan, Korea, ASEAN countries, as well as Australia and New Zealand, which is called the Regional Comprehensive Economic Partnership (RCEP). (Click for a more detailed discussion.) This green trade bloc, if working, can demonstrate to the rest of the world that climate policies and free trade regimes can go hand in hand and can deliver economic and environmental benefits to all members of a trade bloc.
Our economic model shows that this green trade policy can generate significantly large economic benefits to make all members of the trade bloc better off, at the same time accelerating climate action.
By green trade policy, I refer to reductions in tariff and non-tariff barriers on a list of green goods and services that are agreed upon by all members of the RCEP. And this list of goods and services should include not just “environmental goods” like water and air pollution treatment and measurement equipment, but also low-carbon goods and services, such as low-carbon steel, low-carbon iron ore, low-carbon cement, low-carbon textiles, low-carbon shipping, and low-carbon aviation. Our economic model shows that this green trade policy can generate significantly large economic benefits to make all members of the trade bloc better off, at the same time accelerating climate action.
I think this is the type of Asia policy innovation and climate leadership that we need, especially in light of the US withdrawal from the Paris Agreement and “reciprocal tariffs” on all countries.
I’m really confident that, at least for the part I can see on a daily basis in China, we will hit our 2060 targets. Even with existing technologies, I see a large part of that materializing. But if we can improve the technology and bring down the price of green technologies, then we will boost the economy and at the same time, green the economy.
Q: Finally, will the world reach its climate goals between 2050 and 2060?
MJ: I’m really confident that, at least for the part I can see on a daily basis in China, we will hit our 2060 targets. Even with existing technologies, I see a large part of that materializing. But if we can improve the technology and bring down the price of green technologies, then we will boost the economy and at the same time, green the economy.
Let me give you a few numbers on the scale of the innovation in Shenzhen alone. In one city, 7,000 companies are working on energy storage. And a few weeks ago, I attended a hydrogen conference in Hong Kong with 700 people discussing investment opportunities on hydrogen production, transportation, storage, and application. It’s just one segment of the new energy landscape. It’s amazing.
On that positive note. Thank you.
Featured photo source: Hong Kong University of Science and Technology
(reposted from Climate & Capital Media)