investors are unable to make accurate
comparisons. The publication of the FSB
taskforce report at the end of this year
will be a critical milestone towards an
agreed standard on disclosure, which will
help investors put a price on climate risk.
Formalising the nature of that disclosure
will go a long way to providing a concrete
point of comparison.
Creating the right incentive framework
is the third barrier to unlocking private
sector investment: At the present
moment, green finance is more expensive
than conventional finance because of the
rigorous disclosure requirements imposed
to enable investors to track where their
capital is being invested and ensure
green criteria is being met.
Of course it is important that investors
do have this information. The amount
of additional work it requires should
be reduced as we move towards more
standardised disclosure. But the costs
it incurs still need to be offset in other
ways if we want the market to grow at
the rate we need.
There has been some good progress
made. There appears to be widespread
agreement that carbon pricing is an
important incentive for sustainable
investment and a means to raise revenue
for low-carbon funding. By assigning
a specific cost to greenhouse gas
emissions, green energy can be priced
more efficiently compared to other
sources of energy. But carbon pricing is
an area where reaching agreement has
proved far from straightforward.
The current impasse makes it all the
more urgent that we make progress
on other incentives. A potential area
to consider is whether risk weights
should be eased for green lending or
other green investments – or whether
risk weighting should be increased on
activities that clearly have no long-term,
sustainable future.
In the past few years, the global green
bond market has continued to grow
strongly. We’ve just had USD 30.3 billion
of green bonds issued in 1H2016, up 60%
versus USD 19.0 billion in 1H2015. China
has been responsible for much of this
growth with its green bond market has
gone from nowhere in 2015 to accounting
for roughly half of global issuance today
The challenge of financing the transition
to a low-carbon world is significant.
But huge progress has been made,
and China has been at the forefront.
The barriers to investment are now
lower, the recognition of the need to
act is now clearer and the willingness to
change is now evident. The focus is how
that change is made to happen.
The G20 has a vital role to play. ■
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