MAC: Mines and Communities

London Calling detects a green finch in China's bull shop

Published by MAC on 2015-10-24
Source: Nostromo Research

Is the UK capital is about to become the world's leading source of "green finance"?

China's presidential visit to London this week has seen a media-focus predominantly on the bulwarking of trade deals between the world's most-populated state and its leading source of finance capital.

True to form, there's also been a turnout of a substantial number of British citizens, keen to damn the Peoples Republic for numerous violations of human rights. As well as its refusal to stem the exports of cheap steel into the UK, thus purportedly leading to the closure of UK plants, and substantial unemployment among workers.

In no way should we downplay President Xi Jinping's disgraceful failure to even acknowledge the rights of Chinese citizens not to be imprisoned, tortured or harassed for criticising his government. (Not to mention the Government's uniquely massive use of capital punishment - much of which is directed against allegedly corrupt persons who haven't been charged with any murder).

As for China's role in breaching WTO rules on steel, we may well ask why British companies (notably Rio Tinto) that have over-surfeited world iron ore markets, shouldn't also bear a good share of the blame for the attrition suffered by the industry.

However, there's another, largely ignored, side to the Chinese coins that have been thrown with such abandon on the streets of London.

It is the promotion of so-called "green bonds", aimed at raising financial backing for various moves towards bringing-about a "de-carbonisation" of global economies.

Fulminate as we might (indeed, should) against the various pacts made by China this week to underpin the very opposite of this - not least in picking up much of the bill for construction of a new nuclear power station at Hinkley Point C in Somerset.

But, according to the CEO of the London Stock Exchange, it's thanks largely to China that this ostensibly commendable transition to a more sustainable planet is now being made.

So, who's going to come out and demonstrate against that?

Green bonds: London is leading the world in financing the global low carbon shift

Nikhil Rathi

City AM Op Ed

23 October 2015

While the dominant colour in London this week has been red for the landmark state visit of Chinese President Xi Jinping, today the London Stock Exchange will be adding some green to the palette as we host our inaugural China Green Bond conference in partnership with the Green Finance Committee of the People’s Bank of China.

With the UN Climate Summit in Paris in December and the Chinese G20 Presidency starting in January, this is a critical moment to put this topic on the agenda. Two trends have made this dialogue today possible.

First, the identification by the Chinese government of sustainable and green growth as a top priority. China is already the world’s largest clean tech investor, and the People’s Bank of China has developed detailed proposals to address China’s green financing needs. In a ground-breaking report, published in April, it set out in specific and practical terms an ambitious agenda as to how China can embrace green finance in its rapidly developing financial markets.

Second, China’s embrace of an international approach. Pan Gongsheng, the central bank’s deputy governor, has stated very clearly that an international approach is the only way to bridge the gap in China’s capacity to self-finance green projects. In particular, he called on China to draw upon the successful experiences of other countries, and to collaborate with the international community to promote green finance. The Chinese government has stated that it can only be expected to contribute around 10 to 15 per cent of all green investment, while private capital will need to contribute the remaining 85 to 90 per cent.

This policy is already being put into action through the markets in London. Yesterday, Liu Shiyu, the chairman of Agricultural Bank of China (ABC), stood on the balcony of London Stock Exchange to open trading, celebrating ABC’s landmark listing of RMB and dollar-denominated green bonds with a total value of $1bn, an issuance that was four times oversubscribed.

The need for green finance is pressing. The United Nations Conference on Trade and Development has concluded that there is a $2.5 trillion annual investment gap in what is needed to achieve the Sustainable Development Goals in the developing world.

London has a vitally important role to play in this globally transformational transition. As a UN Sustainable Stock Exchange, the LSE has been at the forefront of market developments. Indeed, ABC’s bond listing comes just three months after the launch of a range of new segments on our fixed income markets dedicated to the issuance of green bonds, the most comprehensive of any international exchange.

Chinese banks have not been alone in tapping into the enormous potential of this market. Last year the IFC, part of the World Bank Group, issued the first RMB-denominated green bond and followed suit with a rupee equivalent, also London-listed, in August. We have also seen the listing of our first retail green bond by Shanks Group and a green bond by Transport for London to support UK green transport infrastructure.

As this market grows – the amount raised tripled between 2013 and 2014, and is set to rise again this year – so we will need active, transparent measurement. We are working with some of the world’s largest asset managers to create bespoke indices to keep pace with investors’ need to factor environmental considerations into their decisions. The resultant FTSE Ex-Fossil Fuels Index series is the first among what we believe will be a rich panoply of tools to measure and model the scale and speed of the development of the global green economy.

With the strong support of the UK government, the City and the London Stock Exchange are in prime position to take the same lead we have done for hundreds of years: enabling finance for companies around the world as they approach the next great generational industrial shift – the transition to a low carbon economy.

Nikhil Rathi is chief executive of the London Stock Exchange.

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