The Future Of Finance

By Dr. Jun Ma 15 May, 2020

What are the chances of a green recovery? Where is China re its green push? Global green finance guru Dr. Ma Jun answers it all

China should include more green projects in its post-COVID stimulus package, such as allocating proceeds to green projects from its special bond issuance & incentivising green consumption
Post COVID-19, more investors may be attracted to ESG due to better performance & lower volatility in the asset class
Regulatory action will pave the way for higher quality green finance products & for financial institutions to have a better understanding of environmental risks & take action to manage them
Dr. Jun Ma
Author: Dr. Jun Ma
Dr. MA Jun is the Chairman and President of Hong Kong Green Finance Association, and Director of the Center for Finance and Development, Tsinghua National Institute of Financial Research. He is also a member of the Monetary Policy Committee of the People’s Bank of China, Chairman of Green Finance Committee of China Society for Finance and Banking, Chairman of the Supervisory Workstream (WS1) of the Central Banks and Supervisors Networking for Greening the Financial System (NGFS) and Co-chair of G20 Green Finance Study Group. Before joining Tsinghua University, he was the Chief Economist at the Research Bureau of the People’s Bank of China (PBOC) from 2014 to 2017. Prior to that, he worked for 13 years at Deutsche Bank, where he was Managing Director, Chief Economist for Greater China, and Head of China and Hong Kong Strategy. From 1992 to 2000, he worked as public policy specialist, economist and senior economist at the International Monetary Fund and World Bank. From 1988 to 1990, he was a research fellow at the Development Research Center of China's State Council.
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COVID-19 sent shock waves through the global economy and financial markets yet green bonds and ESG funds have proved to be more resilient in these turbulent times. To better understand why as well as the potential of green finance, CWR sat down with Dr. Ma Jun, the Chairman and President of Hong Kong Green Finance Association and the ex-chief economist of the PBOC, to discuss green recovery in China and the push for environmentally risk-aware financial institutions in post-COVID times. 

CWR: COVID-19 has had unprecedented impacts on the global economy and for financial stability. Countries are scrambling to act and there is much debate on saving lives vs. making money in some countries. Already, there has been a global retreat towards cheap fossil fuels and bailout of such industries to stimulate the economy as that is seen as more important at the moment. Is this the end of green development, what are the chances of green recovery? Where is China re its green push?

Dr. Ma Jun (MJ): As part of the new stimulus package to offset the economic impact of COVID-19, China is planning a large number of new infrastructure projects. Some of these projects are green, such as charging stations for EVs and smart cities.

However, I believe that more green projects should be included in the package. This is particularly important for Chinese local governments which are the main planners and implementors of most new infrastructure projects.

The Chinese govt COVID-19 stimulus package should include more green projects & incentives for green consumption

The Chinese central government should also consider allocating a significant amount of proceeds to green projects from its special bond issuance. In addition, government stimulus for consumption should also consider its green impact. For example, consumer coupons or subsidies could be directed to encourage purchase of green consumer goods such as E-vehicles and energy efficient electronic appliances.

CWR: Markets have been extremely volatile during the current crisis. But green bonds as well as ESG funds have experienced less volatility. Why is that?

MJ: One possible reason is ESG funds, typically investing in companies with better corporate governance and more prudent management style, are less exposed to risky businesses and therefore are less susceptible to major shocks like COVID-19 pandemic.

CWR: Does this bode well for the future of ESG? Or will we see commitments stall given the downturn?

MJ: The fact that ESG investments performed better during the crisis would encourage more investors to participate in this asset class. In addition, many think tanks and policy makers are calling a green stimulus package post COVID, which imply that more green assets may become available for ESG and sustainable investment in the coming years.

CWR: What should investors and bankers watch out for post COVID in terms of green finance?

MJ: Post COVID, I expect more emphasis on environmental information disclosure by regulators, which will pave the way for higher quality green finance products on the market.

New ERA methodologies by NGFS should be applied by banks & investors to assess & quantify the impact of their investments on the environment & climate…

The Central Banks and Supervisors Network for Greening the Financial System (NGFS) is working on a few documents calling for wider adoption of Environmental Risk Analysis (ERA) by financial institutions. These ERA methodologies should be applied by banks and investors to assess and quantify the impact of their investments on the environment and climate. They will also help FIs to avoid unexpected financial risks arising from environmental and climate exposures.

CWR: You mentioned the NGFS and risks arising from environmental and climate exposures, do you think there is sufficient understanding of such regionally? Is there progress?

MJ: Not everyone is on the same page – many financial institutions (FIs) are not yet well informed on the importance of the Environmental Risk Analysis that NGFS is advocating. This summer, the NGFS will publish two documents, including the Overview of Environmental Risk Analysis, and the Occasional Paper on Case Studies of Environmental Risk Analysis Methodologies.

These two documents will provide a comprehensive review and detailed presentations of methodologies used by banks, asset managers and insurance companies to quantify the financial risks arising from their climate and environmental exposures.

…e.g., a few ERA models are used to estimate the future increase in NPL ratios of loans extended to fossil fuel companies

For example, a few ERA models presented in these publications are used to estimate the future increase in NPL ratios of loans extended to fossil fuel companies. I am hoping that the availability of these methodologies will enable many FIs to better understand environmental and climate risks and take actions to manage these risks.

Click here to view the Chinese version.

Further Reading

  • Climate Fight: Finance As Asia’s Most Effective Weapon – Green finance is set to take off as regulations promote carbon pricing and better disclosure but Dr Ma and Huang also see gaps that need closing like integrating ESG factors in risk management
  • Can APAC Lead In Adaptation Finance? – After attending two key climate conferences, including COP 22, CWR’s Hu shares why adaptation financing in APAC is crucial though it’s lagging and how the private sector can lead this effort
  • Green Finance Revolution: China Can Lead – Can financing required to meet targets laid down in Paris be met? WRI’s Shouqing Zhu & Andrew Steer on how China can lead with five recommendations
  • Where Is The E In ESG Disclosure In China? – China is moving to mandatory environmental disclosure with a tentative 2020 deadline, but where are listco’s now? China Water Risk’s Dawn McGregor & SynTao’s Dr. Peiyuan Guo share 8 key takeaways from their newly released joint report, “CHINA PRIORITISES ENVIRONMENT: More Disclosure Needed To Match Rising Risks”
  • Hong Kong Green Finance Association Launch: Key Takeaways – What is the Hong Kong Green Finance Association and how can it aid China’s Belt & Road Initiative? China Water Risk’s Dharisha Mirando shares 3 key takeaways from the launch
  • More Green, More Money? – Companies’ participation is vital to combat climate & water risks – what if they can access to more capital at the same time? CWR’s Ronald Leung illustrates the secret lies in active investor engagement

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  • ESG Doomsday Preppers – Many laughed at Doomsday preppers but who is laughing now as companies integrating ESG outperform during the crisis? ADMCF’s Alison Lee explores why this is & the future direction
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  • 8 Risks You Missed During COVID-19 – Been focused on COVID-19? You are not alone but we can’t get distracted from the climate crisis. Catch-up with CWR’s Chien Tat Low who runs through 8 latest climate & water risks