China’s green finance model shows how saving the planet can also be a savvy investment
- With the world’s largest carbon trading exchange, huge green bond market and plethora of green private equity funds, China has shown that well-crafted regulatory, policy and financial frameworks can spur private interest in green finance
Without private sector financing, China will be unable to muster the estimated US$1 trillion needed to meet its ambitious environmental goals. Government financing will only cover about 15 per cent of the total price tag.
As China has discovered, stimulus spending does not always ensure that government money is used effectively. Governments cannot command that private money be used to promote green development. Instead, they must create vehicles to attract these funds through a combination of good policy, incentives and disincentives, and a regulatory structure that promotes investment and green development.
Only through creating the right regulatory, policy and financial frameworks can China attract the needed private-sector financing to meet its goals.
These opportunities have also caught the eye of private equity funds. Today, there are over 500 green private equity funds in China and the market is growing rapidly. One of the first such funds, and one of the few approved at a national level, is the US-China Green Fund, which is helping to integrate American technology with the China market and which recently celebrated its second anniversary. To date, its rate of return is higher than most regular private equity funds in China. [The Paulson Institute is a non-commercial adviser to the fund.]
China is promoting the growth of domestic funds, but also exploring the creation of other bilateral funds, including one with Africa, drawing on the country’s rapidly growing environmental goods, services and technology market.
Ant Financial, for example, created Ant Forest, an online game that encourages players to reduce their carbon footprint. Based on the data collected, it can strategically market sustainable products to its 350 million users based on players’ interests and goals. [Ant Financial is the financial arm of Alibaba Group, which owns the Post.]
Over the past five years, China has built the most innovative and competitive market for green finance globally. It is using the framework of the financial system and market mechanisms to promote and finance sustainable development as well as to change consumption patterns towards more green products. As other countries consider their plans for economic growth and development, there is a lot they can learn from China on how to combine green development while still stimulating the economy successfully.
Deborah Lehr is vice-chairman of the Paulson Institute, which she helped launch