G20 Leaders Welcome "Green Finance" in Summit Communiqué
5 September 2016 - World leaders meeting at the G20 Summit in Hangzhou, China today issued a Communiqué recognizing the importance of scaling up green finance. It welcomed options put forward by the G20 Green Finance Study Group (GFSG) that is mandated to develop voluntary proposals for scaling up private capital for green investment.
This is the first time that G20 leaders have referenced the importance of green finance in the summit's annual Communiqué. At the initiative of the Chinese G20 presidency, the G20 established the GFSG, co-chaired by China and the United Kingdom with support from United Nations Environment as secretariat.
Erik Solheim, Head of UN Environment, said: "The G20 is a leader on bringing together the goals of economic performance and environmental preservation, thanks in large part to China's presidency. Green finance is vital to a green future, and we at UN Environment are proud to build on our work in this area in supporting the G20."
More than 80 participants from all G20 members, as well as a number of invited countries and six international organizations, actively participated in the GFSG. Since launching in January 2016, the GFSG hosted four core meetings, developed the G20 Green Finance Synthesis Report and submitted it to the G20 Finance Ministers and Central Bank Governors Meeting held recently in Chengdu. The Synthesis Report comprehensively examines the necessity and challenges of developing green finance globally. It also provides seven options for action to overcome the challenges facing green finance development.
The G20 Leaders Communiqué states that:
"We recognize that, in order to support environmentally sustainable growth globally, it is necessary to scale up green financing. The development of green finance faces a number of challenges, including, among others, difficulties in internalizing environmental externalities, maturity mismatch, lack of clarity in green definitions, information asymmetry and inadequate analytical capacity, but many of these challenges can be addressed by options developed in collaboration with the private sector.
"We welcome the G20 Green Finance Synthesis Report submitted by the Green Finance Study Group (GFSG) and the voluntary options developed by the GFSG to enhance the ability of the financial system to mobilize private capital for green investment.
"We believe efforts could be made to provide clear strategic policy signals and frameworks, promote voluntary principles for green finance, expand learning networks for capacity building, support the development of local green bond markets, promote international collaboration to facilitate cross-border investment in green bonds, encourage and facilitate knowledge sharing on environmental and financial risks, and improve the measurement of green finance activities and their impacts."
Welcoming the Communiqué, Zhou Xiaochuan, Governor of the People's Bank of China, representing the GFSG co-chair said: "The global financial system has a major role to play in mobilizing private capital for investments in green sectors, and appropriate incentives should to be given to green investment."
Mark Carney, Governor of the Bank of England, representing the UK and GFSG co-chair, said: "The adverse effects of climate change threaten economic resilience, growth and financial stability. Given the scale of the investment capital needed, financial markets are best placed to finance the transition to a low carbon economy. So the work of the Green Finance Study Group is critical in identifying options to address institutional and market barriers to bringing green finance into the mainstream."
Alongside the Communiqué, G20 members also released a Green Finance Synthesis Report that examines the necessity and challenges of developing green finance. It provides seven options for countries and market actors to support international cooperation in mobilizing green finance, including: promoting international collaboration to facilitate cross-border investment in green bonds, and facilitating knowledge sharing on environmental and financial risks.
BACKGROUND: Green finance and the G20
- It is estimated that financing for sustainable development will require annual investment flows of between $5 and $7 trillion. At present, less than 1 per cent of global bonds are labelled green and less than 1 per cent of the holdings by global institutional investors are green infrastructure assets. Only a small fraction of bank lending is explicitly classified as green according to national definitions.
- A fundamental challenge is to scale up green financing which will require the deployment of tens of trillions of dollars over the coming decade. The G20 Green Finance Study Group (GFSG) was launched in January 2016 to support the G20's strategic goal of strong, sustainable and balanced growth. Its mandate is to "develop options on how to enhance the ability of the financial system to mobilize private capital for green investment".
- "Green finance" can be understood as financing of investments that provide environmental benefits in the broader context of environmentally sustainable development. To name but a few, these environmental benefits include reductions in air, water and land pollution and reductions in greenhouse gas emissions.
- Various obstacles have been identified to scaling up green finance. These include difficulties in internalizing environmental externalities, information asymmetry (e.g., between investors and recipients), inadequate analytical capacity and a lack of clarity of green definitions.
- Options to address these challenges are emerging. Over the past decade, national-level financial sector options have emerged in many G20 countries. These include voluntary principles for sustainable lending and investment and enhanced environmental disclosure and governance requirements. International collaboration among central banks, finance ministries, regulators and market participants is also growing, focused in large part on knowledge sharing of country experiences and capacity building.
- The GFSG has developed a number of voluntary options for the G20 and country authorities aimed at enhancing the ability of the financial system to mobilize private capital for green investment. These include: providing strategic policy signals and frameworks; providing clearer environmental and economic policy signals for investors regarding the strategic framework for green investment; promoting voluntary principles for green finance; expanding learning networks for capacity building; supporting the development of local green bond markets; promoting international collaboration to facilitate cross-border investment in green bonds; encouraging and facilitating knowledge sharing on environmental and financial risk; improving the measurement of green finance activities and their impacts.