Explained: China & the UK’s green finance initiatives

The UK finance sector is well positioned to take advantage of the surge in activity around models of green finance in China, and its use as an enabler of green growth

The news that the UK saw its warmest year on record in 2022 – and the prediction that this year could be even hotter – is yet another reminder of the urgent need to enable a low-carbon future. One of the many ways that this can be achieved is by pushing green finance into the mainstream.

2021 saw China become the world’s second-largest green bond market according to HSBC (issuing over RMB 600 billion of green bonds, a 180% increase on 2020), as the country rolled out funding to support the vast array of clean and renewable infrastructural projects that will be required to meet its ambitious net zero targets. The UK financial sector, for its part, has played a world-leading role in developing such instruments from their inception, and is well-placed to work together with Chinese partners in pursuing common goals.

Green finance can be defined as financial regulations, standards, products or investments that pursue environmental goals, including climate change adaptation and mitigation, and biodiversity. Over the past decade, the UK and China have established strong partnerships in the field of green finance, becoming world leaders in responding to the transition to a green economy. In a speech in London at City Week 2022 last April, Chinese Ambassador Zheng Zeguang spoke of the “broad space for China-UK cooperation on green development” and noted that a March 2022 conversation between President Xi Jinping and then Prime Minister Boris Johnson had highlighted cooperation in green financial services and the digital economy.

The UK-China Green Finance Centre, co-established by the City of London and the Green Finance Committee of the China Society for Finance and Banking, has spearheaded UK-China collaboration in green finance, and continues to serve as a key platform for leading industry and policy experts to develop market-led solutions to help scale up green finance in both countries – as well as globally.

At the Second Belt and Road Forum for International Cooperation held in Beijing in 2019, the UK-China Green Finance Taskforce (UKCGFC) announced the formation of the Secretariat for the Green Investment Principles for the Belt and Road (GIP), and the first list of signatories, including HSBC. The goal of the GIP is to encourage and assist signatories to better integrate environmental considerations into the decision-making and implementation processes of their investments in the region. Today, the number of GIP signatories stands at 40, with overall assets amounting to over $48 trillion worldwide.

The UKCGFC is supported by the UK Government through the China-UK PACT (Partnering for Accelerated Climate Transitions) programme. Since it launched in 2018, UK PACT has funded eight projects in China with the aim of helping the country reach its goal of reaching carbon neutrality by 2060. The newest round of projects, which started in 2021, includes a project to help financial institutions make greener decisions through climate-related disclosure and transparency, and “a project to improve the uptake of Environmental, Social and Corporate Governance (ESG) measures by the Chinese investment community, as well as to accelerate finance transition through the creation of a China-UK leadership forum, jointly led by the City of London Corporation and the Beijing Institute of Green Finance and Sustainability (BIFS).”

In terms of specific financial support, the London Stock Exchange’s Green Economy Mark identifies listed companies and funds contributing to the global green economy by addressing key environmental objectives such as climate mitigation and adaptation, waste and pollution reduction and transitioning to a circular economy. More than 100 companies and funds with a combined market cap of $140 billion have received the Mark since its launch in 2019. In 2020, Yangtze Power became the first Chinese issuer to receive the London Stock Exchange’s Green Economy Mark, certifying that the company generates more than 50% of its revenues from green products or services, according to FTSE Russell’s Green Revenues Data Model.

In November 2021, the Bank of China listed $2.2 billion in sustainable bonds on the London Stock Exchange. The bonds include the Sustainability Re-Linked Bond (SRLB), which will fund loan projects linked to sustainable development in industries such as tourism, trade, manufacturing and warehousing.