Sino-German Expert Dialogues on Sustainable Finance

A kick-off event marked the beginning of an IKI supported series of workshops planned for 2024.

In March 2024, more than 40 Chinese and German experts, practitioners, and policy makers discussed technical approaches on how to make finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development. The high-level participants included financial regulators, commercial and development banks, rating agencies, academia, global initiatives and think tanks. The workshop was structured into three thematic sessions, respectively on policy outlook and overall market development, green and sustainable finance taxonomy, and sustainability disclosure.

This kick-off event marked the beginning of a series of workshops planned for 2024. The workshops will be hosted by IFS and Climate & Company to facilitate the exchange of insights and peer learning on different asset classes of sustainable finance products in the EU, German and Chinese markets. The IKI-project “Sino-German Cooperation on Climate Change” supports the work. Upcoming workshops in 2024 will focus on debt-based products, equity-based products, insurance and FinTech.

Topics of the kick-off event

Dr. Ma Jun, the President of the Institute of Finance and Sustainability (IFS), a Beijing-based non-profit research institution, revealed insights on domestic and international progresses in the field of sustainable finance. He emphasized China’s promising achievement to develop the world’s largest green loan and green bond markets during the last decade. Despite this progress, challenges persist, including the need for the nationwide implementation of the transition taxonomy, the development of risk analysis tools and ESG products of the asset management industry.

Following Dr. Ma Jun, the latest updates on the overall policy development and market dynamics in China was shared by the representative of the central bank of China. In terms of green financial products, the balance of green loans in local and foreign currencies has reached 30 trillion yuan (3.83 trillion EUR) at the end of 2023, an increase of 36.5% since the previous fiscal year. Green loans with direct and indirect carbon reduction benefits account for about two-thirds of all green loans given out by financial institutions in China. The green bond market stock is also growing. Additionally, there are some innovative financial products such as sustainable development linked products, equity funds, insurance products, and carbon emission products.

The representatives of European based organizations, including the Co-founder and CEO of Climate & Company Ingmar Jürgens, revealed during the workshop, that the EU sustainable finance regulatory framework is currently the most comprehensive one globally and continues to evolve. There is also significant development in the FinTech, particularly around those ESG-focused companies. AI is being more frequently used to assist the data collection processes within financial institutions for disclosure and reporting. Emerging trends can be observed especially in areas of biodiversity finance, landscape financing, sustainable impact investing, and transition finance. These represent challenges but also areas of opportunity for financial institutions. Policy and regulatory developments continue to evolve very rapidly at both German and EU levels, aiming towards harmonization and streamlining of sustainable finance practices.

The application and further promotion of the EU-China Common Ground Taxonomy (CGT) was spotlighted at the meeting. To date, the CGT has resulted in the labeling of 221 green bonds, accounting for 22% of the total amount of green bonds in China. During the labeling exercise, some challenges have been identified. One major issue is the limited proportion of overseas institutions investing in Chinese green bonds due to non-uniform green standards and low degree of interoperability. The second phase of work under the International Platform on Sustainable Finance (IPSF) taxonomy group is currently underway, focusing on expanding the comparison exercise to other jurisdictions, upgrading the current methodology, and conducting knowledge-sharing events to disseminate information about the CGT.

Further workshop discussions focused on the trends towards the broader use of global standards and the need to ensure interoperability of standards. The G20 debate about adopting sustainability disclosure requirements was highlighted. It was noted that while some countries have started requiring larger companies to adopt these standards, emerging markets have expressed concerns especially for small and medium-sized firms where resources for such disclosure might be less readily available. Corporations are, furthermore, facing an information overload due to inconsistency among diverse disclosure standards, aligning these will enhance market integrity and investor confidence.