1. Green Bonds for Cities: Nudging EU-China Cooperation on Sustainable Urbanisation into the Right Direction
15 March 2017
Nadia Kahkonen
Sid Sala

2. Agenda Urbanisation Finance Green Bonds Addressing Challenges03
Finance 06
Green Bonds 21
Addressing Challenges 31
Conclusion 39

3. Urbanisation

4. Urbanisation Our future is set to be urban
In the next three years, 60 percent of China’s population will be urban
Our future is set to be urban
In the next three years, 60 percent of China’s population will be urban

5. The future is urban

6. Urbanisation A priority for EU and China
European cities accounting for more than 70 percent of EU energy consumption
“EU smart cities”
“Low-carbon economy 2050”
China depends on its cities for economic growth
13th five-year plan
We want cities that are economically, socially and environmentally sustainable

8. Urbanisation Huge demands on climate, environment and infrastructure
“polluted, pricy and congested cities”
greater repercussions for citizen’s wellbeing
Urbanisation rate and speed… Greater infrastructure needs… globally = double at $6 trillion; China = 50% gdp to offset env cost; EU = EUR 100m investment gap/year to deliver energy union 2030

9. Finance

10. Finance Financing sustainable urbanisation will be expensive
Investments into infrastructure will need to double globally
Low-carbon solutions require higher upfront capital expenditure
Public finance alone can no longer meet overall infrastructure needs
China: investment by government and commercial banks not enough to meet capital requirements
EU finance gap
China: public finance can only meet 15% of the capital required for environmental solution required by infrastructure
EU: to deliver an Energy Union by 2030, EIB sees a gap of EUR 100 billion/ year from 2016 onwards in order to deliver its 2030 climate and energy targets
Financing sustainable urbanisation will be expensive
Investments into infrastructure will need to double globally
Low-carbon solutions require higher upfront capital expenditure
Public financing alone can no longer meet overall infrastructure needs

12. Green Bonds

13. Green Bonds
“Green bonds are like regular bonds with one distinguishing feature: proceeds are earmarked for projects with environmental benefits, primarily in climate change adaptation and mitigation.”
[Climate Bonds Initiative]
To refresh,
Green bonds are essentially regular bonds / debt instruments with the distinguishing feature of proceeds going towards projects with climate and environmental benefits.
The green label here also acts as a discovery mechanism for investors, allowing them to identify climate-aligned investments

14. Green Bonds
Within finance, green bonds are the most promising platform for cooperation
Bonds are familiar instruments for investors
Green bond market is growing very quickly
There is increasing private sector appetite for climate-aligned investments / impact investing
So why do green bonds deserve to be highlighted in the context of cooperating to scale private finance?
1) firstly, bonds are familiar instruments for investors, and green bonds are simply bonds with proceeds that are earmarked for projects with climate or other environmental benefits.
This familiarity creates great potential to rapidly scale up finance for green investments through green bond markets.
2) secondly, speaking of markets, the green bond market is also growing very quickly: only last month, France issued a record EUR7 billion in green bond; and China is, at present, the largest country of issuance with USD 246 billion outstanding) and its potential to bridge the finance gap for sustainable urbanisation merits further exploration.
3) There is also a growing trend and investor appetite towards investments with clear climate, social and/or environmental impacts.
Many institutional investors have dedicated green funds, including the likes of Credit Agricole, Barclays and Blackrock

15. Addressing Challenges

16. Addressing Challenges
“EU-China: Focus on political alliances before anything else”
Critics: “form stronger political alliance on sustainable development and climate change to fill the gap left by the U.S.”

17. Addressing Challenges
“Green bonds just one of many instruments to support investment in sustainable infrastructure.”
Universe of climate-aligned bonds not enough to bridge the investment gap for sustainable urbanization

18. Addressing Challenges
Investors are not yet ready to ‘pay for green’
Lack of standardization in the market

19. Addressing Challenges
Response: Building long-term commitment offers ground for common understanding
Response: Green bond market currently concentrated on project categories linked to urbanisation. Green bond based capital to fund infrastructure projects already an established model.
Response:
Green investors are not born but made.
Finally, green investors are not born - they are made - and both EU and China have, through their respective actions, been working on developing policy that will push green finance even further. [China = Green Finance Task Force; EU = EC’s High Level Expert Group on sustainable finance.]

20. Addressing Challenges
“To investors, green bonds offer a stable, rated and liquid investment with long duration. To issuers, they could tap the USD 100 trillion global institutional fixed income investor base.”
- Mark Carney, Governor of the Bank of England

21. Conclusions
15 March 2017
Nadia Kahkonen
Sid Sala

22. Conclusion
Sustainabile Urbanisation is a pressing/priority policy area for EU and China
Strong trends and politically non-contentious
An important ground for common understanding and cooperation
Greater infrastructure needs that public finance alone cannot address
Infrastructure needs vs. finance gap
Within finance, green bonds are the most promising platform for cooperation
Growing market and investor appetite for green investment
From SCS to AIIB, but the pressing of them all…