Advancing sustainable growth in the United States and China

The Green Team Speaks to…SIMON ZADEK

Simon is co-Director of the UN Environment’s Inquiry into the Design of a Sustainable Financial System. He is also currently Visiting Professor at Singapore Management University, a Senior Fellow at the International Institute of Sustainable Development, and Distinguished Senior Fellow of the Academy of Business in Society. Until recently, he was also a Visiting Scholar at Tsinghua School of Economics and Management in Beijing, and a Senior Visiting Fellow at Harvard’s J F Kennedy School of Government. He is currently on the Advisory Board of the leading sustainability investment fund, Generation Investment Management. He founded of the international think tank, AccountAbility, and its Chief Executive until 2009. Before that, he also served as Development Director of the New Economics Foundation, founding Chair of the Ethical Trading Initiative, and on the founding Steering Committee of the Global Reporting Initiative. Simon publishes extensively: his book, ‘The Civil Corporation’, was awarded the Academy of Management’s prestigious Best Book on Social Issues in Management, and his Harvard Business Review article, ‘Paths to Corporate Responsibility’ is widely used as a reference point in understanding emergent sustainability strategies. He has advised companies worldwide on sustainability issues, and until recently, lived in China.

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  1. What top three green finance trends do you anticipate in 2018?

First and most obvious is market scaling through standardization, or what a participant at a recent workshop we co-hosted with the Paulson Institute called the “industrialization” of green finance. This will most likely happen in the area of risk disclosure, notably on climate related risks, and in the area of green bonds. Second, there will be a policy shift toward “sustainable finance.” This is partly in response to negative pushback from the U.S. and partly due to positive demands for a broader view of the finance agenda through a sustainable development lens. Exemplifying this shift is the G20 under Argentina’s Presidency renaming and re-scoping the Green Finance Study Group as the Sustainable Finance Study Group. Third, there will be a growing focus on specific aspects of sustainable finance—climate, inequality, and jobs. The climate aspect will be mostly driven by the market, but also in part by California’s major push, in which finance was a major focus of its September Climate Summit. Inequality and jobs will have much to do with the broader populist debate, and the rise of automation on the top of minds.

  1. Do you see the role of fintech positively evolving with regard to green finance and a green financial system?

Yes, this topic is reaching its inflection point in policy debates and bleeding edge market practice. It has been until now a purely exotic topic for a few folks as exemplified by the early stage work of the Green Digital Finance Alliance, founded by ANT Financial Services and UN Environmental. There are some messy aspects of fintech such as the vast energy required to underpin this generation of cryptocurrencies, basic privacy concerns, and the issue of money laundering, corruption, and more broadly, illicit financial flows. On the upside, however, is a blossoming of innovations in the green and financial inclusion spaces using a spectrum of digital technologies. This includes, of course, mobile payment platforms, but now also, big data, artificial intelligence, the internet of things, blockchain, and cryptocurrencies. Argentina has embraced the topic of sustainable digital finance in the G20, financial centers are getting more and more interested, and there are prospects to launch a major task force on digital finance and sustainable development through the United Nations.

  1. You have been following China on this green finance journey since 2016 and recently issued a progress report on their work. Can you tell us what you think are the most significant developments that China has accomplished and why?

China has led the way in taking green finance into the mainstream. Initially, it was the audacious ambition of the work of the People’s Bank of China working with UN Environment and others that led to the State Council’s embrace of a policy agenda to green China’s financial system, and to take the topic to the G20 under China’s presidency in 2016. Then, it has been the sheer weight, speed, and scale in key market-facing initiatives, such as the issuance of the world’s first national green bond guidelines and the immediate dominance of China in global issuance of green bonds. Thirdly, the development of China’s carbon markets, sometimes seen as a separate issue, with the announcement that the pilots would go national in December has been a major development, although initially limited in scope. Fourthly, and less visible internationally, has been the development of work at the more “local” level, understanding that local in a Chinese context involves regions the size of major European populations. Finally, and still at an early stage, are the efforts to begin pushing green finance as a defining feature of the Belt and Road Initiative.

  1. One of the most noteworthy developments last year was the announcement of China’s national carbon market. What short-term expectations do you have for it?

Yes, as mentioned above, it is an important step forward, potentially ground breaking. That said, I am a modest sceptic about carbon markets, although wanting to be proven wrong. Weak institutions and governance oversight, limited scope, and overly generous opening conditions can undermine the impact of carbon markets—all are potential features of the China experiment. Even the best laid plans to ratchet up the power of the markets can face an uphill battle under such conditions, especially if there are strong corporate and regional interests at stake. The odds of success increase, though, if carbon markets are combined with other policy instruments, including carbon taxes, fiscal incentives, and the use of public procurement as a major market-based instrument. China is indeed combining such policy instruments, and so with the world watching, perhaps we will indeed see success unfold.

  1. For anyone that meets you, your excitement for green finance is infectious. How did you become involved with it?

My work on sustainable development, business, and accountability spans several decades. It covers many sectors from mining, to gambling, footwear, geographies, and actors including business, policy makers and civil society. Eventually, I realized that all roads led to the intersection of two major global trends, finance and China. So, in 2012, my family and I packed our bags and moved to Beijing, with no job in mind, no Chinese, and virtually no domestic networks. Shortly after arriving, on January 8, 2013, the city’s PM2.5 count reached 960 against a WHO-recommended maximum of 25. It was grim, really an end-of-world experience, being amidst the sickly, yellow air. From that day on, everyone wanted to talk about just one thing—how to deal with “that,” whether I was talking to a minister, a banker, or a taxi driver. Such a context made it possible to advance green finance in China, and because of China’s openness to systemic thinking and planning, how to “green a financial system” has become a first-world discussion. From this evolved the UN-hosted, global inquiry on financial markets and sustainable development.

  1. Which living person do you most admire and why?

Goodness, at my age, so many people I have admired for so long seem to be dropping dead—Ursula La Guin (I have been deeply influenced by the genre of sophisticated science fiction, which formed the starting point for my doctorate thesis, “The Economics of Utopia: the Democratization of Scarcity”), Hugh Masakela (exemplifying the nexus between music and radical politics, spiked with a good dose of South African pyrotechnics), and Gregory Bateson (one of my formative influences on system thinking). I have had the good fortune to meet many amazing people and have come to realize just how many amazing people there are lurking in the oddest places. Some I get to hang out with on the magic mountain during the World Economic Forum’s annual Davos festivities, whilst others are closer to home, notably my partner and daughter.

Topics: Green Finance