Tomorrow Investor

Can Sustainable Finance Ease the Strain Between the US and China?


While political and economic relations between the two superpowers are currently fraught with tension, the United States and China need to step up their game if either of them expects to meet the climate-change goals they aim to attain by 2030.

On both sides, financial institutions need to take significant action with regard to climate change – aside from any existing net-zero commitments. In fact, banks and other financial companies need to make comprehensive disclosures regarding any initiatives related to climate change. At the same time, these should also have clear and comprehensive plans that will have a beneficial effect on both the environment and their respective national economies. 

With the UN COP26 climate summit currently underway in Glasgow, Scotland, both the US and China are in the spotlight as these countries jointly lead the Sustainable Finance Working Group (SFWG) of the G20. As such, the SFWG serves as a central hub for coordinating the global effort to mobilize sustainable finance. 

What issues need to be considered in this context?

According to a third-party expert, Senior Deputy Governor Luigi Federico Signorini of the Bank of Italy, the SFWG needs to focus on a standardized green taxonomy, accurate and relevant data, as well as transparent climate disclosures.

Indeed, Signorini said that greenwashing – the use of PR and eco-savvy marketing to put a “green” spin on things with or without proof – is a danger. Likewise, there is a need for consistency with regard to environmental standards across the globe as current standards have confused investors and have cost companies a great deal.

The need for green taxonomy

The European Union has its own system for delineating which financial initiatives may be considered sustainable. It was developed to pave the way for sustainable finance products and to enable banks and similar institutions to transition to more sustainable ways of doing business.

China has modeled its own taxonomy on the EU model and, in its current iteration, is now 80% similar to the original. For its part, the People’s Bank of China has published new standards in order to expand the scope of assessment from green loans to bonds. Another set of standards is meant to clarify overall requirements, risk control, and value assessment for products related to environmental equity financing.

In the United States, regulators have noted the risks posed by climate change and have presented a dual approach with regard to identifying, measuring, and managing climate risks. 

In any case, the rest of the world is watching as to how these two superpowers aim to implement their measures regarding sustainable finance on the rest of the world in order to mitigate the impact of climate change on humanity.

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