This Year’s G20 Think 20 Summit in Germany: Its Most Underrated Discussion is Why We Don’t Have Global Solutions Yet
This year’s G20 Think 20 Global Solutions Summit had no shortage of Nobel Laureates and other big names. The very idea of Joseph Stiglitz and Sir Nicolas Stern being on the same discussion panel, made most of us, sustainability professionals, jump up and down on our seats. The emotional speech of Jeffrey Sachs has shocked most of us into action, while a more light-hearted approach of German Federal Minister Peter Aitmaier has charmed us into that same action.
Yet, while the audience of the ESMT’s main auditorium was literally agonising over these and other prominent personalities, a lot of attendees were left to question: So, what is the Global Solution to local problems exactly? Later that evening, a friend from the industry, who was following the Summit on the life-stream, shared his verdict: “I couldn’t watch the entire thing. I applaud the fact that you could just let it be. They point out to all the right problems, that we already know about. As a practitioner, I sit there and I keep thinking: So, what shall I do? Give me solutions”.
I had a slight urge to dive into traditional discussion about disconnect between business and academia, but I stopped myself abruptly. Saying that practitioners weren’t represented just wouldn’t be fair. Of course, T20 is not (nor should it be) B20 by design, but those, who practice, also had their voices heard at the Summit. The World Bank, the IFC, the EIB, an auditing giant, you name it…
Yet, arguably the most practical discussion of the Summit — “Sustainable Financial Solutions — How to Mainstream Green Bonds” — was neither streamed nor heavily promoted. In fact, Google search returns just one short article about it. It attracted limited, but mostly clued up audience.
As a matter of fact, if you are somewhat into green finance, chances are, you have been wondering what happens when these 5 people get into one room to discuss their craft. To begin with, it was moderated by the “Father of Green Bonds” Christopher Flensborg, who has structured the second ever Green Bond almost a decade ago. The panel also included Aldo Romani, who is not only the other father of green bonds, as he shaped the first ever green bond back in 2007. I would also call him a life-long carer of green bonds, since the EIB remains the largest issuer of Green Bonds to date. Add Shi Yingzhe, who is the Director of the Green Bond Lab in China (the very country, which catapulted to become the largest Green Bond Market within just a year). “Stir with” some brilliant metaphors from Vikram Widge, who is heading Climate Finance and Policy at the IFC. Finish the recipe with Simon Zadek, who co-authored G20 Synthesis Reports on Green Finance two years in a row, as an intellectual cherry on top of that healthy green bond smoothie.
Why healthy? Over the last decade, Green Bond Market has been growing steadily. It reached USD 92.8 bln in 2016 and it is expected to rise to USD 125–150 bln in 2017. For a good reason: “Green Bonds are a great example of low-hanging fruit of finance innovation”, says Simon Zadek.
Surely, problems still exist. There are concerns over possible greenwashing. Especially so, as green bonds are growing in Emerging Markets, where corruption may be rampant. That could be battled with green bond certification. Though with a regular review costing USD 15–30k and bespoke reviews reaching USD 100K (Holmes I. and Maule S., 2016, p. 15), this is still a very expensive process. This is a part of the reason why despite of all the growth, green bonds currently constitute just 1% of all bonds (G20 Green Finance Synthesis Report, 2016, p. 17).
However, this is all temporary. As Green Bonds proliferate, the certification costs are to go down. “At some point, Green Bonds market will trigger changes in design of other fixed income innovation”, believes Simon Zadek. Vikram Widge notices that the value of Green Bonds is in creating a platform, where “Green is in the eye of the beholder”. Panellists also agree that green bonds can become a source of accountability.
Truth being told, none of that is a major revelation if you have been looking into green bonds. However, how does this discussion reflect on a wider G20 agenda? Let’s recap:
1. “Green bonds are great example of a low-hanging fruit of green finance innovation”. They might be innovative, yet, they are fairly easy to implement;
2. Green bonds are not prescriptive. Different “green bonds” can match different investor mandates (e.g. wind, solar or even gender); In that sense, they offer local solutions to global problems;
3. Green bonds can trigger other types of fixed income and other financial innovation. Thus, serving as an impetus for greening the entire system eventually;
4. Green bonds have the potential to become the source of accountability, thus making the entire system more transparent.
In other words, Green Bonds exemplify those local solutions to global problems that are a) easy to implement; b) can contribute to greater and more systemic changes. So why were we not discussing it in the main room? I’ve been thinking about it, when the answer came to me just like that.
As one of the G20 Think 20 Young Global Changers 2017, I had an additional task at the Summit. Our G20 Young Global Changer Taskforce on Financial Resilience was supposed to come up with concrete proposal to tackle existing challenges. When brainstorming ideas, I suggested we should focus on making the system more transparent “by going back and reinventing the basics”. This would include favouring simpler, more transparently designed financial products. The first question everybody would ask was: “Will we not send the message that innovation is bad, if we advocate for going back to basics? We don’t want to stop innovation”.
Yes, we don’t… and we should not… Albert Einstein once said that “The definition of genius is taking the complex and making it simple”… We all know how complex it is now, let’s just get it to be simple!
…But then, I suppose that is exactly what Young Global Changers are for!…
