Green Finance Toward a Sustainable Recovery
Keynote Address by Tao Zhang, Deputy Managing Director, IMF
Chongqing-Singapore Connectivity Initiative Financial Summit, November 23–24, 2020
November 23, 2020
My distinguished guests,
It is my great pleasure to join you today at the Chongqing-Singapore
Connectivity Initiative Financial Summit. I sincerely congratulate you on
this important event.
The COVID-19 pandemic has dealt a severe shock to the global economy.
Policymakers around the world have taken steps to contain the spread of the
virus, to protect the vulnerable and support economic activity, and to
bring about an early recovery.
But the crisis also provides a unique opportunity to address some of the
structural and strategic challenges that existed even before the pandemic,
yet never received sufficient attention from us. Chief among these is how
to deal with the challenge of climate change, including through the
mobilization of green finance.
There are many issues to discuss about green finance, but today I would
like to focus on three in particular.
First, let me start by emphasizing the importance of expanding green
investment. For the world to transition to a low-carbon future, substantial
investments will be required—in renewable energy resources, in more
energy-efficient buildings, in seawalls and other infrastructure to adapt
to rising sea levels, and in a host of other areas. How will this all be
financed? Clearly both market forces and policies can contribute. Market
forces will need to play a fundamental role in helping allocate resources
from high- to low-carbon sectors. Indeed, issuance of green bonds and loans
has risen from nothing 10 years ago, to an estimated $320 billion this
year, bringing the outstanding amount of green debt to over $1.5 trillion.
At the same time, policies can do their part as well. For example, the
revenues generated by carbon pricing can certainly help. Policymakers may
also have a role in encouraging bond financing—witness, for example, the
Sustainable Bond Grant Scheme launched in 2017 by the Monetary Authority of
Second—and closely related to the goal of deepening markets for green
finance—adequate, transparent, and open disclosure of information is
essential. Market participants rely on transparent public information to
help inform their investment and consumption decisions. Adequate
information is critical for aligning market incentives, measuring results,
ensuring proper asset valuations, and managing risk effectively.
Disclosure of climate-related financial information is generally weak right
now across the globe. The IMF is working with the Central Banks and
Regulators Network for Greening the Financial System (NGFS) in bridging
data gaps. We are also working together with other international financial
institutions and global standard-setters to promote more standardized and
transparent information about sustainable products, as well as to achieve
stronger disclosure standards for climate data.
My third point is that close attention must be paid to financial risks.
Financial instability can materialize if the low-carbon transition becomes
uncoordinated or abrupt, triggering rapid shifts in investor and consumer
behavior. Financial institutions must incorporate the climate-risk
perspective in their strategic decisions, and they may choose to adjust
their business models to manage and mitigate the impact of climate risks on
their balance sheets. Prudential supervisors should set out expectations
for financial institutions to include climate risks in their risk
management and governance frameworks.
I would also note that, over the past decade, the IMF, and the World Bank
have worked through the Financial Sector Assessment Program to capture
physical climate-related risks, such as storms, floods, and droughts in
their stress tests.
Let me wrap up by saying that promoting green finance is a critical
component in the global effort to address climate change and achieve
sustainable development. It will be essential to promote green investment,
and green finance as well, to enable resources to flow to low-carbon
sectors. At the same time, we must be able to identify systemic risks and
maintain financial stability during the transition toward a low-carbon
The IMF is ready to work with all its members to explore ways to promote
green finance that best serve their own development objectives.
With these remarks, I wish you all the best for this Financial Summit.
Thank you very much.
IMF Communications Department
Phone: +1 202 623-7100Email: MEDIA@IMF.org