Multilateral banks are not doing enough to push green infrastructure development and need to rethink the way they approach financing major projects, Ma Jun, a member of the People’s Bank of China’s monetary policy committee, told GlobalMarkets.
Ma, a green activist and co-chair of the G20 Sustainable Finance Study Group, said multilateral development banks (MDBs) should do more risk mitigation for green projects rather than just straight lending. “Instead of say investing $2bn for one project, they should use the $2bn to create a guarantee fund,” he told GlobalMarkets in an exclusive interview. “Then, they can guarantee 10 or even 20 projects if they use partial guarantees or first loss guarantees, maximising the impact of their funding.”
Ma said MDBs should step in to bring together demonstration projects — self-contained, small-scale capital investments for projects that highlight a specific approach to funding. He said countries’ practice of using different technologies, employing different people, and using different local financial markets, created uncertainty for private sector investors worried about projects going bust. Ma said MDBs could step in by putting together these projects, reducing the perceived risk of a default.
Ma said MDBs should also focus on capacity building and changing the way local banks operate in some of these emerging markets. “Multilateral banks have a huge leverage because they lend money and the government listens to them,” he said. “They are viewed as models, as heroes, within the local financial sector. So, if they do it, it will be very effective.”
Belt and Road
Ma admitted that there were challenges to China’s ambitious Belt and Road Initiative, including causing a debt trap for some countries, not being transparent enough and a lack of greenness.
He said the third concern was being tackled, with different bodies making sure that investors from the mainland and elsewhere, who were pumping money into Belt and Road would do green, low carbon and climate resilient projects that would gradually reduce their exposure to brown assets.
He added that China has acknowledged the risks of large-scale lending and the need for more disciplined lending. In April, the Ministry of Finance published a debt sustainability framework for countries participating in the Belt and Road.
More impetus for greening infrastructure projects and improving transparency around disclosure is also coming, Ma said, pointing to plans to launch a green investment product database. This would consolidate projects in the Belt and Road from sources such as the Hong Kong Trade Development Council and carve out the green portion of these projects into the GIP database.