Debt and Biodiversity: A Chinese Leadership Opportunity
New report: China is now at the forefront of responding to environmental challenges at home and abroad. China’s target to reach net zero emissions by 2060 and
its hosting of the 15th Convention on Biological Diversity this year will set
out a post-2020 Global Biodiversity Framework.
At the same time, the country has emerged as a leading green financial
centre. In 2016, during its G20 Presidency, China pledged to become a
global leader in green bonds. Since then, it has developed a sophisticated
market and regulatory architecture, and become the second largest market
in the world, with US$120 billion of green bonds issued.
These developments are especially significant right now. Many economies
- and the ‘natural capital’ that supports their productivity and resilience - are
under severe strain. Half of low-income countries are either at high risk of
or already in debt distress, creating the need for immediate fiscal space
and resources to drive inclusive economic growth. The G20 is advancing
discussions on a range of solutions to address both the sovereign debt and
nature crises, and China’s role as a creditor puts it in a position to engage
in discussions on how best to support debtors.
There is a two-fold opportunity to integrate economic risks and
opportunities posed by nature and climate into debt markets, while at the
same time driving economic recovery and meeting international
commitments. First, the pricing of sovereign debt should reflect the tangible
economic impacts of how ‘natural capital’ is managed as a driver of
economic productivity and development, such as through sustainable
agriculture and tourist revenues, and in providing long-term resilience in the
face of climate change. Second, linking nature and climate outcomes to
sovereign debt issuance and payment terms can help debtor countries
weather the current debt crisis, and at the same time support their efforts in
meeting international climate and nature commitments.
In a new report released today, F4B sets out the opportunity for China to
engage in developments linking debt and biodiversity. The emergence of a
new generation of debt instruments would allow China to advance the risk
profile of nature in sovereign debt markets, secure nature outcomes that
benefit debtor countries, and advance the goals of international
commitments, while unlocking resources for meeting broader fiscal
The paper argues for an equally rapid and ambitious approach for China to
develop Nature Performance Bonds (NPBs). These bonds offer a key
opportunity for China to integrate the pricing of nature-related risks and
performance into financial markets. This would build and expand its existing market capabilities, and catalyse the issuance and trading of these
financial instruments in domestic and international markets.
The report sets out three practical steps that China could take, which
include: advancing research on prospects for nature-specific debt
instruments and nature-supporting market arrangements; participating in
international initiatives to advance the integration of nature in debt markets;
and developing a programme of innovative domestic pilots to underpin an
international leadership role in issuance and trading.
This report has been developed as a contribution to the Special Policy
Study on Green Finance of the China Council on International Cooperation
Comments and queries about this proposal, and other work of F4B, can be addressed to firstname.lastname@example.org.