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Good business


Development and commercialization of green technologies has become a priority for both financial institutions and companies

We are facing a moment that only comes once in a generation. Another technology boom, but this time one driven by climate change.

Entrepreneurs, companies and governments are coming together to seek innovative ways to help the world transition to carbon neutrality.

The political will to address the challenge is growing. China has joined the European Union as a leader in green finance, and we are now seeing others follow: the Middle East, Latin America and Africa. Here in the United States, President Joe Biden has made climate an all-of-government affair.

Government policies, good governance and regulatory enforcement structures are all important components of the political will necessary for developing a successful green finance framework to support the transition to carbon neutrality. But as we all know too well, that is not enough--we also need to mobilize private capital.

And the good news is, this is happening. Green finance has moved from being a philanthropic activity into the mainstream for business.

The novel coronavirus outbreak and increasingly visual climate-related disasters have demonstrated the importance of long-term resilience. Financial institutions have realized the great threat that climate risks pose to financial stability.

Leading investment banks, hedge funds and other financial institutions around the world have made the green transition a growing priority and are using the power of their platforms to be advocates.

In short, climate change is now good business. According to Bloomberg NEF, a record $501 billion was pumped into the energy transition in 2020.

In addition to the priority that companies are placing on their own transition to net-zero emissions, we're seeing investment opportunities on a scale not seen since the technology boom in the 1990s.

Climate investing is no longer just about renewables and infrastructure. It is also going mainstream. The prime example is Tesla. Its stock surged 740 percent last year and its market cap is now larger than that of General Motors.

China is going to be at the heart of this climate business boom. Not only because the scale of its emissions creates opportunity but also because it is becoming a leader in innovative green finance as well as clean tech.

Take, for example, the business of environmental goods and services, which China has started to open further to foreign companies. In a recent study, Goldman Sachs estimated that there is a $16-trillion opportunity in this sector and China could create up to 40 million jobs by 2060. That's good business.

The development and commercialization of new climate technologies is essential for us to reach carbon neutrality. It's in all of our interests to support deployment of these technologies. Yet, at the same time, we have to ensure that the climate business does not turn into a climate clash. Already we see competition in new energy vehicles, solar panels and lithium-ion batteries. Healthy competition is good because it drives down costs. But competition that leads to restricting technologies for reasons other than national security is not in anyone's interest.

There is increased demand on the client side as well. Assets in sustainable funds hit a record $1.65 trillion at the end of last year, up 29 percent from the previous quarter.

TPG, for example, a major US private equity company, is launching a global climate fund to invest in technologies and solutions that could help build green equity to balance the huge growth that we're seeing in green bonds.

The world's largest asset managers such as BlackRock have identified sustainability as a key priority and are pushing the companies they own to increase climate disclosures and using the platform of their own money to encourage change.

This is a wave that can't be turned back.

The launch of China's carbon exchange, planned for the end of June, will also create new opportunities. When it launches, with just one industry, the power sector, it will cover not only about 45 percent of China's own carbon emissions, but 14 percent of global emissions. When the eight other industries, such as cement and electrolytic aluminum, are added to the exchange, it could potentially cover up to 30 percent of global emissions.

Carbon could become the new currency with China creating the terms, the standards and the pricing.

It is important, therefore, to continue discussions so that we can understand where some of the flashpoints might show up and hopefully find the right framework for dealing with the inevitable differences that will arise.

The author is vice-chairman and executive director of the Paulson Institute. The author contributed this article to China Watch, a think tank powered by China Daily.

The views do not necessarily reflect those of China Daily.