Q: Welcome everyone to Impact Investing Musings, a podcast series where we delve into the ever-evolving world of impact investing and aim to connect, educate and share knowledge to drive capital towards impact. I'm Vikas Arora, Chief of Impact Investing at AVPN. 

I'm Jackie Hocking. In this episode, I discuss with Dr. Jun Ma, one of the world's foremost champions of green finance and sustainable development, with a career spanning three decades across Hong Kong and mainland of China and other international stages. Let's dive in. 

A: Hello, my name is Ma Jun. I'm the chairman and president of Hong Kong Green Finance Association. I also chair a global platform for capacity building, which is called CASI. CASI's full name is Capacity Building Alliance of Sustainable Investment. And I'm wearing many other hats in the sustainable finance field, including chairing the Green Finance Committee in China and co-chairing the China European-led Common Ground Taxonomy Working Group and many others. 

Q: So you've been around and seen a huge evolution in the industry. What are some of the biggest shifts and changes you've seen so far? 

A: Maybe starting a little bit on the broader green system of finance landscape. I started to be involved in 2014 when I joined the Chinese Central Bank, namely the People's Bank of China as chief economist. And I began to work on the green finance policy within China. 2015-16, I was leading the drafting of the Chinese Green Finance Guideline. And 2015, I was leading the development of a Chinese green bond standard or taxonomy. And these are the early days of China green finance development. Now, after 10 years, China has developed to the largest green lending market with outstanding amount of 45 trillion RMB, which is equivalent to about 6 trillion US dollar. So that's a part of my China-involvement and globally I've been involved in a lot of international initiatives including co-chairing the G20 Sustainable Finance Working Group which developed lots of very important guidelines and principles for sustainable finance growth around the world, including for example, in 2021 the Working Group came up with a roadmap for sustainable finance. And in 2022, the working group developed the Transition Finance Framework for G20. So now these pieces of guidelines and principles are very important in guiding many countries and many organizations in developing their strategy for green sustainable finance work. Of course, impact investing is a topic today, right? We've been talking about that on the podium. I'd like to maybe translate a little bit of the global sustainable finance framework into or mapping to the impact investing world. 

Now, within the framework, I often say we need four pillars. Number one, we need to define sustainable activities clearly, so that we can avoid greenwashing, transition washing, impact washing and so on. Now on that part I think the green taxonomy is doing a good job. China has a green finance taxonomy defining these as green activities, for example, solar, wind, other renewable energy, electric vehicles, batteries, solid waste treatment, water treatment, so on. It's a big table and used to be 10 pages. As I was leading the drafting of the first version 10 years ago, now it's 100 something pages. And Europe has taxonomy, a few hundred pages. And I heard 40 something countries have taxonomy for green finance. but I have not heard that there's an impact investing taxonomy yet officially. Maybe some private sector-led NGOs and associations, have been developing that, but there's no well-recognized impact investing definition and that's one key bottleneck which we should overcome. 

The second point or pillar in the sustainable finance ecosystem is disclosure requirement. Now within green finance or sustainable finance, there are global standards now, for example ISSB, which sets out to the framework for disclosure of sustainability related information, especially carbon related information. A lot of countries are adopting these. For example, in Asia, I think 14 economies have either adopted or decided to adopt ISSB as a disclosure standard. But again, if we translate that into impact investing, how do we disclose impact related indicators? Employment generation, poverty reduction and so on. There's no universally agreed set of measures and these indicators or measurements are not mandatory applied to impact investing participants. That's another bottleneck we need to overcome. 

The third pillar is the financial products. Within the green finance field, we have green loans, green bonds, ETF, ABS, carbon markets and all of these. In impact world, of course, I think a lot of equity related instruments like P/E and V/C, angel investment. They need to bring in debt investors as well, some risk mitigation instruments. So we need to have a combination of financial instruments that facilitate the development of impact projects. That's pillar three. 

And the last one, is probably most important, is about incentive. A lot of green projects, sustainable projects, impact projects, may not be financially viable or financially attractive to private sector investors. That's why, at least in the early stage, the government have to come in to incentivize to crowding the private sector money. So within green finance space, I actually give two examples of how regulators in China and Hungary have been working on this incentive. For example, the Chinese Central Bank has introduced what we call decarbonization facility, which is a funding facility through commercial bank to green projects such as renewables, and they offer low funding costs relative to markets. And in Hungary, the Central Bank of Hungary introduced what they called a capital relief program, which essentially reduces the risk of waiting for green assets and thereby reducing funding costs for green lending. So all these are help to the private sector to reduce the funding cost for green projects. But in impact investing world, I have not heard much the government subsidizing impact investing or giving tax credit, tax exemption, or offering low cost funding. That's not happening, at least on a large scale. So I think that's the fourth pillar which we need to address going forward really to scale up the impact investing capacity. 

Q: So when you're pushing for taxonomy or a new framework to be adopted, one thing you need is consensus. When you're dealing with such diverse stakeholders, how do you actually bring people into alignment? What's proven most effective for you? 

A: In this field, I think the combination of top-down and the bottom-up approach is necessary. Now, so far, what I see on impact investment is largely bottom-up. It's all kind of NGOs, associations, you know, philanthropies and some private investors, they have passion for investing in this area. But the governments are not responding that much. One of the problems is that in many countries, there's no clear definition of that role within the government structure. But in the green finance field, we know a lot of countries have a central bank designated to do green taxonomy, to design green finance policies and so on. So somebody is responsible for that. But who is responsible in the government for impact investing? Nobody knows. We need to find that agency, maybe NGOs should propose to government that this particular agency should be given a task to coordinate the policies and standards, disclosure requirements on impact investing. And then they will issue what I call authoritative documents on definition and disclosure requirements. That will apply across the market. Now, if you do this only on the bottom-up approach, which means that in a country you've got 100 NGOs proposing standards and disclosure requirements, and competing with each other, "my standard is better than yours," and they can’t agree. It may take years and decades to agree on something within the country. That slows down the process. 

Q: So what is the trick then to be able to unlock true collaboration? Have you witnessed this?

A: I have not seen much of success in the impact investing world in terms of a consensus building led by regulators. But in the green finance field, definitely, yes. The Chinese Central Bank is a good example. Back 10 years ago, the PBOC took the leadership developing taxonomy, disclosure requirements, policy incentives and so on. PBOC organizes these other seven ministries because we know that the other ministries are also important contributors to the policy framework. But someone has to take a lead. 

Q: Yeah, leadership is certainly a critical need in the sector, especially when it comes to disclosures. We've seen the pendulum swing between mandatory and voluntary reporting in this part of the world. Looking ahead, what do you foresee for Asia? Are we moving towards more mandatory reporting? 

A: I think it should be simple and mandatory. If it's very complex, of course it won't be executed well. Even if it's mandatory, the capability is not there, the cost is too high. If it's not mandatory, it will not be very useful, because most of the market participants will choose not to do it. So start with simple and mandatory. 

Q: I know we're short on time, but one last question. After so many decades of work, what is your dream for the future?  

A: In fact, there's a connection between impact investing, philanthropies and the larger landscape of sustainable finance. A lot of smaller projects, which are funded by impact investors, may eventually grow to scale, and then they can be financed by big banks and the capital markets and so on. So how do we start this? I think philanthropists can invest in pre-feasibility study to enable these projects to become more bankable. That's a role I think on the earliest stage of larger scale green sustainable projects can be initiated by impact investing.