Despite having long been saddled with the reputation of being one of the world’s most polluted countries, China is looking to put the past behind by placing strong emphasis on green finance. This, according to Yi Gang, Governor of the People’s Bank of China (PBOC), is in line with Beijing’s ambition to achieve carbon neutrality by 2060.
“Environmental and climate change remains urgent as countries respond to Covid-19”, declared Yi at the Singapore Fintech Festival (SFF) 2020. The fallout from climate change, he warns, “ affect us all” and their consequences will be more lasting and far-reaching. China, he says, must speed up its transition to low-carbon production and consumption to achieve its commitment to “green and low-carbon development”.
To that end, China has made strong progress in the space of green finance. In 2016, PBOC and other Chinese ministries published the Guidelines for Establishing Green Financial System, which forms the foundations of China’s Green Finance policy framework. The development of new green finance products has also been encouraged.
“As of June 2020, outstanding green lending in China exceeded RMB11 trillion (US$1.7 trillion), ranking first globally,” announced Yi. China’s stock of green bonds, he says, amounts to RMB1.2 trillion (US$200 billion), which is the second-largest in the world.
The PBOC governor notes that this success stems from PBOC’s work in improving the policy framework for green finance. The central bank has gradually implemented specific policies on green bonds, green credit and the disclosure of environmental information. PBOC is now updating its Green Bond Endorsed Projects Catalogue; the new version is expected to remove fossil-fuel related production and consumption and include more climate-friendly activities.
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PBOC has also strengthened policy incentives such as evaluating bank performance in supporting green finance. It has also encouraged innovation in green finance products (e.g. grene agricultural insurance, green trusts), and has established Pilot Zones for green financial development. Pilot programs have been launched for green financial reforms and innovation within 9 cities in 6 provinces since 2017.
At the international level, Yi says that China has become a “strong advocate” for international cooperation on green finance. Notably, green finance was introduced into the G20 agenda during China’s presidency in 2016. The G20 Green Finance Study Group was subsequently launched and “helped build consensus on green and sustainable finance”, says Yi.
“Together with Singapore and other countries, we have supported global climate governance including through platforms such as the G20, the Network of Central Banks and Supervisors for Greening the Financial Systems (NGFS) and the International Platform on Sustainable Finance (IPSF),” remarks PBOC’s governor.
Going forward, PBOC is looking to improve green finance standards and consider issuing mandatory requirements for financial institutions to disclose environmental-related information. It is also looking to enhance capacity for analysing and managing environmental and climate risks. PBOC is looking to conduct studies on the impact of such risks on financial stability.
China will also offer easier access for international investors to its green finance market. It will promote the harmonisation of green finance standards at home and abroad, says Yi, by updating domestic standards and strengthening international cooperation.
PBOC will furthermore harness fintech in its goal to promote green finance. “For example, in Huzhou City, the local government established an integrated green finance service platform by using big data technology,” says Yi. Besides reducing asymmetry on environmental and climate-related information, the initiative also bridges green projects and financial institutions. PBOC is also able to monitor green loans provided by banks, as well as “other underlying data”.
“Green finance has great potential as more countries commit to carbon neutrality,” says Yi. “Financial technology such as big data, artificial intelligence and blockchain are expected to play an increasingly important role in supporting green finance.”