On September 22, 2020, Chinese President Xi Jinping solemnly announced at the General Debate of the United Nations General Assembly that China would strive to reach carbon emissions peak before 2030 and achieve carbon neutrality before 2060 (hereinafter referred to as the “30·60 Goals”).
It was also stressed at the Fifth Plenary Session of the 19th CPC Central Committee, the 2020 Central Economic Work Conference and the 2021 Two Sessions (the National People’s Congress [NPC] and the National Committee of the Chinese People’s Political Consultative Conference [CPPCC]) that China would “take solid steps toward the goals of peaking carbon emissions and achieving carbon neutrality.” The commitment demonstrates that China, as a major responsible nation, is actively engaged in addressing climate change and facilitating the building of a community with a shared future for mankind, and the commitment raises higher requirements for the development of green finance in China.
At what stage is the green finance development in China for the moment? On the road to carbon neutrality, how to boost the development of green finance in a better and more efficient manner in the next step? The Financial News had an exclusive interview with Mr. Chen Yulu, member of the CPPCC National Committee, Deputy Director of Economic Affairs Committee of the CPPCC National Committee and Deputy Governor of the People’s Bank of China (PBC), on the said issues. He noted that based on years of development, China’s green finance has solid foundations and delivers world-leading advances. In order to achieve peak carbon emissions and carbon neutrality, the PBC has preliminarily established the policy design for the green finance development, which features “three functions” and “five pillars”, in a bid to adapt to the profound transformation in various aspects in China, including industrial structure, energy structure, investment structure and people’s lifestyles.
Journalist with Financial News: As green finance has been frequently cited in the economic and financial spheres both at home and abroad, and represents a critical cause that the PBC has devoted active efforts to for years, what’s your view on the achievements China has made in green finance in recent years?
Chen Yulu: Since the 18th CPC National Congress, the PBC has earnestly implemented the thought on ecological civilization and the new concept for development put forward by General Secretary Xi Jinping, relentlessly promoted the green finance development, and secured remarkable results in this regard. At present, China is one of the leading economies in green finance development across the world.
First, a complete development architecture for green finance has been preliminarily put in place, and green finance has demonstrated huge potential to bolster green development. In 2016, the PBC took the lead in introducing and implementing the Guidelines for Building the Green Finance System, which was the world’s first green finance policy framework formulated by central government agencies. After years of efforts, sustained improvements have been made to the integrated policy system and market environment that support the development of green finance in China. With comprehensive progress made in various aspects such as standard setting, incentive mechanism, environmental information disclosure and product innovation, green finance has been playing an important role in accelerating the transition to a greener economy, in winning the critical battle against pollution and in advancing the high-quality economic development.
Second, advances have been achieved in pilot programs of green finance reform at current stage, which effectively fuels the expansion of China’s green finance market. Since 2017, the State Council has approved the pilot programs on green finance reform and innovation in “nine cities of six provinces (autonomous regions)”, accumulating a series of replicable and promotable experience. The pilot programs have not only supported the development of local green industries as well as economic transformation and upgrading, but also enhanced the capability of financial institutions in the area of green finance businesses and contributed to the rapid development of the green finance market nationwide. As of end-2020, outstanding green loans denominated in RMB and foreign currencies registered around RMB12 trillion, ranking first in the world. Outstanding green bonds exceeded RMB800 billion, the second largest on the globe. Meanwhile, the asset quality of green finance are generally sound in China, with the nonperforming loan (NPL) ratio of green loans much lower than that of commercial bank loans nationwide, and without default on green bonds.
Third, China has become a wind vane for global green finance development, and it is playing a significant leading role on the globe. In 2016, China, under its Presidency of G20, initiated and introduced green finance into the G20 framework. Since 2016, with China’s active advocacy and promotion, green finance has been an important topic on the agenda of the G20 summits. Italy, the G20 Presidency this year, has decided to resume the Sustainable (Green) Finance Study Group, which is co-chaired by the PBC. In addition, the Network of Central Banks and Supervisors for Greening the Financial System (NGFS), which was co-launched by the PBC, has grown to include 83 members and 13 observers. China, jointly with the EU and other economies, initiated the International Platform on Sustainable Finance (IPSF) to harmonize international standards on green finance. At present, China has steadily advanced the formulation of one international standard, one national standard, five industrial standards and four standards for pilot zones of green finance reform and innovation. These standards have become important references to global regulation of green finance businesses.
Last year, President Xi Jinping announced the grand goals of realizing carbon emissions peak and neutrality to the world. The Fifth Plenary Session of the 19th CPC Central Committee and the 2020 Central Economic Work Conference made important deployments for the tasks. Based on intensive research in this field, the PBC concluded that green finance should play an important role in the course. We believe that it is also a great opportunity for the development of green finance in China.
Journalist with Financial News: You just mentioned that the PBC had intensively researched into carbon emissions peak and carbon neutrality goals. So what new measures will be rolled out to scale up the development of green finance in the next step?
Chen Yulu: In order to realize the strategic goals of carbon emissions peak and carbon neutrality, and implement relevant guiding principles that were put forward in the Fifth Plenary Session of the 19th CPC Central Committee and the 2020 Central Economic Work Conference, the PBC earnestly organized and conducted a series of researches, and has preliminarily set up its policy design for the green finance development, which features “three functions” and “five pillars”.
In terms of the “three functions”, the PBC will give full play to the three major functions of finance in supporting green development, namely resource allocation, risk management and market pricing. First, the PBC will guide and leverage financial resources to support low-carbon projects, green transformation projects, carbon capture and sequestration and other green innovation projects by means of monetary, credit and regulatory policies, mandatory disclosure, green evaluation, industry self-regulation and product innovation. Second, the PBC will make use of tools such as climate-related risks stress testing, environmental and climate risk analysis and risk weight adjustment of green and brown assets to enhance the capability of the financial system to manage climate-related risks. Third, the PBC will facilitate the building of a national carbon emission exchange market, help develop derivatives such as carbon futures and thus put a reasonable price on carbon emissions through trading schemes.
To better leverage the “three functions”, we believe it is necessary to further improve the “five pillars” of the green finance system.
First, we will improve the green finance standard system. The PBC will accelerate the establishment of a green finance standard system. We will follow the principle of ensuring relevant standards are not only unified domestically but also aligned with international practice, focus on climate change, pollution control, energy conservation and emission reduction, and constantly improve the green finance standard system. Currently, the statistics system of green finance has been gradually enhanced, significant progress has been made in the setting of multiple green finance standards, and the comparative study of Chinese and EU green finance standards is about to be completed, which provides solid guarantee for regulating green finance businesses, achieving business sustainability in green finance and bolstering green economic and social development.
Second, we will strengthen the regulation and information disclosure requirements on financial institutions. The PBC will continue to facilitate financial institutions, securities issuers and the public sector to make environmental information disclosure more mandatory and standardized in a categorized way. The PBC has gradually advanced the pilot program of China-UK Climate and Environmental Information Disclosure for financial institutions, the experience from which could be replicated and promoted already. The green finance information management system developed by the PBC ensures the direct information connection between regulatory authorities and financial institutions, thus making the regulation of green finance businesses more effective.
Third, we will gradually enhance the incentive and restraint mechanisms. Based on the policies of performance assessment of green finance and interest subsidies and rewards, the PBC will guide financial institutions to increase the allocation of green assets and enhance the management of environmental risks, which can help to improve the financial sector’s capacity to support green, low-carbon development.
Fourth, we will constantly enrich the product and market system of green finance. By encouraging product innovation, improving the issuance system, regulating the trading procedures, and enhancing transparency, China now embraces a multi-tiered product and market system of green finance. Next, the PBC will continue to facilitate product innovation and solid development of the market.
Fifth, we will actively expand international cooperation on green finance. In terms of international cooperation on green finance, China actively leverages various multilateral and bilateral platforms and cooperation mechanisms to enhance green finance cooperation and international exchanges. Thus, China’s green finance policies, standards, products and market are more widely recognized by the international community and see broader involvement of the international community.
Journalist with Financial News: Over the past year, great changes have taken place in the international political and economic landscape. What do you think of the future of international cooperation on green finance?
Chen Yulu: Indeed, 2020 was an extraordinary year, during which the international political and economic landscape underwent profound changes. I am quite optimistic about the development of green finance. The world in general pays more attention to climate change and is more convinced that green finance will be an important means to tackle climate change.
International cooperation on green finance is multi-tiered. The multilateral platforms involved include the G20, NGFS, the Green Investment Principles for the Belt and Road and the IPSF. As I said earlier, the PBC, as the representative of China, is the major initiator and leader of these platforms. For bilateral platforms, China also has sound exchanges and cooperation with the UK, France, Germany, Singapore and other pioneers in the development of green finance.
By engaging in international cooperation on green finance, we have been aware that there are more and more discussions on climate change and green finance worldwide. For instance, economies have started to intensively explore how to address the impact of climate change on monetary policy and financial stability, how to integrate more environmental, social and governance (ESG) factors into investment decisions, how to encourage the disclosure of environmental information in various countries, and how to harmonize global green standards. With the deepening of the discussions, there is a growing consensus among the international community and also more potential for the development of green finance.
China has always been a strong supporter and advocate of the development of green finance and enjoys a certain lead on this front. Given some new changes in the international political and economic landscape and the more proactive position of the international community on green finance, I believe there is a promising future for international cooperation on green finance. We should seize the opportunity, make better use of the current strengths, more actively cooperate with all parties, fully tap the development potential of green finance, and facilitate China and other economies to jointly achieve their carbon emission peak and neutrality targets.
