As a pioneer in the world, China has been promoting and advocating the concept of green finance. Resolutely implementing the decisions and arrangements of the CPC Central Committee and the State Council, the People’s Bank of China (PBC), with a focus on environmental improvement, climate change response as well as conservation and efficient use of resources, has been promoting the building of green finance system in line with the principle of high standards and openness, improving incentive and constraint mechanisms, strengthening information disclosure, as well as advocating and advancing international cooperation on green finance, so as to protect the “lucid waters and lush mountains” and our home planet.
I. Defining standards
In 2018, the PBC took the lead in the establishment of the Working Group on Green Finance Standards under China Financial Standardization Technical Committee. Adhering to the principles of “developing unified domestic standards with clarity, practicability and alignment with international standards”, the PBC devoted its efforts to building a system of green finance standards. Over the past three years, three standards, namely the Green Bond Endorsed Projects Catalogue (2021 Edition) (in Chinese and English), the Guidelines for Financial Institutions on Disclosing Environment Information, and Financing Instruments for Environmental Rights and Interests, have been officially released. Fifteen standards are in the process of project initiation or opinion solicitation, involving multiple key areas such as environmental, social, and governance (ESG) evaluation as well as carbon accounting. Some standards have been firstly experimented in pilot zones for reform and innovation of green finance, to make exploration and accumulate experience for nationwide application.
II. Improving mechanisms
The PBC started carrying out green credit performance assessment on banking institutions in 2018, and upgraded the work into the assessment of green finance with the incorporation of green bond business into the scope of assessment in 2021, in a bid to guide financial institutions to increase the allocation of green assets in an orderly manner. Last year, in line with market-oriented, law-based and international principles, the PBC created and launched two new structural monetary policy tools to encourage more social capital to invest in green and low-carbon areas. The first is the Carbon Emission Reduction Facility (CERF), which aims to mobilize more social capital to promote carbon emissions reduction, and support the development of three key areas for carbon emissions reduction, namely clean energy, energy conservation and environmental protection, as well as carbon emissions reduction technologies in a steady, orderly, targeted and direct manner. The second is the special central bank lending to support the clean and efficient use of coal, which was designed to provide support for the large-scale clean production of coal, the application of clean combustion technologies and other five areas. In the implementation of the two tools, the PBC insists on construction before destruction, and adopts a two-way strategy, that is, developing clean energy while continuously supporting the clean and efficient use of coal and coal-fired power. For qualified loans issued by commercial banks, the PBC provides the lenders with low-cost funds in the amount of a certain percent of the principal, with the lending rate at 1.75 percent, which is the most preferential rate offered by the PBC. As of now, by leveraging the two tools, the PBC has supported financial institutions in issuing a total of RMB230.8 billion CERF loans and RMB13.4 billion loans for clean and efficient use of coal, among which the CERF loans have driven carbon emissions reduction by approximately 47.86 million tonnes measured in carbon dioxide equivalent.
III. Encouraging innovations
By encouraging financial product innovation, improving the securities issuance system, regulating trading process, and enhancing trading transparency, China has now preliminarily established a multi-tiered product and market system of green finance encompassing green loans, green bonds, green insurance, green funds, green trusts, and carbon-related financial products. As of end-2021, the outstanding green loans denominated in RMB and foreign currencies registered RMB15.9 trillion, growing by 33 percent year on year and ranking the first in the world. In 2021, domestic issuance of green bonds exceeded RMB600 billion, registering a growth rate of 180 percent year on year with the stock scale reaching a balance of RMB1.1 trillion. In addition, the maturity structure of green bonds became more reasonable and cost advantages were gradually emerging. According to statistics, compared with comparable ordinary bonds (non-green bonds issued by the same issuer during the same season adjusted for term premiums), 77 percent green bonds issued in 2021 boasted advantages in the issuance costs.
IV. Strengthening supervision
The PBC has worked with relevant authorities to continually improve the system of the disclosure of environmental information in a law-based manner, and to require financial institutions to disclose information concerning their issuance of carbon emissions reduction loans and the volume of carbon emissions reduction driven by such loans, etc. The information disclosed shall be examined and verified by third-party professional institutions, so that the use of green funds is subject to public scrutiny, and that all “greenwash” behaviors are frustrated. In recent years, listed companies, bond issuers and financial institutions have secured substantial progress in building their capacity of and improving the quality of environmental information disclosure. The financial institutions explored environmental information disclosure from large- to small-scale projects and from simple to complex cases in a layer by layer and step by step manner. Over 200 financial institutions in pilot zones have tentatively compiled reports on environmental information disclosure.
V. Deepening cooperation
Climate and environment are important global public goods. In response to climate changes and in protection of ecological environment, no country can stand aloof. Global participation and joint efforts are indispensable for the development of green finance. As a consistent advocate and staunch supporter of international cooperation on green finance, China has continuously contributed to the elevated global consensus on green finance. In 2021, as the co-chair of the G20 Sustainable Finance Working Group (SFWG), the PBC continued to promote the mainstreaming of green finance, and took the lead in drafting the G20 Sustainable Finance Roadmap and 2021 Sustainable Finance Synthesis Report, which were endorsed by the G20 Finance Ministers and Central Bank Governors Meeting.
In addition, the PBC took the initiative to lead and actively participate in bilateral and multilateral platforms as well as cooperative mechanisms, to improve the international community’s recognition of China’s green finance policies, standards, products, and markets and to enhance its participation in this endeavor. The Central Banks and Supervisors Network for Greening the Financial System (NGFS), with the PBC as one of the initiators, has been one of the world’s most influential platforms for green finance cooperation. The Green Investment Principles (GIP) for the Belt and Road Initiative (BRI), jointly launched by the PBC, provides an important basis for financial institutions to carry out BRI green investment. The PBC proactively contributed to the establishment of the International Organization for Standardization (ISO) Technical Committee (TC) 322 on Sustainable Finance (ISO/TC322), and took the lead in drafting Sustainable Finance – Basic Concepts and Key Initiatives, which made its debut in August 2021 as the first international standard released by ISO/TC 322. Besides, the PBC and the EU Commission jointly rolled out the Common Ground Taxonomy (CGT), which vigorously stepped up the convergence progress of the green finance taxonomy standards between China and the EU, even the world at large. In 2021, some Chinese-funded financial institutions issued green bonds in the international market on the basis of the CGT.
Going forward, the PBC will continue to implement the arrangements made by the CPC Central Committee and the State Council on achieving carbon emissions peak and carbon neutrality, and act more proactively to build a system of standards for green finance and transition finance. It will improve incentive and constraint mechanisms, develop diversified financial instruments, and continuously deepen international cooperation and domestic experiments in green finance, with a view to supporting the green and low-carbon transition of China’s economy and society in an vigorous, orderly and effective manner.
