Q: In recent years, the People's Bank of China (PBOC) has made great efforts in promoting the development and international cooperation on green finance. Could you brief us on the progress?
A: Climate change is a global issue, so countries around the world should work together to reduce carbon emissions. In recent years, the PBOC has been working with international counterparts on this issue. Under the G20 framework, the PBOC and the United States Department of the Treasury have co-chaired the G20 Sustainable Finance Working Group to accomplish many important tasks. In 2021, the Working Group led the development of the G20 Sustainable Finance Roadmap, which was approved at the G20 Rome summit. In 2022, we promoted the drafting of the G20 Transition Finance Framework, aiming to guide market funds to support high-emission sectors in achieving low-carbon transition in a steady and orderly manner, and the Framework was adopted at the G20 Bali summit. This year, the Working Group will focus on supporting financing related to the Sustainable Development Goals, and work out a complete set of policy measures, roadmaps, and timelines.
In terms of our cooperation with Europe, the PBOC and the European Commission have set up a joint working group, which guided the formulation of a common ground taxonomy of green finance and promoted the international mutual recognition of green product certification system. At present, the definition and taxonomy of green finance vary in different regions of the world. If central banks and regulators work to harmonize these taxonomies, the mutual recognition and trading of green financial products and green pricing in the global market will be accelerated, which is very important. In November 2021, the PBOC and the European Commission published the first version of the Common Ground Taxonomy (CGT). After more in-depth research and negotiation, we released an updated version in June 2022, which added 17 economic activities. To date, the latest version of the CGT is 80 percent harmonized with the European version, and several Chinese banks such as the China Construction Bank and the Industrial Bank have issued labeled green bonds under the CGT. Some developing countries also highly appreciate our efforts in this regard, issuing bonds and developing financial products with reference to the CGT.
We have also strengthened cooperation on green finance with other central banks and regulators, established green finance standards for the Belt and Road Initiative, and offered guidance in launching the Green Investment Principles for the Belt and Road (GIP). By the end of 2022, the GIP had been endorsed by more than 40 institutions, whose members are now making investments and certifications under the GIP.
In short, international cooperation is of great significance. All parties have promoted the global connectivity of green products through communication and setting common standards.
Q: Since the publication of the CGT, at least six large financial institutions in China have issued bonds overseas or applied green labels to other assets under this taxonomy, which is the first type of using the CGT. Another type is to label domestic outstanding green bonds, thus attracting investment from international investors.
The launch of the carbon emission reduction facility (CERF) by the PBOC in 2021 is a pioneer design among centra banks worldwide. How about the progress of this facility?
A: In November 2021, we launched two types of CERFs. One of the two supports clean energy, energy conservation and environmental protection and carbon emission reduction technologies, while the other supports the clean use of coal. The two facilities had been put into use for a whole year by the end of 2022.
We should use "carrot and stick" to achieve carbon peak and carbon neutrality. High carbon price or carbon tax is a "big stick", moderate carbon price is a "small stick" or a "medium stick", and the facility launched by the PBOC is a "carrot" as an incentive mechanism. We have provided central bank lending for financial institutions at low interest rates, and institutions receiving such low-cost funds are required to support carbon emission reduction projects and disclose relevant information to the public. Information disclosure plays an important role in addition to carbon prices and carbon tax, as carbon emissions have strong externalities. The use of the facility as a “carrot” requires commercial banks to publicly disclose information on carbon footprint, interest rates on carbon emission reduction loans, and the emission cuts financed by such loans on a quarterly basis, which must be verified by third-party independent agencies and subject to public oversight. It is also a must to raise public awareness of the urgency of achieving carbon peak and carbon neutrality.
By the end of 2022, through the CERF, we had provided low-cost funds exceeding RMB300 billion for financial institutions and supported them in issuing carbon emission reduction loans totaling about RMB600 billion. As the low-interest central bank lending should be repaid, financial institutions need to bear relevant risks on their own. In this sense, the “carrot”, or the incentive, is moderate and appropriate.
Chinese-funded, foreign-funded, and private financial institutions enjoy equal access to the CERF, which initially supported 21 Chinese-funded banks licensed to operate nationwide, and then seven foreign-funded banks and dozens of locally incorporated banks. The CERF has helped reduce about 100 million tons of carbon emissions in 2022. After evaluation, the PBOC decided to entend the implementation of the CERF, aiming to encourage the financial sector to support the reduction of carbon emissions.
The CERF has played a positive role in guiding and encouraging the financial sector to support green and low-carbon development in a market-oriented way. To date, the outstanding green loans have exceeded RMB22 trillion, accounting for about 10 percent of all outstanding loans. The outstanding green bonds have also grown significantly to over RMB2.5 trillion.
The PBOC will continue to implement a package of incentive mechanisms and policy instruments, including the CERF. We will encourage the financial sector to use financial products and tools such as green loans and green bonds to help achieve carbon peak and carbon neutrality.
