Green Fi­nance: China’s Mark at the G20 Sum­mit

China Pictorial (English) - - Fea­tures - Text by Zi Mo

At the G20 Hangzhou Sum­mit in Septem­ber, green fi­nance took a lot of the spot­light. For the first time, green fi­nance was in­cluded on the G20 sum­mit agenda af­ter it was pro­posed by China. Ad­di­tion­ally, the G20 Green Fi­nance Syn­the­sis Re­port, which was ac­cepted and en­dorsed by the G20 lead­ers at the sum­mit, at­tracted mas­sive at­ten­tion and be­came an im­por­tant Chi­nese con­tri­bu­tion to G20 his­tory.

Press­ing Need

Ac­cord­ing to the G20 Green Fi­nance Syn­the­sis Re­port, green fi­nance can be un­der­stood as fi­nanc­ing of in­vest­ments that pro­vide en­vi­ron­men­tal ben­e­fits in the broader con­text of en­vi­ron­men­tally­sus­tain­able de­vel­op­ment. It aims to di­rect fi­nan­cial re­sources to the de­vel­op­ment of re­source-ef­fi­cient tech­nol­ogy and pro­tec­tion of the ecological en­vi­ron­ment. It is a strate­gic ap­proach to mo­ti­vate en­ter­prises to place greater at­ten­tion on en­vi­ron­men­tal pro­tec­tion and con­sumers to grad­u­ally form en­vi­ron­men­tally-friendly con­sump­tion habits. Feng Qiaobin, pro­fes­sor of the De­part­ment of Eco­nomics at the Chi­nese Acad­emy of Gov­er­nance, be­lieves that the core of green fi­nance is “to chan­nel so­cial funds to green fields for the pur­pose of en­vi­ron­men­tal pro­tec­tion and sus­tain­able de­vel­op­ment, through in­tro­duc­tion of fi­nan­cial lever­age.”

With the de­vel­op­ment of the world econ­omy, en­vi­ron­men­tal pol­lu­tion, re­source ex­haus­tion, and ecological im­bal­ance have be­come life-and-death is­sues glob­ally. Against this back­drop, the con­cept of green fi­nance was in­tro­duced in the early 1990s. In 1992, at the United Na­tions Con­fer­ence on En­vi­ron­ment and De­vel­op­ment (UNCED) in Rio de Janeiro, Brazil, two ma­jor doc­u­ments on global en­vi­ron­men­tal is­sues, Agenda 21 and the Rio Dec­la­ra­tion on En­vi­ron­ment and De­vel­op­ment, were signed. With en­vi­ron­men­tal pro­tec­tion and emis­sion re­duc­tion as key fo­cal points of the con­fer­ence, the con­cept of green fi­nance was in­tro­duced and pro­moted.

In June 2003, the Equa­tor Prin­ci­ples were pro­posed. Since then, this set of vol­un­tary stan­dards adopted by fi­nan­cial in­sti­tu­tions to de­ter­mine, as­sess and man­age so­cial and en­vi­ron­men­tal risk in project-re­lated trans­ac­tions has pro­moted in­ter­na­tional usage of the green fi­nance mech­a­nism.

On Jan­uary 25, 2016, less than three months af­ter China took over the G20 pres­i­dency, the coun­try jointly or­ga­nized a G20 Green Fi­nance Study Group (GFSG) with Bri­tain. Co-chaired by the Peo­ple’s Bank of China and the Bank of Eng­land, cen­tral banks of both coun­tries, GFSG soon held its first meet­ing in Bei­jing. More than 80 par­tic­i­pants from all G20 mem­bers, as well as a num­ber of in­vited coun­tries and six in­ter­na­tional or­ga­ni­za­tions, ac­tively par­tic­i­pated in the GFSG. The act­ing sec­re­tar­iat of the study group is the United Na­tions En­vi­ron­ment Pro­gramme.

Over the fol­low­ing months, GFSG con­ducted re­search on the bank­ing in­dus­try, bond mar­ket, in­sti­tu­tional in­vest­ment en­vi­ron­ment, risk anal­y­sis and the in­di­ca­tor sys­tem. The group later pro­duced the G20 Green Fi­nance Syn­the­sis Re­port and sub­mit­ted it to the G20 Hangzhou Sum­mit in early Septem­ber.

The re­port pro­vides a num­ber of vol­un­tary op­tions for G20 mem­bers and other govern­ments, in­clud­ing pro­vid­ing pol­icy sig­nals which sup­port green in­vest­ments, pro­mot­ing vol­un­tary prin­ci­ples for green fi­nance, ex­pand­ing learn­ing net­works for ca­pac­ity build­ing, sup­port­ing the de­vel­op­ment of lo­cal green bond mar­kets, pro­mot­ing in­ter­na­tional col­lab­o­ra­tion to fa­cil­i­tate cross-bor­der in­vest­ment in green bonds, en­cour­ag­ing and fa­cil­i­tat­ing knowl­edge shar­ing on en­vi­ron­men­tal and fi­nan­cial risk, and im­prov­ing the mea­sure­ment of green fi­nance ac­tiv­i­ties and their impacts.

Wang Yao, di­rec­tor of the Re­search Cen­ter for Cli­mate and En­ergy Fi­nance at the Cen­tral Univer­sity of Fi­nance and Eco­nomics, says that G20 could speed up the green­ing process of fi­nan­cial in­sti­tu­tions world­wide. Through ef­forts at the global level, more fi­nan­cial in­stru­ments will be cre­ated, and an in­creas­ing num­ber of prod­ucts and ser­vices re­lated to credit, se­cu­ri­ties, and in­sur­ance will emerge. These new in­stru­ments, prod­ucts and ser­vices will help more so­cial funds be al­lo­cated to en­vi­ron­men­tally-friendly in­dus­tries such as en­vi­ron­men­tal pro­tec­tion, en­ergy conservation, clean en­ergy and green build­ing, thus fur­ther­ing de­vel­op­ment of green fi­nance.

Chi­nese Green Fi­nance

Green fi­nance, as a new fi­nanc­ing con­cept, is be­com­ing a ma­jor im­pe­tus to re­al­ize green growth and sus­tain­able growth world­wide.

Al­though China’s foray into green fi­nance is relatively late com­pared to de­vel­oped coun­tries, it has be­come a strong in­ter­na­tional per­former.

Af­ter more than three decades of high-speed de­vel­op­ment that has caused an un­bal­anced sit­u­a­tion in terms of eco­nomic de­vel­op­ment and en­vi­ron­men­tal pro­tec­tion, China chose to adopt the green de­vel­op­ment con­cept. In 2007, China’s En­vi­ron­men­tal Pro­tec­tion Ad­min­is­tra­tion (now Min­istry of En­vi­ron­men­tal Pro­tec­tion), Peo­ple’s Bank of China, and China Bank­ing Reg­u­la­tory Com­mis­sion jointly is­sued a doc­u­ment out­lin­ing strategies to use en­vi­ron­men­tal pro­tec­tion poli­cies and reg­u­la­tions to pre­vent credit risk, a move that sig­naled the dawn of green fi­nance in China to many. In 2008, China’s Min­istry of En­vi­ron­men­tal Pro­tec­tion and fi­nan­cial reg­u­la­tory au­thor­i­ties re­leased suc­ces­sive, new poli­cies to pro­mote green in­sur­ance, green bonds, and green credit, mark­ing the for­mal launch of green fi­nance pol­icy. In 2011, an evaluation and re­search project on green credit was launched, and a data cen­ter for China’s green credit was or­ga­nized. These ef­forts aimed to pro­vide au­thor­i­ta­tive in­for­ma­tion sup­port for com­mer­cial banks’ green credit, as well as man­age­ment and risk as­sess­ment. In March 2016, China pro­posed the es­tab­lish­ment of a modern fi­nan­cial sys­tem and in­cluded de­vel­op­ment of green fi­nance in its 13th Five-year Plan (2016-2020). On Au­gust 31, 2016, China’s seven min­is­te­rial-level ad­min­is­tra­tions jointly re­leased a doc­u­ment on con­struct­ing the green fi­nan­cial sys­tem. The doc­u­ment was a no­table con­sen­sus be­tween China’s top de­ci­sion mak­ers and var­i­ous ad­min­is­tra­tions that is sure to bring great sup­port to the movement, pro­mote China’s green in­vest­ment and fi­nanc­ing, and ac­cel­er­ate the green trans­for­ma­tion.

Thanks to the top-level de­sign of the gov­ern­ment and joint ef­forts from the pub­lic and pri­vate sec­tors alike, green fi­nance has wit­nessed a rapid de­vel­op­ment in China in re­cent years. China is now one of the only three coun­tries in the world to in­tro­duce a green credit in­di­ca­tor sys­tem and the first in the world to is­sue def­i­ni­tion stan­dards for do­mes­tic green bonds. The con­cept of green fi­nance has been em­braced by an in­creas­ing num­ber of Chi­nese fi­nan­cial in­sti­tu­tions, es­pe­cially banks. In the first seven months of 2016, a to­tal of 120 bil­lion yuan of green bonds were is­sued by China, ac­count­ing for 40 per­cent of green bonds is­sued glob­ally dur­ing that pe­riod. China has be­come the largest green bond mar­ket in the world.

In terms of car­bon trade, China pi­loted a car­bon emis­sion trade project in seven prov­inces and mu­nic­i­pal­i­ties in 2011. More than 1,900 en­ter­prises and in­sti­tu­tions that dis­charge pol­lu­tion were listed on the car­bon trade plat­form, and a to­tal of ap­prox­i­mately 1.2 bil­lion tons of car­bon emis­sion quota were al­lo­cated. At present, cer­ti­fied emis­sion trad­ing man­aged by China’s Clean De­vel­op­ment Mech­a­nism (CDM) takes up 80 per­cent of the world’s to­tal. By 2017, China will launch a uni­fied car­bon mar­ket na­tion­wide, which will sur­pass the EU emis­sions trad­ing sys­tem and be­come the world’s largest.

China has also been work­ing with other coun­tries and in­ter­na­tional or­ga­ni­za­tions to pro­mote the de­vel­op­ment of green fi­nance. In June 2016, China and the EU agreed on a 10-mil­lion-euro project aim­ing to strengthen co­op­er­a­tion in car­bon trad­ing. In July, the New De­vel­op­ment Bank launched by BRICS na­tions is­sued green bonds in China. It was the first time a mul­ti­lat­eral de­vel­op­ment bank was ap­proved to is­sue yuan-de­nom­i­nated green bonds in China.

Ma Jun, di­rec­tor of the Green Fi­nance Com­mit­tee of the China So­ci­ety for Fi­nance and Bank­ing, be­lieves that ex­ist­ing prob­lems, such as mis­matches be­tween green projects and the du­ra­tion of fund­ing sources, in­for­ma­tion asym­me­try, and a lack­ing of green an­a­lyt­i­cal abil­i­ties in in­vestors, will ul­ti­mately be re­solved. Ma says that greater ac­cess to medium- and long-term green fi­nanc­ing will hap­pen through the de­vel­op­ment of the green bond mar­ket, third party cer­ti­fi­ca­tion, and a green rat­ing sys­tem.

China has reached a strate­gic peak of green fi­nance de­vel­op­ment, and will no doubt ac­cel­er­ate global green fi­nance gov­er­nance through ef­forts to boost in­ter­na­tional co­op­er­a­tion in green fi­nance utiliz­ing avail­able mech­a­nisms such as G20.

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