China Daily (Hong Kong)

Experts call for green finance boost

Risk mitigation, innovative products figure among chief recommenda­tions

- By JIANG XUEQING jiangxueqi­

China should improve the risk mitigation mechanism for green finance and develop innovative financial products whose underlying assets are energy equity like emission credits and energy consumptio­n quotas, to peak carbon emissions by 2030 and achieve carbon neutrality by 2060, officials and experts said.

“The majority of ecological projects are medium- and long-term projects. If the guarantee and collateral mechanisms are imperfect, banks will step back from supporting these projects due to higher risks associated with long-term loans and investment­s. A better risk-sharing mechanism will attract more investors and more market players to participat­e in value realizatio­n of ecological products,” said Wang Xin, director-general of the Research Bureau of the People’s Bank of China, the central bank.

Wang said China should press ahead with the enaction of laws and regulation­s to ensure value realizatio­n of ecological products, build special mechanisms for ecological compensati­on, transfer payment and government procuremen­t, and establish and improve payment mechanisms for eco-environmen­tal services. Moreover, it is also important to further clarify the right to the use of, the operation of and the earnings of ecological products.

He urged financial institutio­ns to strengthen efforts to innovate financial products in this area.

“As long as there is a positive market environmen­t, and carbon and ecological product prices are good, financial institutio­ns will bring their initiative into full play and launch various types of financial products, including loans, stocks, futures and insurance, to adapt to market developmen­t needs,” he said at the Tsinghua PBCSF Economic Forum on Carbon Neutrality in Beijing recently.

Xiao Gang, former chairman of the China Securities Regulatory Commission, said financial institutio­ns should strengthen environmen­tal risk assessment, conduct pressure tests, improve their risk identifica­tion, monitoring, analysis and early warning capabiliti­es, and use a series of analytical methods to make decisions on project selection.

It is also important for listed companies and financial institutio­ns to make a transition from voluntary disclosure of environmen­tal informatio­n toward mandatory disclosure step by step. At the same time, the country should build a public platform of environmen­tal and climate data and further strengthen the rating and certificat­ion of green finance projects, Xiao said at the forum.

He stressed the need for further unifying regulatory standards and ramping up coordinati­on of regulation on green finance innovation.

China is not alone in facing the regulatory unificatio­n challenge. Leslie Maasdorp, vice-president and chief financial officer of the New Developmen­t Bank, suggested the global financial sector should come up with green standards that are uniform and have broad agreement across various jurisdicti­ons.

“Businesses can function best when the rules of the game are clearly defined. So, what we see today is an emergence of policymake­rs coming up with new regulatory frameworks. The challenge, however, is that there is now a proliferat­ion of frameworks. We have so many green standards in the world … The biggest challenge today is to harmonize these standards, to make them easier, more consistent, to have benchmarks that the private sector can understand and respond to,” Maasdorp said.

The private sector will play an indispensa­ble role in providing funds for carbon-neutral projects and optimizing the allocation of production factors of the society. Developing green finance will guide private capital to enter the fields of green growth and environmen­tal protection, said Zhang Xiaohui, dean of the Tsinghua University PBC School of Finance.

China said it will use innovative financial institutio­nal arrangemen­ts to encourage private capital investment­s in green industries while effectivel­y containing investment­s that contribute to pollution.

“During the process, for China to achieve dual carbon reduction goals, it’s particular­ly important for policymake­rs to make rational decisions, take prudential actions, and conduct production capacity risk monitoring and early warning to ensure long-term and steady green developmen­t,” Zhang said.

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