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Yi Gang, governor of PBoC, stated at a roundtable discussion that the central bank is currently planning to incorporate climate change factors into its policy framework, as reported by Caixin on March 21. Specifically, PBoC is looking into the possibilities for running climate stress tests for financial institutions. Meanwhile, it also intends to introduce preferential interest rates and special re-lending facilities for enterprises to push forward carbon reduction goals, and increase the share of green bonds and control the investments in carbon-intensive assets in its foreign exchange reserve management.
According to Yi Gang, these measures explain how PBoC plans to carry out its key task to establish a policy incentive and restraint mechanism for China’s green finance development during the 14th Five-Year Plan (FYP) period. Other key tasks include improving the green finance standard system, strengthening green information disclosure requirements for financial institutions, promoting the development of green financial products and market systems, as well as deepening international collaboration. By the end of this year, the country aims to complete the shared green finance taxonomy together with the European Union (EU), to help standardize China’s green finance business.
Currently, China has basically formed an incentive and restraint system for green finance on both the central and the local levels. On the central level, the country has set up a national green development fund in July 2020, raising RMB88.5bn in the first phase. In addition, PBoC has allowed mortgage and collateral financing of green equities and has initiated green credit business assessments for domestic banks on a quarterly basis from this year. Local measures mostly circle around interest discounts, green incentives and subsidies, and government guarantees. As estimated by the Ministry of Ecology and Environment (MEE), the country required approximately RMB3tr to RMB4tr in green investment each year between 2015 and 2020, and the number will continue growing as more potential is unleashed in the green finance sector.
As Ma Jun, a key advisor to PBoC has pointed out, most financial institutions in China have yet to understand the risks related to climate change and generally lack forward-looking visions or risk prevention mechanisms for climate-change risks. This could potentially hamper the country from realizing its pledge to peak carbon emissions by 2030 and achieve carbon neutrality by 2060. As suggested by Nikkei Asian Review, Chinese banks and insurance companies should consider increasing their green investments and stop reliance on traditional, high-pollutant projects, or they may lose their principal in the next 15 to 20 years.
Sources:
https://finance.caixin.com/2021-03-21/101678202.html
http://finance.eastmoney.com/a/202102131810558735.html
https://www.chinadaily.com.cn/a/202012/12/WS5fd46962a31024ad0ba9b72e.html
https://asia.nikkei.com/Spotlight/Caixin/The-green-finance-challenge-facing-China-s-banks
