The report is the outcome of a Green Finance Task Force which was tasked to develop policy, regulatory and market-innovations to better align China’s financial system with the needs of green industry and sustainable development.
The report recommends the development of financial institutions specialized in green lending and investment.
On Wednesday 22 April 2015, China’s central bank, the People’s Bank of China, launched a ground-breaking report that sets out in specific and practical terms an ambitious agenda of how China can green its rapidly developing financial and capital markets.
The report, entitled “Establishing China’s Green Financial System”, is the outcome of a Green Finance Task Force which was tasked to develop policy, regulatory and market-innovations that would better align China’s financial system with the needs of green industry and sustainable development. The Task Force was co-Convened by the Research Bureau of the Peoples Bank of China (PBC) and the United Nations Environment Programme project Inquiry into the Design of a Sustainable Financial System (`UNEP Inquiry`).
The context of this prioritizing of greening China`s financial system is an important part of China`s roadmap to “eco-civilization”, which marks a major shift in its economic strategy towards a focus on greening the economy and broader aspects of China’s development, after more than 30 years of rapid economic growth that has created a legacy of environmental challenges.
“Greening of the economy requires a massive amount of investment in the green sectors. However, as in many other developing countries, the fiscal resources in China are simply not sufficient to meet the demand for green investment” said Dr. Ma Jun, Chief Economist of the Research Bureau, People’s Bank of China and Co-Convenor of the Task Force. “According to our estimates, in the coming five years, China will need to invest at least RMB2 trillion (US$320 billion) per year in green sectors in order to meet the environmental targets announced by the Ministry of Environment. Fiscal resources, however, can cover no more than 15% of these investments. Therefore it is crucial that the financial system will play the role of channelling and incentivizing private capital into the green sectors.”
The PBC is in charge of drafting the financial sector development and reform aspects of China`s 13th five-year plan. Including green finance as a core element of this plan will require the financial sector to play a prominent role in financing green and discouraging polluting and natural resource intensive investments.
“Green finance in China is evolving from being an add-on ‘nice to have’ to become a core element in their efforts to develop efficient and resilient financial and capital markets that are effective in serving their economic and broader development needs. China’s innovative and ambitious approach will support its domestic environmental efforts, support the growth of its green industries of the future, and can provide a basis for international cooperation in aligning the global financial system to sustainable development”, said Dr Simon Zadek, Co-Director of the UNEP Inquiry and International Co-Convenor of the Task Force.
Proposed is a framework incorporating 14 specific recommendations for building China’s green finance system. Uniquely, under the leadership of Dr. Ma Jun, the recommendations are the result of the collaboration between the 40-plus experts in the Green Finance Task Force, who span regulators and government departments, financial market actors, and experts working on green finance, with support also provided by the UNEP Inquiry’s international experts. Creation of the green finance system is a long-term and complex process that requires commitment and effort from all stakeholders. Appreciating this, the Task Force has proposed a step-by-step roadmap for the green transformation.
The core report – “Establishing China’s Green Financial System” – is backed by 16 additional background papers, which provide a greater level of detailed analysis of the theoretical framework for green finance, lessons from international experience and each of the 14 recommendations. These can be downloaded
Some highlights from the report on the framework of China’s green financial system include:
- In addition to green loans, more financial instruments need to be used to support green development. An effective green financial system should be able to use financial instruments that include, among others, green loans, green bonds, green investment funds, green insurance, carbon trading, etc.
- Policy and regulatory support to reduce funding costs for green projects and improve availability of funding for green projects.
- Developing financial institutions specialized in green lending and investment. New institutions like these, with partial government funding, should be able to deliver a strong signal to the capital market that the government is committed to promoting green investment, and will reduce the private sector’s risk aversion to green projects.
- Establishing legal framework that supports green investment and discourages polluting investment.
UNEP News
