China’s Focus on Green Finance at the G20 and Beyond
This is the first blog in a special three-part series on green finance in China
On September 4-5, this year’s G20 Summit will be held in Hangzhou, China. Green finance will be one of the major topics of discussion at this meeting, marking the first time that the issue has appeared on the G20 agenda. In preparation for the Summit, a G20 Green Finance Study Group, co-chaired by China and the UK with more than 80 participants from every G20 country, issued a synthesis report that (1) identifies the major challenges to green finance and (2) lays out a series of key options to be considered for voluntary adoption for creating an enabling environment to mobilize private capital for green investment.
China’s role at the G20, which reflects its commitment to green finance, comes at a time when China has decided to stimulate more private capital to invest in green industries, while effectively restraining polluting investments and financing.
For over two decades, China’s economic growth has skyrocketed, allowing it to become the world’s second largest economy. Yet this growth, driven by fossil fuels and unsustainable practices, has come at a steep cost to the environment and public health. In order to combat further environmental degradation, China is now working to develop a low-carbon, sustainable economy and grow its green finance sector.
What is Green Finance
Green finance, generally defined, is the act of setting up market and policy tools for the financing of public and private sustainable investments. The main goals for green finance in China are to increase return on green investments and decrease the return on polluting investments. In this way, green finance can help restructure China’s market towards a more sustainable economy, and reduce pollution and greenhouse gas emissions.
China has already begun to develop legal and institutional frameworks to support green finance strategies. Potential institutions such as the China Ecological Development Bank, proposed by groups including the People’s Bank of China and the UNEP, aim to support green finance. In terms of policy, China’s chief economist from the Central Bank of China, Ma Jun, has proposed an amendment to the Securities Law that would require companies to disclose their environmental data and impact.
Most recently, on August 31, 2016, a group of Chinese government and financial institutions including the People’s Bank of China (PBOC), Ministry of Finance, and the Ministry of Environmental Protection issued a “Guidance on Building Green Finance System." These guidelines were created as a step towards promotion of China’s strategy of “ecological civilization,” a policy that seeks to integrate economic development and the preservation of nature. They include (paywall):
- Re-lending operations by PBOC
- Specialized green guarantee programs
- Interest subsidies for green loan-supported projects
- Launching a national level green development fund
- Spelling out the important role of the securities market in financing green investment
- Unification of domestic green bond standards
- Supporting qualified green companies to raise funds via IPOs
- Setting up mandatory environmental information disclosure system for listed companies and bond issuers
- Calling for the development of green insurance and trading of environmental rights
- Drafting of laws for introducing a mandatory pollution liability insurance system
- Supporting the development of carbon finance products
- Promotion of the development of environmental rights markets
One major hurdle to the growth of China’s green finance sector has been determining which environmental indicators are necessary to analyze effective green finance policies. Furthermore, in order to incentivize and grow the green finance sector, China’s government and businesses must collaborate, engage in transparent information sharing, and more accurately value the environmental costs of infrastructure projects and industrial operations among other policies and projects. More precise cost estimates will allow lenders to better determine the risks and value of investing in potential projects.
China has made major commitments to carbon reduction, and, jointly with the United States, formally approved the Paris Climate Agreement before the G20 meeting. As explained by NRDC President Rhea Suh:
"By formally joining the historic Paris agreement, the U.S. and China have joined 24 other countries in turning away from dirty fossil fuels toward clean and renewable energy. And by saying yes to clean air, land and water, and to public health, they are telling the world, and telling future generations, that we are determined to bequeath a stable and safe environment to all our children.”
China will also play a significant role in limiting carbon emissions throughout the world. China’s One Belt, One Road (OBOR) initiative aims to connect major economies among 60 countries in Asia, Africa, and Europe. It is essential that OBOR implements guidelines for green finance to greatly mitigate potential carbon emissions from new projects.
The G20 Summit holds significant potential for addressing key challenges such as those mentioned previously, as well as promoting green finance growth, both in China and across the world. The next blogs in this series will evaluate the results of the G20 meeting and address what can be done to follow up in terms of environmental transparency and governance.
This post was co-authored by NRDC Princeton in Asia Fellow Annie Wang and China Environmental Law Project Director Wang Yan.