The People’s Bank of China (PBoC) and the European Commission jointly launched a sustainable finance taxonomy on Thursday (November 4) to recognize green financial assets in China and Europe, contributing to the formation of a new global standard on green finance products.
The launch came after Chinese President Xi Jinping said in a written statement to the COP26 summit on Monday that China would continue to prioritize ecological conservation and pursue a green and low-carbon path to development.
Xi also said China would speed up the transition to green and low-carbon energy, vigorously develop renewable energy and plan and build large wind and photovoltaic power stations.
Representatives of Chinese financial institutions, including the Bank of China (BOC), China International Capital Corporation (CICC) and the Industrial and Commercial Bank of China (ICBC), said in a side event at COP26 that they had taken action to contribute to the country’s green finance sector’s development, but their carbon neutrality work should be implemented in an orderly manner to avoid creating credit risks.
In March this year, Xi announced China’s commitment to achieving its major targets on fighting climate change, including a carbon emissions peak in 2030 and carbon neutrality by 2060. On September 22, he reiterated the targets when speaking via videolink to the UN General Assembly in New York.
Xi did not personally attend the United Nations Climate Change Conference, or COP26, in Glasgow, but on Monday delivered a statement to the international community via video link.
He said China would foster a green, low-carbon and circular economic system at a fast pace, press ahead with industrial structure adjustment and rein in the irrational development of energy-intensive and high-emissions projects.
“Specific implementation plans for key areas such as energy, industry, construction and transport, and for key sectors such as coal, electricity, iron and steel, and cement, will be rolled out, coupled with supporting measures in terms of science and technology, carbon sink, fiscal and taxation and financial incentives,” he said.
“These measures will form a ‘1+N’ policy framework for delivering carbon peak and carbon neutrality, with a clearly-defined timetable, roadmap and blueprint.”
On Thursday, the PBoC said in a statement that the International Platform on Sustainable Finance (IPSF), which has 18 members including the European Commission, China, Japan, India and the United Kingdom, had held a meeting during COP26 and released a green finance framework known as the “Sustainable Finance Taxonomy.”
China’s central bank said it initiated the launch of the taxonomy in July 2020, while the European Commission and it co-chaired a working group related to this. It said the taxonomy was made in accordance with China’s Green Bond Endorsed Project Catalogue and the European Union’s Taxonomy Climate Delegated Acts.
The newly-released Sustainable Finance Taxonomy includes a list of sustainable activities that are recognized by both China and the EU, covering energy, manufacturing, construction, transportation, solid waste and forestry.
The PBoC said the taxonomy had an important meaning in terms of pushing forward the green finance cooperation between China and Europe, guiding cross-border climate-related investment and financing activities and lowering the costs of green product transactions.
Prior to this, Ma Jun, chairman of China Green Finance Committee and former chief economist of the PBOC’s research bureau, said at a seminar on Wednesday in Glasgow that an EU-China sustainable finance framework would help accelerate China’s green transition.
“This common ground taxonomy identified about 80 climate mitigation activities that are recognized by both the EU and China,” Ma said. “It’s an important step towards enhancing the ability, interworking capability and consistency of financial standards and could inspire further work in this area.”
Ma also said the China Green Finance Committee and the City of London jointly launched the Green Investment Principles (GIP) in 2018, which included seven principles at strategy, operations and innovation levels for greening investment in Belt and Road Initiative projects.
“The GIP is now a major global network for global institutions and more than 1,000 supporting institutions. These organizations collectively managed US$49 trillion of assets and committed to their low-carbon investments in the Belt and Road region or emerging markets in general,” said Ma.
At the same event, several executives of Chinese financial institutions shared their views on China’s green finance sector.
CICC’s chief executive Huang Zhaohui said the total investment demand for China to achieve its carbon neutrality target by 2060 would amount to 139 trillion yuan, including 22 trillion yuan between 2021 and 2030 and 117 trillion yuan between 2031 and 2060.
“The huge demand could not be satisfied only by public funding,” Huang said. “We also need to rely on an open financial system and effective international cooperation.”
Huang said a globally recognized finance framework could help accelerate cross-border fund flow for green economic development. He said the CICC would continue to launch more carbon neutrality indices, support green bond issuance and set up green sovereign funds.
BOC chairman Liu Liange said international financial institutions should jointly develop a global standard that could define, recognize and rate green finance products in order to boost cross-border fundings for sustainable activities.
Liu said earlier this year that the BOC had joined the Principles for Responsible Banking, a framework set up by the United Nations to ensure that signatory banks’ strategies and practices aligned with the vision society had set out for its future in the Sustainable Development Goals and the Paris Climate Agreement.
He said the bank had also promised that from the fourth quarter this year it would stop providing finance to coal mining and coal-fired power generation projects overseas. Liu added that BOC would provide at least 1 trillion yuan ($156 billion) to support the green finance sector during the period of the 14th Five Year Plan between 2021 and 2025.
At the same time, Liu stressed that the BOC would only implement its green strategy step by step in an orderly manner.
“Green transition will create new industries but at the same time add a huge pressure on traditional sectors,” Liu said. “The pain of transiting from traditional energy to new energy will not be reduced within a short period of time. Financial institutions must think carefully and find a balance point when they try to restructure their client bases.”
“People in the West are happy to see Chinese banks stop lending to coal mines and all the high-carbon sectors. But such ‘stripping away’ is not like taking off your clothes or throwing away rubbish,” said Fang Wenjian, the President of the BOC’s London branch, adding that no country would like to pursue a green transition if the process created credit risks and social instability.
“We have to strike a balance here and promote low carbon transformation in a steady and an orderly fashion. It’s important to bring our clients with us on this journey, instead of leaving them behind,” Fang said. “We don’t only mind our own businesses, but also mind our clients’ businesses in this process.”
Fang said sometimes financial institutions might have to increase lending to high carbon sectors so that companies could transform their businesses.
Zhou Yueqiu, chief economist of the ICBC, said Chinese financial institutions should launch more innovative green products, but at the same time improve risk management and avoid overreacting to carbon reduction targets. Zhou said all carbon neutrality work had to be done safely and orderly.
The seminar was co-organized by the Green Finance Committee of China Society for Finance and Banking, the Beijing Institute of Finance and Sustainability and the C Team & Vanke Foundation. It was supported by the Hong Kong Green Finance Association.