China Consolidates Position as Global Leader on Green Finance, Says New Research

Date: 16 Nov 2017

  • In one year, China’s green bonds grew in number by 278 per cent and value by 28 per cent
  • 7,826 green and low-carbon projects, at investment of RMB6.4 trillion (US$0.96 trillion), are listed in public-private partnerships catalogue
  • 121 new green regional development funds were set up in 2016

Singapore, 16 November 2017 – China has firmly established itself as a global leader on green finance, with both domestic policies and international leadership bringing real progress, but its needs to overcome some serious challenges to unlock its full potential, new research released today said.

Establishing China’s Green Financial System: Progress Report – coauthored by the International Institute of Green Finance (IIGF) of the Central University of Finance and Economics (CUFE), and UN Environment’s Inquiry into the Design of a Sustainable Financial System – reviews China’s development in green finance, and offers recommendations for future development.

“Green finance is essential to realizing China’s national strategic objectives in green development and ecological civilization,” said Wang Yao, Professor and Director-General at the IIGF. “Through approaches in practicing green credit, green bonds, green insurance and industrial funds, as well as implementation at local levels, China’s green finance development has contributed significantly to social and economic structural reforms and gained widespread recognition internationally.”

To finance climate action and sustainability, trillions of dollars need to be deployed each year, much of which will have to come from the world’s financial and capital markets. This is particularly important for China. The rapid growth of the world’s second-largest economy has brought health and environmental problems, something the country’s leaders have acknowledged.

Speaking at the recent 19th National Congress of the Communist Party of China, President Xi Jinping said that the construction of “ecological civilization” and the maintenance of ecological security are the keys to China achieving stable and sustainable development.

The report finds that China – which put green finance on the G20 agenda during its 2016 presidency – is following through on its political commitment to boost the financing required to do this. The report looks particularly at progress since the State Council in August 2016 approved a set of recommendations for action on greening China’s financial system.

The report identifies many specific advances, including:

  • China has become a new growth driver in the global green bonds market. In the first half of 2017, China issued 36 green bonds worth RMB77.67 billion (US$11.7 billion). Of these bonds, the number and size of bonds grew 278 per cent and 28 per cent respectively compared with 2016.
  • Many provinces and cities have established regional green development funds. By the end of 2016, 265 green funds were registered with the Asset Management Association of China, of which 215 were green industry funds. Some 121 of these were established in 2016.
  • By the end of June 2017, 7,826 green and low-carbon projects, with a total investment of RMB6.4 trillion (US$0.96 trillion), were included in the national public-private partnerships projects catalogue, accounting for 57.7 per cent of the projects and 39.3 per cent of the investments in that catalogue.
  • China established five distinct green finance pilot zones to explore different development models for the local green financial system against different backgrounds.
  • The Chinese government and the business community have started to attach great importance to developing a green industry chain for outbound investment. With the Guidelines on Promoting Green Belt and Road, the APEC Green Supply Chain Network, and the Initiative on Environmental Risk Management for China’s Outbound Investment, China is going global in its green investment practices.

“China has made huge strides through government leadership to create a domestic green finance market, and has inspired many other countries in developing a green finance policy roadmap,” said Dr. Ma Jun, Chairman of China’s Green Finance Committee and Special Advisor to UN Environment on Sustainable Finance. “However, to keep this momentum going, China still needs to overcome some challenges. The green finance progress report pinpoints where the work needs to be done for China to establish a fully functioning green financial system.”

Recommendations

The report identifies key issues that need to be addressed to move forward faster, and issues recommendations to tackle them, including:

  • Clearly define the term “green”, thus lowering the identification costs of green projects and preventing rising “greenwashing”.
  • Set up statistical systems for green finance, and construct performance evaluation systems for local green development.
  • Relevant authorities could clarify lenders’ responsibilities, litigation eligibility, and liabilities by improving laws and regulations on environment protection, thus urging commercial banks to incorporate environmental risk analysis into the loan application process.
  • Efforts should be made to improve the green finance database and expand channels for international investors to access information about China’s green finance market to help boost their confidence.
  • Green indexes aligned with the international market should be developed as benchmarks to attract international investors to invest in green bonds and stocks in China.

The report can be downloaded here.

NOTES TO EDITORS

The UN Environment Inquiry and partners this week launched another three reports on the state of play in green finance and upcoming investment opportunities. These are:

13 November – Roadmap on Sustainable Finance, with the World Bank Group. This report is aimed at helping governments and the private sector design a global financial system that is fit-for-purpose in the era of sustainable development.

15 November – ASEAN Green Finance Opportunities, with financial services group DBS. This report finds that green investment in the ASEAN region must grow by 400 per cent annually to prevent climate and other environmental risks from damaging economies.

15 November – Singapore Roadmap on Green Finance, with the Singapore Institute of International Affairs. This report looks at how Singapore could transform itself into a green finance hub for ASEAN and the wider region.

All reports and related infographics can be downloaded from the Inquiry’s website on the relevant dates.

Twitter @fininquiry

For more information and to arrange interviews, contact:

Michael Logan, Inquiry into the Design of a Sustainable Financial System, +39 349 453 9310, michael.f.logan@gmail.com

Chen Jing, International Institute of Green Finance, +86 15711156381, jingchen@rccef.com.cn