Photo by Li Lin on Unsplash

Due to its size and global influence, China is one of the key countries to meet and exceed the goal of limiting global warming to less than 2 degrees Celsius. Although China has firmly embraced in recent years its own green concept, that is, the pursuit of “ecological civilization”, and taken ever more decisive measures to control carbon emissions and pollution of the world. environment, much remains to be done to accelerate the low-carbon transition. In order to build on this commitment, the NRDC has launched various initiatives to support the reduction of China’s carbon emissions, including the promotion of green and climate-friendly financial approaches.

China’s green financial system

Decarbonizing China requires various sources of finance to realize the deployment of clean energy and other green solutions. One of these sources is the assets held by commercial banks. Total Chinese Commercial Bank Loans Approach RMB 120 Trillion[1], at the end of 2019. This is an excellent source of climate change finance in the market and can be harnessed to reduce GHG emissions.

With this in mind, the NRDC has launched a sustainable retail banking project in China, in partnership with leading local academic institutions, environmental organizations, commercial banks and emerging financial technology (fintech) companies, to guide the retail banking capital towards decarbonization.

IIGF and NRDC China Green Finance Research Report

According to a first baseline study carried out by the International Institute of Green Finance (IIGF) of CUFE and NRDC, China has rapidly and efficiently modernized its financial system to align it with its environmental interests.

In 2016, the government released the Guidelines for establishing the green financial system, which included statements designed to encourage private capital to invest in environmentally friendly industries. These actions helped China become the first country to establish a national green financial system.

Through the implementation of these government policies, the sustainable finance industry (also known as green finance) in China has grown rapidly over the past decade. At the end of 2018, the green loan balance stood at $ 1.16 trillion, or 9.24% of total loans in China. In addition, China issued 264 green bonds worth $ 84 billion and 33 asset-backed securities of $ 5 billion from 2016 to 2018.

China has also launched several regional pilot programs implementing the new policies as well as establishing the National Emissions Trading System which facilitates a market-based approach to controlling carbon emissions.

NRDC support for the development of green finance

The NRDC has seized these opportunities and changes by conducting policy research and promoting market innovations that support the development of a more sustainable financial system.

Our specific objective is 1) to better define climate finance within the framework of China’s green finance policy; 2) encourage financial institutions and fintech companies to launch concrete climate finance efforts and innovative solutions; and 3) fueling public commitment to climate-friendly consumer behavior.

Leveraging green finance for a green recovery

As the pandemic escalates, it presents an opportune time to take bold action on climate change, and decarbonization should be at the heart of any economic stimulus package. Green financial instruments and digital transactions can help rebuild economic activity while building resilience that can help provide essential support during difficult times.

With the efforts of Chinese research institutes to promote climate finance and related incentive policies, such as the green consumer credit study led by Industrial Bank of China Research, the idea of ​​a green economic recovery can permeate public discourse and encourage greater public engagement. For example, due to the pandemic, several local communities and e-commerce companies have offered vouchers on digital platforms to boost consumption. CCICED, a national think tank for sustainable development, proposed that “voucher design can incorporate green elements, in order to revive the economy while promoting green, low-carbon and sustainable development.” This reinforced our early efforts in developing guidelines and criteria to identify green consumer behaviors and green e-commerce businesses.

In addition, the relevant green financial products should be at the forefront of an economic recovery. Green loan programs should be given priority, especially those that help improve energy efficiency, use renewable energies and encourage the cultivation of carbon-absorbing plants.

One example is our joint effort with the Postal Savings Bank of China and the Yuhang local government. Together, we designed a ‘bamboo loan’, which provides special grants to small bamboo-based businesses, especially those that promote indigenous culture. With innovative approaches such as taking the amount of carbon sequestration from bamboo as a type of collateral, this can help ease financial pressures for struggling small businesses and facilitate an economic recovery for the region.

Ultimately, the pandemic created a unique opportunity to leverage the banking system to spur both economic and social recovery in a more sustainable way. Based on our research on the development of green finance, we believe that the government can provide an appropriate incentive for commercial banks to adjust their business models and ensure that their funds can flow more easily to green projects.

[1] Data source: China Banking and Insurance Regulatory Commission (CBIRC)