Guidelines in place to support green finance

Recently released guidelines will significantly increase the degree of attention paid by China's banking and insurance sectors to the work related to green finance, thus improving efforts to foster low-carbon and sustainable development, experts said.

The China Banking and Insurance Regulatory Commission recently announced that it has issued green finance guidelines, requiring banks and insurers to promote green finance at a strategic level, reduce the carbon intensity of their asset portfolios in a gradual and orderly manner, and eventually achieve carbon neutrality of asset portfolios.

Banks and insurers should increase support for the green, low-carbon and circular economy, prevent environmental, social and governance risks, include ESG requirements into their management processes and comprehensive risk management systems, strengthen ESG disclosures, and improve relevant policies, mechanisms and process management, the CBIRC said.

The regulator required banks and insurers to adjust and enhance their lending and investment policies to support energy saving, pollution and carbon emissions reduction, green growth, and disaster prevention in key sectors and fields, and promote the application of green and low-carbon technologies.

Banks and insurance companies need to take different measures in light of various situations, ensure the development of some industries while restricting the growth of others, and avoid "one-size-fits-all" measures and "campaign-style" carbon reduction, the regulator said.

Du Hongxia, a member of the China Banking Association's expert working group dedicated to promoting the banking sector to support China's dual carbon goals, said the recently published green finance guidelines can be traced to the same origin as green credit guidelines issued by the regulator in 2012, which aimed to encourage banking institutions to develop green lending services and adopt stronger environmental and social risk management.

The new guidelines will play an important role in supporting the development of green finance as government-led guidelines will effectively handle challenges to market efficiency. In addition, the regulator has expanded the scope of financial institutions following the guidelines from banks to insurers, Du said.

Large State-owned commercial banks and some leading national joint-stock commercial lenders have carried out numerous explorations of green finance and developed a complete set of business development strategies and implementation mechanisms in various aspects, including organizational structures, business procedures, information disclosure and risk management. Many small and midsize banks, however, do not have clear business strategies that support organizational structures or core capabilities in the area of green finance, said Zeng Gang, deputy director-general of the National Institution for Finance &Development.

"By issuing new guidelines, the regulator aims to require all kinds of banks and insurance companies to develop a full set of institutional systems to bolster the development of green finance and improve their comprehensive capabilities in this field. It wants to ensure that the entire banking and insurance sectors will become more systematic, regulated and standardized in terms of offering financial services amid China's green transition," Zeng said.

The regulator will promote best practices in these sectors and encourage more banks and insurers to move the related business forward, he added.

At the end of the first quarter, China's outstanding green loans in yuan and foreign currencies reached 18.07 trillion yuan ($2.71 trillion), up 38.6 percent year-on-year, according to the People's Bank of China, the nation's central bank.

The total amount of China's domestic labeled green bond issuance exceeded 1.5 trillion yuan as of April 28. Over 30 percent of domestic green bond issuers came from the financial sector, and more than half of domestic green bond investors were commercial banks, said the UBS Global Wealth Management's Chief Investment Office in a report on May 16.

The average annual growth rate of China's new green bond issuance since 2017 was 72 percent. The funds raised were mainly invested in renewable energies, low-carbon transportation and water resources, the report said.