Among the "five major articles" proposed by the Central Financial Work Conference to do a good job in the financial industry, green finance is one of them.
The insurance industry is taking the lead. On December 13, 2023, the Insurance Association of China held a press conference on the "Guidelines for Environmental, Social and Governance Information Disclosure of Insurance Institutions" in Beijing.
Previously, the former China Banking and Insurance Regulatory Commission (CBIRC) issued the Guidelines for Green Finance in the Banking and Insurance Industries, requiring banking and insurance institutions to pay more attention to green finance business and their own ESG (environmental, social and governance) performance. In fact, China has become the world's largest green credit market and the second largest green bond market.
In 2023, which green finance businesses will develop rapidly, which supporting policies will continue to exert force, and which innovations will become bright spots? According to a survey conducted by the Southern Weekend New Finance Research Center, a multi-level green financial market system has been initially formed in mainland China, with green loans as the mainstay and green bonds, green insurance and other green financial instruments flourishing. Green insurance, green trust, green financial leasing and other green finance formats have a good momentum of development.
The green financial market system has taken shape
At present, the mainland has initially formed a multi-level and diversified green financial market focusing on green loans, green bonds and green insurance. This provides a steady stream of living water for the green and low-carbon transformation and development of the real economy.
The rapid growth of green credit has promoted the low-carbon and green transformation of the industry. In the past three years, the compound annual growth rate of green credit balance in mainland China has reached 35.26%. According to central bank data, as of the end of the third quarter of 2023, the balance of green loans in local and foreign currencies on the mainland was 28.58 trillion yuan, ranking first in the world. According to statistics from the New Finance Research Center of Southern Weekly, the balance of green credit, loans for energy conservation and environmental protection, clean energy and green buildings of 21 major banks reached 25 trillion yuan, 3 trillion yuan, 5 trillion yuan and 3 trillion yuan respectively.
Green bonds are gaining momentum. According to statistics from the New Finance Research Center of Southern Weekly, in the first half of 2023, the stock and incremental scale of green bonds in mainland China and abroad were 3.5 trillion yuan and 469.257 billion yuan, respectively. Among them, 207 new green bonds were issued in China, with an issuance scale of about 450.507 billion yuan.
The insurance company continues to explore green finance business with the two-wheel drive of "insurance + investment". According to the New Finance Research Center of Southern Weekly, as of the end of June 2023, the mainland's green insurance premium income was 115.9 billion yuan, and the balance of insurance funds invested in green development-related industries was 1.67 trillion yuan. On the underwriting side, it provides risk protection such as environmental pollution liability insurance, innovates product design to deal with climate disasters, supports customers' risk control and provides climate risk reduction services, and actively communicates with the reinsurance market to deal with climate disasters.
In addition, green trusts and green financial leasing are also evolving. According to statistics from the New Finance Research Center of Southern Weekend, in the first half of 2023, the balance of green trust assets and the balance of green financing of financial leasing companies will be 291.6 billion yuan and 850 billion yuan, respectively.
The green finance policy system continues to improve
Policy support is one of the key factors to promote the sustainable development of green finance.
In recent years, financial regulators have continued to promote the improvement of the green finance policy system to support the resource allocation, risk management and market pricing functions of green finance. Since 2016, the "Guiding Opinions on Building a Green Financial System", the "Green Finance Evaluation Plan for Banking Financial Institutions" and the "Guidelines for Green Finance in the Banking and Insurance Industry" have been implemented one after another, continuously guiding the banking and insurance industry to "go green".
In 2023, green finance-related policies will continue to increase. At the beginning of 2023, the People's Bank of China (PBoC) decided to continue the implementation of three monetary policy tools, including the carbon emission reduction support tool. Among them, the carbon emission reduction support tool will be extended until the end of 2024, and some local corporate financial institutions and foreign financial institutions will be included in the scope of financial institutions of the carbon emission reduction support tool, so as to further expand the scope of policy benefits. At the same time, the central bank's special re-lending to support the clean and efficient use of coal will be extended until the end of 2023. The two policy tools will continue to be implemented in parallel in 2023. According to statistics from the New Finance Research Center of Southern Weekend, by the end of the third quarter of 2023, the balance of carbon emission reduction support tools increased by 56.8 billion yuan.
In December 2023, the China Securities Regulatory Commission (CSRC) and the State-owned Assets Supervision and Administration Commission (SASAC) jointly issued the Notice on Supporting the Issuance of Green Bonds by Central Enterprises, aiming to support the issuance of green bonds (including green asset-backed securities) by central enterprises by improving the green bond financing support mechanism, so as to help the green and low-carbon transformation and high-quality development of central enterprises.
The People's Bank of China (PBoC) has taken the lead in drafting financial standards for the transition of four industries: coal power, iron and steel, building materials and agriculture, which will be released for public comment when conditions are ripe. This will provide a basis for financial institutions to meet the reasonable financing needs of low-carbon industries for low-carbon transition.
Diversification of green financial products
Under the guidance and promotion of policies, financial institutions continue to innovate in the field of green finance.
According to the survey and statistics of the New Finance Research Center of Southern Weekly, in 2023, domestic innovative environmental rights and interests products will develop rapidly. The banking sector has launched pledged loan products including carbon emission rights and emission rights, as well as green asset-backed bonds that use carbon emission rights as collateral for bonds.
At the same time, in response to the capital needs in the fields of clean energy and green transportation, financial institutions have launched special financing solutions and green credit products, such as park loans, photovoltaic loans, etc.;
Income products that use the proceeds of clean energy projects and the realization of the value of ecological products as the source of repayment or debt repayment are also highlights. For example, renewable energy subsidy confirmation loans and national reserve forest construction loans;
In addition, financial institutions have also linked loan or bond terms, such as loan interest rates, to key environmental performance of enterprises, and innovated and developed structured financing products to encourage enterprises to achieve green and low-carbon transformation. For example, sustainability-linked loans;
In areas such as personal loans and credit cards, commercial banks have also stepped up innovation around green consumption, and launched green products in the retail sector, such as personal green consumer loans, green personal housing loans, personal carbon accounts and green credit cards.
On the whole, the "green" products of financial institutions are more diversified, covering the whole business field of public and private enterprises.
Eighty percent of listed financial institutions publish ESG reports
Under the continuous guidance and promotion of policies, coupled with the drive of self-change, ESG reports have become the "second financial report" of listed financial institutions.
According to statistics from the New Finance Research Center of Southern Weekly, in 2023, the release rate of ESG-related reports of listed financial institutions will exceed 80%, ranking first in various industries.
According to a survey by the New Finance Research Center of Southern Weekend, large state-owned banks and insurance companies have set up departments or offices related to green finance business to manage green finance and ESG performance as a whole. For example, the Postal Savings Bank of China has promoted the bank's in-depth implementation of the "Energy Management Regulations of the Postal Savings Bank of China Head Office" and other requirements, and the head office has signed a letter of responsibility for ecological and environmental protection with 36 first-level branches and holding subsidiaries to strengthen environmental performance evaluation, while Ping An Insurance of China has incorporated energy conservation and emission reduction into all departments and links of enterprise operations by promoting smart office, building green data centers and building green buildings.
According to the recommendations of the New Finance Research Center of Southern Weekend for the green finance transformation of domestic and foreign financial institutions, mainland banking and insurance institutions can refer to the standards of the International Sustainability Standards Board, the Financial Stability Board (FSB) and the Financial Alliance for Carbon Accounting (PCAF) to improve their carbon accounting and environmental information disclosure capabilities, and shift from voluntary disclosure of ESG governance to mandatory disclosure.
Transition finance has become an important direction
As an effective supplement to green finance, transition finance has become an important direction for the future development of green finance. Transition finance focuses on serving industries and projects with significant carbon emission reduction benefits, providing reasonable and necessary financial support for low-carbon transformation in areas with high emissions or difficult to reduce emissions, and promoting the increasing proportion of green industries and green projects in economic activities.
According to a survey conducted by Southern Weekly's New Finance Research Center, many financial institutions have developed and designed a variety of products to support the transformation of the real economy. Transition finance has become an important driving force for achieving the "dual carbon" goal. For example, Sunshine Insurance has explored the "insurance + service" model to help the green transformation of brown industries, and Sunshine Insurance has also innovated and developed "carbon trading loss insurance for low-carbon project machine damage" to provide carbon loss protection for emission reduction equipment for various enterprises participating in carbon trading.
The Southern Weekend New Finance Research Center suggests that while adhering to the principle of marketization to promote the development and effective connection between green finance and transition finance, China's banking and insurance industry should learn from the G20 transition finance framework, formulate transition finance standards for key industries, and provide more transition finance products to help the real economy transition smoothly.
Jiang Zhaokun, researcher at the New Finance Research Center of Southern Weekly
Editor-in-charge: Xie Yanxia