Green Finance Roundtable: How difficult are the carbon peaking and carbon neutrality challenges facing the financial industry? What are the opportunities?

Reporter | Zeng Yanglin

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2021 is the first year of "carbon neutrality", and green finance has become a hot topic in the industry. In the face of carbon peaking and carbon neutrality, what opportunities and challenges will the financial industry face? What are the difficulties faced by financial institutions in the process of transformation and transformation, and what are the countermeasures?

On October 29, the 2021 Tianfu Financial Forum with the theme of "Green Finance Helps 'Carbon Peaking, Carbon Neutrality'" was held in Chengdu, and the participants shared their insights on the above topics at the meeting.

<h3>Carbon peaking and carbon neutrality are a double-edged sword</h3>

"Carbon peaking and carbon neutrality is an extremely extensive and profound green industrial revolution, which will surely promote the transformation of economic growth mode and inject endogenous impetus into green development." Liu Jiandong, risk director of bank of China, pointed out that this process will inevitably bring about profound changes in economic structure, energy structure and industrial structure.

Liu Jiandong further said that on the one hand, it will give birth to huge development opportunities and investment opportunities in many fields such as clean energy electrified transportation facility manufacturing, energy-saving transformation, carbon storage technology and so on. On the other hand, changes in corporate costs, profits and capital flows brought about by industrial transformation will change the existing financial operating model. These changes will create new demands and challenges for financial services.

Liu Jianjun, president of the Postal Savings Bank, believes that "compared with developed countries, China's time window for achieving the double carbon target is tight, facing more arduous and heavy reform and development tasks, which requires us to make more arduous efforts." Achieving carbon peaking and carbon neutrality is a broad and profound economic and social systemic change, which is both a challenge and an opportunity for the transformation and development of financial institutions, and overall the opportunities are greater than the challenges. ”

Talking about the challenge of "double carbon", Liu Jianjun believes that in the process of low-carbon transformation, some high-carbon enterprises and projects will gradually withdraw, the quality of financial assets will bear the pressure of fission, and the default rate of these industries may rise significantly.

At the same time, Liu Jianjun pointed out that in order to see the current situation of China's industrial structure and coal energy structure, we must seek truth from facts, make every effort to deal with the relationship between carbon reduction and energy security, industrial chain, supply chain security and the normal life of the people, so as to effectively deal with the economic, financial and social risks that may accompany the process of low-carbon transformation, prevent excessive reaction, and ensure safe carbon reduction.

Wang Wen, executive dean of the Chongyang Institute of Finance at Chinese Min University and secretary general of the Green Finance Professional Committee of the China Society for Finance and Finance, also believes that carbon peaking and carbon neutrality are a double-edged sword. "While we all agree that the opportunities outweigh the challenges, how difficult are the challenges? There is probably a little bit of an underestimation we might estimate. ”

Wang Wen further elaborated that first of all, the impact of carbon peaking and carbon neutrality involves unemployment, social isolation, global shock, etc., and even wars over resources. In the future, this war will involve a large number of financial shifts, the setting of standards, international rules and other aspects of the great power game.

Secondly, the "Guiding Opinions on the Accurate, Comprehensive and Complete Implementation of the New Development Pattern to Achieve Carbon Neutrality" issued by the Party Central Committee and the State Council make it clear that the proportion of non-fossil energy consumption in the future will reach almost 20% by 2025, 30% in 2030, and 80% in 2060. However, the proportion of non-fossil energy consumption is currently less than 20%. This creates a huge carbon constraint on China's development.

"In the past, our development model relied too much on fossil fuels, that is, underground energy sources - coal, iron ore, natural gas, oil, which had previously remained at a high coal model of 80%. This means that in the future, we will have to change and realize the switching of energy structure, that is, from relying on underground energy in the past to relying on above-ground energy sources - wind, solar, nuclear, and hydropower. Wang Wen pointed out that such a huge change is not a simple change in living habits, involving a revolution in lifestyle and a revolution in development mode, which is completely subversive. Therefore, the challenge of preventing the emergence of sports carbon reduction in the short term.

Finally, Wang Wen said that the carbon trading market is an industrial upgrade of great significance, which makes it possible to complete many places that cannot complete carbon neutrality. There are some highly industrial cities, such as Shanxi, Hebei and Inner Mongolia, which can achieve carbon neutrality through carbon emission trading and buying carbon emissions. However, the problem ensued, the current carbon value is seriously underestimated, and the so-called open docking and integration of the so-called carbon market in the global market have not yet been formed.

"Only after the carbon price is raised, the cost increase will have more incentives, incentives and punishment mechanisms to leverage more industries to engage in low-carbon development." Wang Wen said.

Talking about the opportunities of carbon peaking and carbon neutrality, Liu Jianjun pointed out that the low-carbon transformation will create huge investment and financing needs, and financial institutions will usher in new business growth points. According to the Institute of Climate Change and Sustainable Development at Tsinghua University, achieving carbon neutrality requires cumulative new investment of about 138 trillion yuan, more than 2.5% of GDP per year. In the face of the 100 billion-level capital gap, it is necessary for financial institutions to actively participate, innovate and enrich green financial products, increase the proportion of green financial business, and establish the image of responsible commercial banks.

"Commercial banks should conform to the trend of the green revolution and seize the huge opportunities brought about by the transformation of the mode of economic growth; they should take the initiative to play a leading role in meeting the needs of green financial services through product and service innovation and multi-channel; and actively build the preferred bank for green financial services and fully support the realization of the 3060 goal." Liu Jiandong said.

Wang Wen pointed out: "All in all, carbon neutrality is a revolution in lifestyle and economic mode, but our focus on the meaning, details and aspects of carbon neutrality is not enough to understand the research, the next step we need to study, deepen, understand its connotation, and internalize it into the genes and production and lifestyle of each of us." ”

<h3>Establish a market-oriented path for the realization of the value of ecological products</h3>

At the meeting, Zhang Qingsong, president of the Agricultural Bank of China, expressed his views and opinions on the issue of financial support for the realization of the value of ecological products.

According to Zhang Qingsong, ecological products are the sum of ecological services and material products that human beings obtain from nature. This includes ecological regulation service products such as fresh air, safe soil, and clean water sources, as well as material and cultural products developed by ecological industrialization and industrial ecological operation. The process of realizing the value of ecological products is to transform potential ecological values into actual economic values, realize the externalization of ecological protection benefits and the internalization of ecological protection costs. The process of realizing the value of ecological products should include at least three basic links, namely, assessing value, value discovery, and realizing benefits.

He believes that from the existing exploration, although financial support has made remarkable progress in realizing the value of ecological products, there are still many difficulties in realizing the value of ecological products in all aspects.

Specifically, Zhang Qingsong proposed that there are currently the following three problems:

First, the lack of a socially recognized and accurate evaluation framework, the connotation of ecological products has not yet reached a consensus, such as which are ecological products, how much the value of ecological products is, who should pay, how many carriers of the value of ecological products, etc., these have not been particularly clear programs or answers.

Second, the channel for value realization has not yet been fully opened. At present, only environmental resource rights and interests such as water rights, pollutant discharge rights, and carbon emission rights have entered the trading market, and it is difficult for ecological rights related to climate change and biodiversity to enter the trading market. Even in the carbon trading market, which has just started this year, the size of the transaction is not so encouraging.

For example, the current scale of ecological compensation mainly depends on the ability of fiscal expenditure, which does not fully reflect the service value of the ecosystem, the risk sharing and mitigation mechanism is not sound enough, and the investment risk of financial institutions providing long-term loans or other investments in this field is also relatively high, affecting the sustainability of this business model.

"Financial institutions, especially banking and financial institutions, are an important part of China's economy and finance, and must be an important force for China to achieve the goal of double carbon, we must improve our political position, fulfill our social responsibilities, actively build a green finance business system, and promote the establishment of a market-oriented path for the realization of the value of ecological products." Zhang Qingsong pointed out.

Based on this, Zhang Qingsong suggested that the first is to improve the relevant credit policies for the realization of the value of ecological products. Credit funds are the most direct and powerful support of the financial industry for providers of ecological products. Commercial banks should introduce special industry credit policies around the key areas of ecological products, promote the organic integration of the green credit indicator system and credit industry policies, and support differentiated measures such as basic economic occupation, credit authorization, and loan pricing.

The second is to provide integrated financial services for the realization of the value of ecological products, and financial institutions can innovate new credit products such as carbon sink pledge loans and ecological loans based on GEP accounting. It can also provide a full range of financial services for the realization of the value of ecological products by issuing green bonds to carry out green mergers and acquisitions, green syndication, green asset securitization, green insurance and other businesses.

The third is to promote the development and maturity of the ecological product market. The realization of the value of ecological products is inseparable from the perfect market system and market mechanism, financial institutions should give full play to their professional advantages, help the development of various types of ecological product trading markets, expand coverage, increase their liquidity, and increase the depth of their markets. In the future, the financial attributes of the carbon market will be further highlighted and strengthened, and financial institutions can participate in it to better activate the carbon trading market by innovating financial derivative trading services such as futures and options.

The fourth is to explore more financial support models. Many of the projects that realize the value of financial products have the characteristics of large investment scale, long construction period, and strong public welfare attributes, and financial institutions should give full play to the role of the hand of the market, strengthen cooperation with the government, and promote the market-oriented operation of the realization of the value of ecological products. For example, the two sides can jointly build the "ecological product rights confirmation + green credit + risk compensation" model, "public products + green fund" model, green PPP financing and other models, and the two sides can interact to jointly promote the realization of the double carbon goal.