The People’s Bank of China (PBoC), the country’s central bank, announced on 08 June 2021 that, in a bid to drive the propagation of green financial (GF) products in the Chinese market, it would launch a new green finance evaluation tool by 01 July 2021. By appraising and grading the green performance of investments, Beijing is hoping to convince public lenders to direct their capital towards green and sustainable projects.
To do so, the scheme foresees the PBoC and its regional branches running a comprehensive evaluation of the nation’s major financial players including China Development Bank, Agricultural Development Bank of China, and Export-Import Bank of China. 80% of an institution’s grade will be down to quantitative criteria such as share of GF business, year-on-year growth rates, and the share of GF business risks. The rest of the grade is allotted to the quality of daily management practices and risk control policies. According to the communiqué, these ratings are used to determine incentives and disciplinary measures for institutions.
The announcement is the latest in a series of efforts by the Chinese government to mobilize the necessary funds to reach its national 2060-decarbonization target, as announced earlier this year by President XI. While the country had already positioned itself as the world’s biggest seller of green bonds (i.e. a type of promissory note issued by a corporate or public entity designated to finance climate-change-fighting projects) in 2019, the PBoC now wants the country’s biggest lenders and investors to expand this logic to other financial asset classes such as securities, equities, leasing, and trusts.
The funds are sorely needed. Corporate consultancy BCG estimates that the country will need to marshal 90-100 trillion RMB ($13.5-$15 trillion) to bring its annual CO2 emissions from 10 billion tons in 2019 (i.e. 27% of the world’s total) down to zero (EN). Even in the world’s second-largest economy, that is no easy feat. Time will tell whether a new tide of green finance, cast loose and facilitated by national governments, can rise to the challenge.