Risk mitigation, innovative products figure among chief recommendations

China should improve the risk mitigation mechanism for green finance and develop innovative financial products whose underlying assets are energy equity like emission credits and energy consumption quotas, to peak carbon emissions by 2030 and achieve carbon neutrality by 2060, officials and experts said.

"The majority of ecological projects are medium－and long-term projects. If the guarantee and collateral mechanisms are imperfect, banks will step back from supporting these projects due to higher risks associated with long-term loans and investments. A better risk-sharing mechanism will attract more investors and more market players to participate in value realization of ecological products," said Wang Xin, director-general of the Research Bureau of the People's Bank of China, the central bank.

Wang said China should press ahead with the enaction of laws and regulations to ensure value realization of ecological products, build special mechanisms for ecological compensation, transfer payment and government procurement, and establish and improve payment mechanisms for eco-environmental services. Moreover, it is also important to further clarify the right to the use of, the operation of and the earnings of ecological products.

He urged financial institutions to strengthen efforts to innovate financial products in this area.

"As long as there is a positive market environment, and carbon and ecological product prices are good, financial institutions will bring their initiative into full play and launch various types of financial products, including loans, stocks, futures and insurance, to adapt to market development needs," he said at the Tsinghua PBCSF Economic Forum on Carbon Neutrality in Beijing recently.

Xiao Gang, former chairman of the China Securities Regulatory Commission, said financial institutions should strengthen environmental risk assessment, conduct pressure tests, improve their risk identification, monitoring, analysis and early warning capabilities, and use a series of analytical methods to make decisions on project selection.

It is also important for listed companies and financial institutions to make a transition from voluntary disclosure of environmental information toward mandatory disclosure step by step. At the same time, the country should build a public platform of environmental and climate data and further strengthen the rating and certification of green finance projects, Xiao said at the forum.

He stressed the need for further unifying regulatory standards and ramping up coordination of regulation on green finance innovation.

China is not alone in facing the regulatory unification challenge. Leslie Maasdorp, vice-president and chief financial officer of the New Development Bank, suggested the global financial sector should come up with green standards that are uniform and have broad agreement across various jurisdictions.

"Businesses can function best when the rules of the game are clearly defined. So, what we see today is an emergence of policymakers coming up with new regulatory frameworks. The challenge, however, is that there is now a proliferation of frameworks. We have so many green standards in the world … The biggest challenge today is to harmonize these standards, to make them easier, more consistent, to have benchmarks that the private sector can understand and respond to," Maasdorp said.

The private sector will play an indispensable role in providing funds for carbon-neutral projects and optimizing the allocation of production factors of the society. Developing green finance will guide private capital to enter the fields of green growth and environmental protection, said Zhang Xiaohui, dean of the Tsinghua University PBC School of Finance.

China said it will use innovative financial institutional arrangements to encourage private capital investments in green industries while effectively containing investments that contribute to pollution.

"During the process, for China to achieve dual carbon reduction goals, it's particularly important for policymakers to make rational decisions, take prudential actions, and conduct production capacity risk monitoring and early warning to ensure long-term and steady green development," Zhang said.