INTERVIEW2: PBOC To Adjust Policy Framework For Climate Goals

The People's Bank of China is working on ways to incorporate climate change considerations into its policy framework and is designing policy instruments to bolster green investment in line with carbon neutrality goals, a prominent policy advisor told MNI.

Both monetary policy and macroprudential management frameworks could be adapted to favour climate goals, Ma Jun, a former member of the PBOC's monetary policy committee, said in an interview.

"Monetary policy will introduce tools to incentivise green investment and carbon reduction, while macroprudential management should focus on bad loan exposure in carbon-intensive sectors", he said. Researchers at the PBOC and commercial banks including Industrial and Commercial Bank of China are already working to design environmental and climate-related stress tests and scenario analyses, added Ma, who is chairman of the China Green Finance Committee.

Regulators will introduce requirements for banks to release more information about borrowers' carbon emissions, he said. Floating-rate bonds or loans could be designed based on carbon footprints, motivating borrowers to reduce emissions during the entire lifetime of the instruments.

RISKS FOR DIRTY INDUSTRY

The challenge of upgrading environmental and climate standards will be felt across the economy, according to Ma, who noted that carbon-intensive firms may lose sales if they fall short of green standards and that dirtier borrowers may face higher interest rates. Exports by high-carbon industry may also face border-adjustment taxes imposed by other countries, he said.

Environmental, social and governance standards should also be applied to China's sovereign wealth funds, and to the use of its foreign exchange reserves, as well as to the nation's pension funds, Ma said. PBOC Governor Yi Gang stated in a recent public speech that China's FX reserve management would increase allocation of green bonds and control its exposure to carbon-intensive assets.

As they seek a more sustainable economy, China's policymakers have begun to place less emphasis on reaching GDP targets, preferring to stress key measures of employment, and in particular keeping the surveyed unemployment rate at around 5.5%, Ma said.