MNI INTERVIEW: China Carbon Pledge To Power Green Finance

China's pledge to achieve carbon neutrality by 2060 is a major boost to the country's green finance market, People's Bank of China Monetary Policy Committee member Ma Jun told MNI, suggesting that authorities should allow foreign investors to securitise environmentally-compliant loans and drive for global harmonisation of green finance standards.

Following President Xi Jinping's surprise pledge last Tuesday, Chinese ministries and local governments should come up with plans to accelerate the low-carbon transformation of the energy, transportation, building, and manufacturing sectors, Ma said. Local governments could also launch "zero carbon communities" as demonstration projects, he said.

"China's carbon neutrality pledge should significantly boost both the demand and supply of green finance activities," said Ma, also chairman of Green Finance Committee of China Society for Finance Banking, "demand for green finance will increase sharply in the coming years and decades."

SECURITISATION

Foreign investors will have significant appetite for Chinese green assets if better information and more convenient channels are made available, he said in an interview, calling for regulations to allow international investors to buy Chinese green loans and securitise them offshore.

"As China's interest rates are much higher than those in the OECD countries, Chinese green asset yields are attractive," he said.

As of the end of June, outstanding green loans provided by big lenders totaled CNY11 trillion, the largest pool of such loans in the world, and potentially a huge market given appropriate policy innovation, according to Ma, who expected foreign investors who already have yuan exposure to be the main international market for green debt.

"China should also consider grant green bond issuance quotas to local governments, which are already promoting eligible environmentally-friendly projects", said Ma, adding that this would improve financial disclosure and lower funding costs.

Between the founding of its green bond market in January 2016 and the end of June, Chinese green bond issuance totalled CNY1.2 trillion, 20% of the global total, mainly coming from the alternative energy, environmental management and transportation sectors. With central bank encouragement, the Green Finance Committee has now increased in membership to include 250 institutions managing as much as CNY200 trillion in assets.

GREEN GOVERNMENT DEBT

As part of its drive to boost the environmentally-friendly sector over the past 10 years, the PBOC has included the green financing measure as part of its macro-prudential assessment framework, a scoring system which assesses banks' capital and monitors risks within the financial system. Its relending facility is also available at preferential rates to fund green loans. Additionally, local governments are providing incentives to issue green debt, helping to offset any extra cost, Ma said, pointing to Jiangsu Province, which offers subsidies equivalent to up to 30% of the value of green bond issuance.

While demand will rise for green infrastructure investment, authorities will also promote measures to green consumption, small business operations and agriculture via better application of digital technologies to green finance, Ma said at a Fintech session of the INCLUSION Conference in Shanghai on Sept. 26.

International regulators now need to work together on unifying global green finance standards, Ma told MNI, pointing to over 200 different standards around the world, put together by different authorities, organisations and financial institutions.

The existence of competing standards not only pushes up transaction costs, but could provide opportunities for "green washing", when borrowers mislead investors about the supposed environmental benefits of their projects.

In a bid to harmonise rules, the International Organization for Standardization has set up the ISO/TC 322 committee on sustainable finance, and China and the European Union are also launching a working group, Ma introduced.