Supporting the green transition of China’s financial system

Photo @Towfiqu Barbhuiya on Unsplash

Financing is an essential element to limit the increase in global temperature to a maximum of 1.5 degrees, to avoid the collapse of ecosystems and biodiversity and to ensure an equitable future. Many strategies, including mitigation and adaptation, require funding. The corresponding company must be paid at every stage – technology development, validation, implementation and scale-up.

Public finance plays a crucial role in promoting and incentivizing climate change mitigation and adaptation measures. But the public money available will not be enough. Catalyzing several dollars of private funds for every dollar of public capital is essential to meeting the climate challenge. Climate finance must also be provided in a way that amplifies impact, maximizes effectiveness and ensures equitable access within and between countries.

International commitments and initiatives

COP26 has resulted in a significant (although still insufficient) increase in public climate finance commitments from key countries. The private sector is also more aware of the opportunities for investing in climate action and the need to increase the flow of climate finance to developing and emerging economies. This is exemplified by Glasgow Financial Alliance for Net Zero (GFANZ) member’s commitment to setting science-based targets to achieve net zero emissions by 2050 and working to mobilize private capital flows to the developing world. As Mark Carney notes in his action plan for national platforms, the challenge now is to invest this money in projects that meet climate needs and reduce inequalities in the world. Now that commitments have been made, concrete action is needed to ensure these goals are met.

To this end, the NRDC has worked globally on various initiatives that help catalyze private capital to fight climate change. In the United States, our work has focused on overhauling financial regulations and using public finance mechanisms to leverage private finance by establishing a Network of green banks.

Over the past decade, the green banking model has proven successful in using limited public funds to leverage much larger private capital. By reducing project risk, providing patient capital, creating new financial instruments, building local capacity and helping to demonstrate new technologies, green banks have been at the forefront of innovation in of green finance. Collectively, members of the Green Bank Network have invested or committed US$50.4 billion in climate projects since the first green bank was established in 2012, mobilizing private investment in projects valued at US$134.7 billion. U.S. dollars. Today, 27 green banks exist in 12 countries, and 20 additional jurisdictions are exploring some form of green banking solution: whether as a stand-alone institution, a separately managed green facility or the transformation of a public development finance institution into a leader in green finance.

China’s key role in climate finance

In recent years, China has made significant progress in greening its financial system. In 2016, the government released the Guidelines for Establishing a Green Financial System. These actions have helped China establish a national green financial system. As a result of these policies and other subsequent reforms, the green loan balance reached $1.86 trillion by the end of 2020, with green bond issuance exceeding $100 billion.

In China, we have worked closely with partners to support the climate-friendly transition of financial institutions and stakeholders. Ongoing interventions span dedicated research with top think tanks, engagement with major financial institutions, and efforts to mainstream climate finance to form a climate finance ecosystem.

In an effort to build climate finance capacity in China, the NRDC and the Climate Investment and Finance Association (CIFA) recently organized the 2nd “International Conference on Climate Friendly Banks”. CIFA is a leading industry association comprised of national and international research institutes, government agencies, financial institutions and other key stakeholders.

Bring together and inspire key stakeholders

The theme of the conference was “How Financial Institutions Can Transition to a Low Carbon Future”. Attending were government officials such as Li Gao, Director of the Climate Change Response and Climate Investment and Finance Committee of MEE, representing major public and private banks, including some of the largest commercial banks in China (such as the Postal Savings Bank of China, China Construction Bank and China Merchants Bank) and the largest national development banks (China Development Bank and Agricultural Development Bank of China).

Director Li Gao pointed out that financial institutions play an important role in implementing China’s carbon neutral goal while providing sufficient capital and sound investment/financing mechanisms.

The NRDC also invited international climate finance experts to the conference, including experts from Amalgamated Bank, Aspiration and the NRDC’s own Green Finance Center.

Sarah Dougherty, Director of the NRDC Green Finance Center, explained how public funds work alongside private capital to accelerate the growth of clean energy markets by reducing risk to private funds and increasing demand for clean energy .

Ivan Frishberg, Chief Sustainability Officer of Amalgamated Bank, discussed their work on decarbonizing their operations, investments and portfolios by adopting carbon accounting methodologies such as PCAF (Partnership for Carbon Accounting Financials). This strategy allowed them to become the first American bank to publish scientific objectives.

Additionally, Andrei Cherny, CEO of Aspiration, highlighted how Aspiration provides sustainability as a service, using financial tools to incentivize individuals, small/medium businesses and large corporations to reduce their carbon footprint and integrate sustainability in their daily actions.

To look forward

CIFA believes that many more banks will join the climate-friendly banking initiative, and the expert committee will continue research on climate-friendly banks to help financial institutions achieve “climate-friendly” strategic transformation.

Events like this create a platform for government regulators and financial institutions to share best practices, inspire more innovation, and discuss practical ways to implement their commitments to achieve zero goals. episode. More importantly, it can encourage financial institutions to meet their commitments while holding them accountable at the same time.

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Don F. Davis