China boosts green finance in pursuit of carbon neutrality

BEIJING -- A green finance evaluation scheme for financial institutions and an updated green bond projects catalogue have come into effect as part of China's latest efforts to facilitate its goal of carbon neutrality.

Starting from Thursday, the People's Bank of China, the country's central bank, will conduct a quarterly evaluation on financial institutions' green finance business and implement incentives and constraints based on the evaluation results.

Businesses that comply with green finance standards and relevant regulations, including green loans and green securities, will be evaluated.

The evaluation by the central bank would provide incentives for financial institutions to optimize business structures and put more weight on green finance, said Lu Zhengwei, chief economist at Industrial Bank.

The 2021 green bond projects catalogue, which took effect on Thursday, provides a standard definition of green bond projects for the first time.

Unifying different standards across different regulators in China will effectively reduce the costs of issuing, trading and managing green bonds, and improve the pricing efficiency of the green bond market, according to a statement on the website of the central bank.

The catalogue also aligns better with international standards as high carbon emission projects such as clean use of coal are removed, and carbon reduction constraints are made more stringent.

The catalogue will steer China's green bonds to focus more on green and low-carbon development strategies, better support the development of green finance in China and promote international cooperation in the field of green finance, said the statement.

As a major underwriter of green bonds, the Industrial Bank has pledged to double its offering of green finance by 2025 as compared with the end of 2020.

The evaluation scheme and the updated catalogue are part of China's ongoing efforts to strive to realize the goal of peaking carbon emissions by 2030 and achieving carbon neutrality by 2060.

By the end of 2020, green loans and green bonds in China totaled 1.8 trillion U.S. dollars and 125 billion U.S. dollars, respectively, ranking as the world's largest and second-largest. More than 40 carbon-neutral bonds have been issued, with a total volume of over 10 billion U.S. dollars.

Analysts have pointed to huge potential for China's green bond market going forward.

To achieve carbon neutrality by 2060, China's green investment needs to reach 2.2 trillion yuan (about 340 billion U.S. dollars) per year in the current decade, and the amount will grow to 3.9 trillion yuan in the period from 2031 to 2060, according to a report from French bank Societe Generale.

The report estimates that China's green bond market will grow to 7 trillion yuan by 2030.