Interview with Li Zhiqing of Fudan University: Green finance, from narrow green to broad green

Seven departments including the People's Bank of China recently issued the "Guiding Opinions on Further Strengthening Financial Support for Green and Low-Carbon Development" to do a good job in green finance and actively support green and low-carbon development. As early as 2016, multiple departments jointly issued the "Guiding Opinions on Building a Green Financial System" to mobilize and encourage more social capital to invest in green industries, and meet the investment and financing needs of green industries through multi-dimensional innovation. After a lapse of eight years, the guiding opinions have been issued again, what are the differences in the focus of these two documents? What achievements have been made in the development of green finance in China, and what aspects still need to be improved? In view of these problems, this reporter interviewed Li Zhiqing, executive director of the Green Finance Research Center of Fudan University.

Li Zhiqing, Director of the Environmental Economics Research Center of Fudan University, Deputy Secretary of the Party Committee of the School of Economics of Fudan University, Deputy Director of the Shanghai Key Laboratory of Ecological Environmental Governance Policy Simulation and Assessment, and visiting scholar at Yale University, University of California, and University of Göttingen. He has presided over a number of research projects at the national, provincial and ministerial levels.

China Environment News: It has been 8 years since the "Guiding Opinions on Building a Green Financial System" was issued, what is the development of domestic green finance in recent years, and what are the characteristics?

Li Zhiqing:The "Guiding Opinions on Building a Green Financial System" issued in 2016 has actually built the entire framework of the green finance system, including standards, information disclosure, risk prevention capacity building, green financial institutions and green financial products. After all, green finance is still finance, and to do something that traditional finance must do, the most important feature is to start from a green perspective and comprehensively reconstruct the underlying logic of finance.

Taking green credit as an example, in addition to financial standards, there are also relevant green standards. There were similar standards before, but they were very fragmented and not very uniform across the country, and there would be some problems in their implementation. In 2019, after the National Development and Reform Commission (NDRC) issued the Green Industry Guidance Catalogue, the People's Bank of China (PBoC) and other departments formulated a statistical standard for green credit, which is equivalent to using a ruler to measure the development level of green finance. According to public statistics, as of the end of last year, China's green credit balance reached more than 30 trillion yuan, accounting for about 12% of the entire credit balance, which is one of the few in the world.

At the same time, China's green bonds, green insurance, green funds, carbon finance, etc., have made great progress. In terms of quantity and scale, structure and quality, China's green finance achievements in the past eight years have been very significant.

China Environment News: In your opinion, what are the outstanding problems that need to be solved in the development of green finance in China?

Li Zhiqing:In my opinion, the outstanding issue is what the new guidance puts forward, which is to further strengthen financial support for green and low-carbon development. Previously, our definition of green was narrow, and when we talked about green and low-carbon, we specifically referred to clean energy, green transportation, green buildings, etc. But in fact, in addition to the new and green industries in the national economy, it is also necessary to promote the greening of traditional industries such as steel, cement, chemicals, and thermal power. Originally, we were talking about green finance in the narrow sense, but now we need to promote green finance in the broad sense, that is, the scope of green finance will be further expanded.

Second, in terms of green finance innovation, the internalization of environmental externalities has not been fundamentally addressed. For example, banks and insurance companies have participated in some ecological and environmental transformation projects, and technological progress has promoted the reduction of costs, brought green premiums, and financial investment has a certain return. In fact, there are many external benefits in many traditional fields such as climate change and carbon emission reduction, but it is still difficult to internalize them into the business of financial institutions through some channels. At present, many market players understand the development of green finance based on the responsibility mechanism or from the perspective of fulfilling social responsibilities, which may have certain limitations on the long-term and sustainable development of green finance. Financial institutions should do a good job in green finance, not only to be responsible, but also to a certain degree of economy.

Third, at present, the support of green finance for some emerging industries is relatively perfect, and there are relevant standards and incentive mechanisms, but there is still a lack of systematic support for the transformation of traditional industries. There may be some support policies in various sectors, but the financial system does not have the system to support it, there are no standards, no mature tools, and there is a lack of assessments. Although some localities and sectors have launched transition finance catalogues, there is no national standard yet. Moreover, in terms of the driving effect of the transformation of traditional industries, the methodology is still relatively lacking. For example, it is not easy to estimate how much emission reduction can be achieved after completing a single steel transition finance loan project.

Fourth, the liquidity of the carbon market is limited, and it is more focused on the fulfillment of allowances, and the role of price signals is not well played. If the role of the price mechanism is fully played, it can effectively promote the innovation and transformation of green technology in related industries.

China Environment News: You just mentioned that the "green" in the "Guiding Opinions on Further Strengthening Financial Support for Green and Low-Carbon Development" refers to green in a broad sense, while the "green" in the previous "Guiding Opinions on Building a Green Financial System" refers to green in a narrow sense.

Li Zhiqing:The 2016 guidance defines "green" as "environmental improvement, climate change response, and resource conservation and efficient use", which is very clear, green is equivalent to environmental protection, energy conservation, clean energy, green transportation, green buildings and other fields. The guidance issued this year does not define "green" and "green finance", but throughout the text, the definition of "green finance" has actually changed. On the one hand, the title of the document has changed "green finance" to "finance", meaning that all finance that supports green and low-carbon development is "green finance", and on the other hand, Article 3 of the guidelines states that it is necessary to "guide financial resources to support the green and low-carbon transformation of high-emission industries and the construction of renewable energy projects, promote the green transformation and upgrading of industries, and support the development of green and low-carbon transportation and green buildings." In my opinion, this is actually a redefinition of "green", that is, pure green industries (new energy, etc.) and gray industries (high-emission industries) are green, which shows that the definition of green has changed from the original "narrow green" to "broad green", which means that the definition of green finance has also moved from the original "narrow green finance" to "broad green finance".

It is the need of social development to move from narrow green to broad green, but some technical problems may be encountered in this process. The National Development and Reform Commission, the Ministry of Industry and Information Technology, and the Ministry of Ecology and Environment have all issued a large number of policies to promote the green transformation of traditional industries, but the transformation needs financial support, and there is a large funding gap. This requires the mobilization of social capital to carry out financial supply-side reform on the financial side.

There is a lack of financial products for the transformation of traditional industries. Some banks have launched financial products based on their own understanding, but different banks may have different understandings, and there are differences in perceptions in different places. This is similar to the development of green finance before 2016, when standards were not uniform across the country. For example, if a process is identified as green here and not in another, it may confuse banks, which will ultimately affect resource allocation and hinder the establishment of a unified market.

China Environment News: In this guidance, it is proposed to establish a restraint mechanism based on information disclosure. How do you evaluate the current state of environmental information disclosure by relevant companies, and do you have any suggestions for further information disclosure?

Li Zhiqing:In recent years, the Ministry of Ecology and Environment and other departments have successively issued a number of management measures on corporate environmental information disclosure, promoting the increasingly standardized disclosure of corporate environmental information. We tracked and studied the environmental disclosure of 400 companies, and found that the quality of environmental information disclosure is slowly improving, but the structural differences are obvious, with some industries doing well and others doing mediocre. Moreover, the characteristics of the supply chain are particularly obvious, if the disclosure of the main enterprise on the chain of a supply chain is very standardized, it will lead to the environmental information disclosure of the entire supply chain enterprise becoming more and more standardized.

At present, environmental information disclosure is mainly focused on traditional pollutants, and carbon information disclosure is still relatively weak. We are now in the process of shifting from dual control of energy consumption to dual control of carbon emissions, and there is still a lack of capacity in carbon emission measurement and carbon footprint management. How to do a good job in carbon information disclosure is also a problem, and the content of the disclosure must not only have a certain degree of transparency, but also keep the bottom line of safety, and we still lack experience in this area.

China Environment News: In this guidance, it is proposed to continue to improve the green finance standard system. In your opinion, what needs to be improved?

Li Zhiqing:In my opinion, significant progress has been made in the construction of standards for green financial products. For example, carbon accounting standards and carbon information disclosure standards have been established, and some places have also issued catalogues to promote transition finance. Next, the work of improving the standards should be detailed. For example, the disclosure of greenhouse gas emissions involves the methodology of the source of the greenhouse gas emissions. In short, it is necessary to continuously refine and improve.

After years of development, banks and other financial institutions have taken green finance as an important task, Bank of Communications and other banks have regarded green as the background color of enterprise development, and some banks have taken the support of green industry as the focus of their business. Regulators have also established a clear assessment mechanism for the scale and structure of green finance. At present, the proportion of green finance business in major banks is between 10% and 15%.

China Environment News: In recent years, China has built green finance reform and innovation pilot zones in some places, what experience has been accumulated in these places?

Li Zhiqing:China's green finance reform and innovation pilot zones were initially 8, and later added 2. It should be said that these experimental areas have their own characteristics, and some standards, incentive mechanisms, and assessment mechanisms have been explored in these places. For example, in Huzhou, Zhejiang, and other regions have implemented the elimination of the last place in green finance, and if the total amount of green finance ranks last, the loan credit line will be deducted the following year, and if it is done well, it will receive financial subsidies. For another example, Quzhou, Zhejiang Province has been exploring the establishment of carbon accounts for a long time and has made a lot of efforts in carbon emission management. Judging from the original intention of the People's Bank of China's pilot construction, it basically meets the target requirements.

Green finance work requires multi-sectoral coordination, which requires all departments to better integrate some of the work they are doing and related to green finance to form a unified mechanism. In addition to the coordination of finance, development and reform, industry and information technology, ecology and environment and other departments, the education department should also play a role in better supporting the development of relevant work in talent training.

China Environment News: What do you think should be the focus of green finance development in the future?

Li Zhiqing:From the perspective of sectors, I think that narrow green finance and transitional green finance should go hand in hand, but the short-term focus should be more on the transformation of traditional industries. In terms of promoting the sinicization of ESG standards, it also takes a lot of time to sort them out.

Previously, we focused more on the needs of larger businesses, which was the easiest to achieve. However, the issue of greening small and medium-sized enterprises should also be paid attention to, and I think it is difficult to achieve green financial inclusion. In some emerging fields, such as biodiversity conservation, green finance has great potential and demand, and needs more attention. In addition, it is necessary to actively improve the carbon market and carbon finance, so that the carbon market can truly play a good role as a price signal.