Green Finance: Driving a Virtuous Cycle of Economic Development
Ma Jun, Director of the Green Finance Committee of the China Society for Finance and Banking
On February 7th, the China Securities Regulatory Commission (CSRC) released the "Implementation Opinions on Capital Markets in the Context of 'Five Major Financial Initiatives'," proposing to enhance the green finance standard system in capital markets. This includes continuously optimizing green bond standards, researching and refining evaluation and certification standards, enhancing sustainable rating systems, and strengthening the construction of verification systems. The document also calls for enriching green finance products in capital markets, such as supporting qualified green industry enterprises in issuing shares, financing mergers and acquisitions, and issuing green bonds and green asset-backed securities. It encourages the development of more green and low-carbon futures and options products and the continuous deepening of green international cooperation.
Compared to international standards, China's green finance development level is relatively advanced in four areas: the definition of green finance, incentive mechanisms, product scale, and international cooperation. However, it lags behind in the implementation of sustainable disclosure guidelines, the liquidity and financial attributes of carbon markets, and the management of ESG asset management and climate risk analysis.
China's mandatory carbon market covers the largest amount of carbon emissions globally, but its trading volume is less than 1% of Europe's. The main issue is that China's carbon market lacks financial attributes, preventing financial institutions from participating and the development of derivative tools. As a result, it cannot fully leverage the role of carbon price signals (including forward prices) to drive industries to develop and utilize green and low-carbon technologies through resource allocation. China's green credit and green bond scales are already the largest globally. However, according to certain calculations, the proportion of ESG products provided by China's asset management industry in the total asset under management (AUM) may be only around 1%, while some developed markets claim to have over 30%. Developed economies have largely normalized the requirement for financial institutions to conduct climate risk stress tests and scenario analyses, and Hong Kong, China, has also imposed mandatory requirements on all banks. However, climate risk analysis and management in mainland China are still in the early stages of limited pilot programs.
China has generally performed well in green finance, with rapidly growing and large-scale industries such as new energy, electric vehicles, and batteries receiving key support from green finance. Transition finance represents the next frontier for sustainable financial development and a key area that future green finance needs to explore. In the future, the volume of transition finance supporting high-carbon industries' shift to low-carbon practices is expected to exceed the financing volume serving "pure green" activities. This is because China's "pure green" economic activities account for about 10% of GDP, while non-green activities account for about 90%. To transform these non-green activities into zero-carbon ones, transition finance support is needed. However, currently, only about 1% of green financing can be formally labeled as "transition finance." The small volume of transition finance business is mainly due to the following bottlenecks: the lack of clear definition standards for transition finance, enterprises' inability to develop transition plans, the limited variety of transition finance products, the absence of incentive mechanisms for transition, the lack of consideration for just transition, insufficient capacity of financial institutions, and restricted availability of green technologies. Although China has made a start in the field of transition finance, these bottlenecks still need to be further broken through.
Published on March 6, 2025