Green financial development and China s strategy

Polaris solar PV net news: reported speech: 21st session of United Nations climate change conference in France Paris, which will target the abnormal climate issues on a global scale to reach a “targeted, binding” agreement. In the current international situation, the Paris climate talks have the potential to achieve expected results, and the realization of its objectives depended to a large extent of green financial support, is bound to accelerate the global development of green finance. Against this backdrop, Bank of China and relevant ministries in consultation to be launched in China “green finance plan” for tackling climate change and ensuring sustainable economic development to provide better financial support for green.

The emerging global green markets

In the late 1990 of the 20th century, due to the increased attention on global climate change, green finance ideas began to sprout. Initially reflected in the Green credits, and the Equator Principles, and later in the introduction of financial mechanisms for trading carbon emissions in Europe. In 2007, the European Investment Bank (EIB) issued the first climate-related bonds until 2013 after the International Finance Corporation (InternationalFinanceCorporation,IFC) issued after IFC green bonds with JP Morgan in New York, green began to flourish in the financial markets. March 2015, the international capital market Association (ICMA) published the principles of green bonds (GreenBondPrinciples,GBP) is the prototype of green bonds to international standards, the development of green bonds is of landmark significance. According to the International Energy Agency (EIA) estimated that in 2050, global investment in green projects will increase by $ 36 trillion.

At present, the global green finance concentrated mainly in the United States and the United Kingdom, and France and Australia, major industries including energy, green building, low-emissions vehicles, waste and pollution of water resources, sustainable agriculture, and so on. Green impact financial participants in the pursuit of green, just driven by the financial benefits are different, green flows and use of funds is one of the main focuses. At present, green finance participants include: issuers, investors, and lenders. Green finance has considerable appeal to different players, participants can achieve a win-win situation.

Benefits to issuers. First, green finance can be used as a communication tool of the issuer corporate sustainable development strategy, supporting enterprise development strategies, building brands. Insurance companies, such as Unilever and Zurich. Second, green finance has helped to upgrade the distribution of investors by the issuer. For example, the African Development Bank (AfricanDevelopmentBank, referred to as AfDB), first green bond issue in October 2013, socially responsible investing (Socially Responsible Investment, known as SRI) investors accounted for a total investment of 84%. In General, the ordinary AfDB debt investors are mainly from official bodies. Green bonds, both central banks and official institutions, investors, banks, asset management companies and insurance companies, and make investors more dispersed and balanced. Third, to enhance the capital rating in the international market, reduce credit risk.

Benefits to investors. First, the Green responsibility of financial asset management companies, asset managers need for asset owners cope with the long-term risk to the asset. Global climate change is occurring, humans did not prevent it from happening. The Group of eight Summit in 2008, before 2050 target to limit warming to no more than 2 degrees Celsius, under present circumstances, however, is very difficult to achieve 2 degrees Celsius. Second, public pension funds face greater pressure from the outside world, public pension funds should be to improve one of the long-term social and environmental responsibility. Thirdly, the responsibilities of the public sector is beyond doubt. The public sector should select the “right” infrastructure. From a historical perspective, community energy systems and infrastructure by the Government-led construction, and financial support. For the Government, investment in infrastructure is fundamental to promoting social development, but also the rigid demand, while green developments of these items is the responsibility of the public sector.

Benefits to lenders. As a lender, first green bond would be a flow of good products, green loans through asset-backed securities of the Bank will be able to activate banks ‘ balance sheets. In addition the Green project is a project financing (Project Finance) business in a new direction, while green bond or as a new asset class, has good prospects in the future. In addition, investors and lenders to participate in green finance is one of the important manifestation of its commitment to social responsibility.

With the deterioration of global energy, environment, climate, increasingly strong demand for green finance, all participants, including issuers, investors, and borrowers can benefit from green finance, green finance for future support and development will be sustainable, responsible business is one of the important symbols.

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Enrich the global green financial products

The International Finance Corporation (IFC) on green loans made by the “Equator Principles” has been widely recognized by the international banking industry. On this basis, green financing, green funds and innovative financial products such as green bonds continue to emerge, the breadth and depth of global financial integration and ecological environment protection is deepening.

Green loans. The Equator Principles (the Equator Principles) is the worldwide popularity of voluntary principles of green credits, is the main criterion of green financing. The principles in June 2003 by the International Finance Corporation (IFC) launched by the 10 leading international banks from 7 countries first. Equator principles financial institutions projects financing of verification as a prudent environmental and social issues, only the project sponsor can demonstrate that the project is being implemented in social and environmental responsibility under the premise of, and financial institutions to provide financing for projects. The Equator principles in the global project finance as their first environmental and social minimum standards for financial institutions to promote environmental protection and energy conservation provides may refer to the General guidelines. As of September 2015, global acceptance of the Equator principles financial institutions has reached 81, distributed in 36 countries or regions in the world, project financing accounted for more than 70% of total share of international project financing in emerging markets.

Green ETF and mutual fund. In the global capital markets, with stock markets in Europe and green index of sustainable development, as well as a number of large investment fund for enterprises ‘ sustainable behavior concerns, green sustainable development industry has become an important financial investment industry. According to the European sustainable investment forum (Europe-based National Sustainable Investment Forums,SIF) statistics, by 2014 the European total of green sustainable moral, social responsibility, and other topics related to green investments of 6.7 trillion euros of assets. Professional asset management investment value of about 35% defined “socially responsible investment” (Social Responsible Investment,SRI) strategy. Many institutional investors such as pension funds, asset management companies have established sustainable and becoming socially responsibility investment mission, series of and develop strategies to address the energy, environment, climate change, the long-term economic value of investment risk. 2012-2014 global socially responsible investment assets increased to 21.4 trillion from US $ 13.3 trillion dollars.

At present, the European financial market has a number of good liquidity of green financial products, of which the ETF index and fund products, including carbon emission rights derivatives and other. Among them, the typical Green index of major European and US capital markets including: United Kingdom FTSE social index series, standard and poor’s index of global energy index, and MSCIESG series for episodes (table 1). Behind these indices have a rather large investment funds tracking the index. In addition, the characteristic index and the Fund also includes Deutsche Bank x-trackers, and p United States carbon reduction fund and Barclays Bank’s “global carbon index fund.”

Green bonds. Global Green bond markets have been expanding in recent years. Climate bonds initiative organizations (CBI) in 2013, global green bonds only US $ 11 billion in 2014 and $ 36.6 billion, first half of 2015 (to June) have increased to 65.9 billion dollars is expected in 2015 will reach about $ 100 billion. Although green bond market growing rapidly, but the total size of only 0.2% per cent of total global bond market, cannot meet national environmental investment programme for capital needs. According to the International Energy Agency (EIA) estimates that only “2050 global temperature increase should not exceed 2 degrees Celsius” this goal, you need to increase the investment of $ 36 trillion.

Green Paper as a new way of financing came into being, adapt to the economic restructuring a large amount of investment demand, mainly to raise funds for renewable energy, construction and industrial efficiency, low carbon transport, sewage treatment, waste management, agro-forestry and other projects.

In 2014 the world’s top ten green bond issuers are mainly from Europe and the United States (table 2), the European Investment Bank (EIB), as the representative of the World Bank’s Development Bank is still green the main issuers of bond markets. For international development banks to invest in environment-friendly green projects in line with the concept of sustainable development and the long-term objectives to promote social stability and development. Issued by the local government (13%) Green bonds is gradually increasing. In addition, more and more companies and utilities appear in green on the bond market of enterprise bond, as 2014 global green bond market the main engine of growth (per cent of total issued 33%).

European experience of developing green finance

To reduce carbon emissions in 2030 and 2050 respectively 40% and 80% goals, Europe needs in energy-saving and low-carbon, clean energy, green areas such as transportation systems and building a large number of investments. 10-20 years in the future, European investment in the power sector need to be equivalent to the current 2.5 times increase; investment also require a substantial increase in the energy efficiency, the average annual investment amount must be over 60 billion euros per year by 2020 € ~1000/year.

Europe supported such green projects lack financial support. Currently, the European market this financing is mainly carried out by the energy company balance sheet financing, required enormous startup capital of high-tech projects, such as offshore wind project often exceeds the energy company’s ability to market, therefore some green projects could be implemented. In order to meet these challenges, European green finance policy, institution-building and product innovation of green finance has actively supported, thereby promoting economic restructuring and foster new economic growth points. Europe, for example, through the Green finance (including discount, green, green, green credit fund, green notes, etc) and other means to support the development of green energy industry, created a large number of green jobs, creating value in the field of energy saving of approximately 200 billion euros a year.

Overall, the development in Europe was mainly through the rules, develop the market green and financial development. In green bonds, for example, in March 2015, the international capital market Association (ICMA) and more than 130 financial institutions introduced the principles of green bonds (Green Bond Principles,GBP), pointed out that green bonds is “funds earmarked for environmental protection, sustainable development and mitigating and adapting to climate change, such as green financing or refinancing debt instruments.” Although the principles of green bonds is voluntary rules is mandatory, but European governments still actively promoting such rules or official bodies such as industry associations. These rules as an important part of the green infrastructure of financial markets, is the cornerstone of cultivating green markets.

GBP green bonds is still currently considered for bond, bond based on minimizing conditions for green bonds, pinning their hopes on the Green bond investors by creating a special market, to promote the Green bonds get better financing rates. Europe aims to cultivate green bonds investors group, through the strengthening of social responsibility measures to promote investment and Investor Services, people pay more attention to investing in green bonds.

Green finance development in China has to send

China’s development is direct Government will play an important role in promoting, so rules relating to policy and green finance in Europe is not entirely the same. China hope to increase control through regulatory rule-making, supplemented by subsidies, preferential measures such as green financing system, the highlights included green bond approval procedures, funds management, dedicated account management, as well as disclosure requirements. China tends to introduce mandatory measures directly by the regulator, bond funds set up special accounts management requirements, development loans, preferential tax policies. The idea also fully reflected in the work of the people’s Bank of China.

People’s Bank of China at the CPC Central Committee for formulating national economic and social development set by the recommendations of the 13th five-year plan “adhere to green development concept, building green financial system”, “green is a prerequisite for sustainable development, development of green finance is an important measure to achieve green development. Through innovative financial system, guide and encourage more social funds to invest in environmental protection, energy saving, clean energy, clean transportation, green industry. “The main policy direction include:

Guiding commercial banks to establish the perfect green credit mechanisms. Specific initiatives include: Green through green financial loan, financial loan subsidies and guarantees, green rating means the commercial banks, encourage the further development of green credits of commercial banks. Credit system into full play in the protection of incentives and constraints. Supports commercial banks to establish green Finance Division. Supporting the right to discharge, emission and carbon benefits of arriving (MS) charge of green credits.

Loans, interest subsidies, guarantee and other policies should be banks or relatively large financial initiative encourages policies and implementation in the context of the difficulty may lie in the loan definition of green. Compared to the current green loan bonds lack of generally accepted principles, such as the principles of green bonds (Green Bond Principle,GBP) on the other, to increase financial support in the past “three agricultural” positive incentives and small and micro enterprises for the purpose of the macro-policies are implemented, also faced in the implementation category definition and fairness problems. Green rating, use of commercial bank credit system, supporting initiatives such as the commercial banks set up green Finance Division as it involves more complex system and market acceptance issues, is expected to take a long time to put into practice and produce substantive results.

Play features that support green finance in the financial markets. Specific initiatives include: innovation rights, water rights, investment and financing mechanism of emission, carbon emissions, developing market. Support and encourage the issuance of green bonds of banks and enterprises. Further clarify the definition of green bonds, classification and disclosure standards, foster third-party green bond rating agencies and rating capabilities. Promote green credit asset securitization. Green index and related investment products, to encourage institutional investors to invest in green products. Establish requirements and issuers of listed companies to disclose environmental information system. Build green industry Fund. Carbon rentals, Carbon Fund for promoting development, carbon-carbon bonds, financial products.

Further clarify the definition of green bonds, classification and disclosure standards and other measures, more easy to believe that the implementation of international systems reference was found, domestic regulation can also be supplemented, adjusted according to actual situation and rule-making. Green evaluation and rating capacity-building is more complicated, if the Government really substantial economic subsidies or preferential green bonds, that such institutions will benefit substantially.

On December 22, 2015, people’s Bank of China releases 2015 bulletin 39th, launch green bonds in the inter-bank bond market. Notice by way of combining Government guidance and market constraints, financial bonds from green to green industry projects defined duration, collecting money, and funds management, information disclosure and independent institutions to assess or to guide and regulate the certification, mainly include the following content: one is stressed to raise funds can only be used to support the green industry projects. During the existence of the second, bonds raise money management was clearly defined. Third, strict disclosure requirements, give full play to the role of market mechanism. Four is the introduction of independent evaluation or certification body.

China’s moves to further develop green finance

Green finance will become the focus of future international financial, both China and the international capital markets are trying at present is moving. Green finance is one of the few and is not yet mature international financial heights with strategic significance. It is recommended that:

Internal positive encouraging green development, form policies and rules with Chinese characteristics. Although green bonds in the international market has become a mature green financial products, however, overall green finance is still at an early stage. In view of the huge demand for international and domestic markets, future financial development should actively encourage internal green, increase the intensity of green financial products development and depth, creating world’s leading green financial services to the entire chain. In the process, more attention should be paid to perfect and ripe green finance policy and rules in China, attention and international rules applicable, for Global Green’s financial leadership.

Foreign participation in international financial markets and international rule-making. Green finance as a new type of financial product, still in its infancy. Domestic financial institutions and foreign institutions are on the same starting line, should have the choice to participate actively in the international financial markets. In green bonds, for example, issued in overseas markets with the offshore renminbi-denominated green bonds is very important, not only help to enhance the international influence of green industry in China, but also for domestic green financial development experience, helps to improve the international competitiveness of Chinese financial institutions, but also help internationalise development. In addition, the issuance of green bonds will also help China deepen its cooperative relations with friendly countries. For example, for October 2015 and to visit United Kingdom zhihou, Sino-British relations entered a “golden age” supported by London offshore renminbi market position as a hub in Europe, in the issuance of offshore green bonds is an important achievement of Sino-British cooperation, increase the gold content of Sino-British financial cooperation.

Regardless of the regulatory policy, Government support, and market development and competition in, green finance will be changing in the future. Particular rules of international Green finance, while including the principles of green bonds (Green Bond Principle,GBP) does not have the force of law, voluntary rules, but in General, relative to other areas of financial regulation, international Green finance rules in the blank.

In 2016, the G20 Summit will be held in China, “green and low-carbon development, improving environmental quality” will be an important issue, green finance will also become one of the G20 Finance. From the level of global coordination, is expected in the near future, green finance or to form certain international rules. There was a blank green finance international rules will most likely come from these voluntary rules currently being developed.

Therefore, in international financial centre-funded overseas financial institutions, green financial rules should be strengthened, and keep track of the trends and strive to actively participate in the formulation of international rules, will not only help the development of green financial services, Bank of China. With the advanced rules in China promoting international norms, on the discourse power of China in international Green finance in the future is important.

(Author: Bank of China London Branch)

Original title: Green financial development and China’s strategy

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