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Wednesday, October 28, 2020
Green Investment and Financing System: Key to China's Green Development
ANBOUND

As the COVID-19 pandemic spreads globally, it has not only had a short-term impact on the economy and society, but also in the long run, boosting the pace of countries' efforts to address climate change and environmental protection and development. The European Union, China, Japan, South Korea, and other economies have all stepped up their policy efforts on environmental issues and climate change. In its October update of the World Economic Outlook, the IMF pointed out that countries (especially high emission countries) need to act together to reduce emissions and keep global warming within targets set in the 2015 Paris Agreement, while steadily rising carbon prices and boosting green investment.

Promoting the green transformation of the global economy and energy is not only the issue of environmental protection, energy, or industry, but also an overarching issue of economic and social development. For China, promoting the development of a green economy has also become a major content of supply-side reform, which is also of great significance to realizing dual circulation economic transformation and cultivating long-term economic development momentum.

In order to realize green economic transformation and development, President Xi Jinping proposed in his speech to the UN General Assembly to seize the historic opportunities presented by the new round of scientific and technological revolution and industrial transformation, in order to achieve a green recovery of the world economy in the post-COVID era. ANBOUND's vision of developing and building a hydrogen society is also a path to green economy transformation through the development of new energy technologies and industries, which will bring new space for China's development. According to the IMF, a broadly adopted, growth-friendly mitigation package could raise global activity through investment in green infrastructure over the near term, with modest output costs over the medium term as economies transition away from fossil fuels toward cleaner technologies. Relative to unchanged policies, such a package would significantly boost incomes in the second half of the century by avoiding damages and catastrophic risks from climate change. Therefore, for achieving the carbon neutrality goal, it is not just a matter of tackling climate change and environmental protection, but should also be about considerations in new development models and paths. Among them, the construction of green finance and green investment and financing system is particularly important.

Although China has set new environmental development goals to achieve carbon neutrality by 2060 and peak carbon emissions by 2035, the task of achieving a green transformation of the economy remains daunting. According to the country's Ministry of Ecology and Environment, the 14th Five-Year Plan period will see a need to accelerate the transformation of the energy structure, as well as to promote the development of a low-carbon industrial system, low-carbon transportation, and low-carbon buildings. China should further strengthen low-carbon transformation in key areas of industry, buildings, transportation, and public institutions, and promote the construction of data centers, 5G base stations, and other new infrastructure to improve energy efficiency. These are actually the low-carbon transformation of the entire industrial system, not only involving the development of specific industries, but also urbanization, environmental treatment and protection, and other aspects, which naturally require the allocation and adjustment of the overall social resources. In this context,it is the green finance, green investment and financing system that will play a role in realizing the effective allocation of financial resources.

To achieve the goal of carbon neutrality and green transformation, it is difficult to rely solely on policy and government financial investment, and it is all the more necessary for society to make an effective investment in new industries and new business models. In the case of China, the data shows that the annual investment needed by the green industry is about RMB 2 trillion, of which only 10-15% can be met by fiscal funds. Globally, the data shows that the global investment and financing needs for green development could reach billions of dollars over the next 10 years. In addition to policy guidance, these investments and financing need still require the support of the capital market and financial system.

Recently, five government agencies including the People's Bank of China have released new guiding opinions to promote the field of climate investment and finance, which can be said to have established the policy framework of investment and financing for tackling climate change in China. It is proposed that by 2025, policies to address climate change will be promoted in synergy with policies in investment, finance, industry, energy, and the environment, and climate investment and financing policies and standards will be gradually improved, with a systematic layout of local pilot projects, comprehensive demonstration, project development, institutional response and extensive participation in climate investment and financing, leading the construction of internationally influential cooperation platforms and a marked increase in the scale of funds invested in addressing climate change. This also indicates that the pace of constructing China's green investment and financing system will be further accelerated during the 14th Five-Year Plan period.

China has established the second-largest carbon trading market in the world, it has also made rapid development in green finance and the green bond market. However, as far as the overall system construction is concerned, it is still in the primary stage and there are many problems to be solved. In addition to carbon trading, green finance, green bonds, and ESG investment, the most important thing for the green investment and financing system is to establish a new investment reference and evaluation system, integrate green development indicators into the investment and financing model, and make the market become the main driving force for the development of green finance in the future. Researchers at Aberdeen Standard Investments also state that achieving returns is the core of investing, and in fact, ESG investment is the core of achieving sound investment. ESG investment model has become an important reference factor of many international investment institutions. International asset management institutions such as BlackRock and Invesco have started to set up ESG investment products, and institutions such as MSCI and FTSE Russell have also started to promote ESG investment evaluation. All these indicated that ESG investment has become one of the main development trends of international investment. The construction of China's green investment and financing system also requires more international exchanges and cooperation. In addition, the establishment of China's green investment value system will also help to improve the efficiency of green investment. It also means that China's financial sector faces an increasingly urgent need to make the transition to green investment.

Final analysis conclusion:

China's setting of new climate change targets is not only a need to protect the environment, adapt to climate change, and assume social responsibility, but also a necessity to achieve economic transformation and sustainable development. From this point of view, the establishment of a new green finance and green investment and financing system will become an important part of the transformation and development of the green economy.

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