Photo: Róbert Hegedüs
Mariann Őry
19/02/2024 20:54
What are the main trends you would highlight in China's efforts in green finance?
The key feature of Chinese green finance is the top-down approach, which means that we started by making a policy framework. Then we pushed down to tell the banks and the insurance companies that you have to produce green financial products in line with the standards, the taxonomy and disclosure requirements. Some other countries started much earlier than China, but they didn't have a policy framework; they were using what I call a bottom-up approach. This means that the companies, mainly the insurance companies and the pension funds, wanted sustainable products to make sure that their investments were looking at the long-term value. I think in China, and maybe in many other developing countries, this top-down approach is appropriate because the capacity at the institutional level is actually quite low, while the capacity is relatively more concentrated within the regulator. We created a framework on four key pillars. One is a taxonomy which we define at the central bank level. Number two, we ask on a mandatory basis that the issuer and the borrower will have to ask the companies raising money to disclose environmental information. Thirdly, we provide some incentives, and finally, we create a range of products, including green loans and green bonds. This top-down approach creates a very rapid growth in the green financial system. Now, we have the largest green lending market, which amounts to about 20 trillion RMB. Indeed, this huge financial support led to the creation of the largest renewable power industry, the largest EV industry, and the largest battery industry.
How do you think China and Asia are performing in green finance compared to Europe?
There are many different dimensions in the green financial ecosystem. For example, in terms of taxonomy, I think China was the first country to introduce mandatory taxonomy. In fact, we started with one simple taxonomy in 2013. We had a second, more formal taxonomy for green bonds in 2015, and we had a sort of a more comprehensive taxonomy in 2019. Europe was one major economy that followed, with a taxonomy in 2019 and 2020. But then we actually begin to converge. China and Europe decided to do a joint taxonomy, which is called Common Ground Taxonomy. The second aspect is disclosure. China started a different approach towards disclosure by requiring the issuers and the banks to disclose the environmental benefits of the green projects. But Europe took a different approach. They introduced a more comprehensive disclosure requirement not only on the project but also on the entity, meaning the company has to disclose information related to ESG as well. But now I see we are also converging. China is moving in the direction of adopting the International Sustainability Standards Board (ISSB), which is based on the Task Force on Climate-Related Financial Disclosures (TCFD) as well. The third area of products. Europe started green-related insurance products, and they started green bonds 20 years ago. China only started some of these products ten years ago. But I think our growth is faster, given that we have a top-down approach and a much bigger demand than many of the European countries. Relatively speaking, I think we are fairly strong in China on green lending and the green bond market, but we are lagging behind on the ESG products.
How do you think the cooperation between the Hungarian and the Chinese Central Bank can contribute?
Sharing best practices and knowledge, but more practically speaking, the Common Ground Taxonomy can be used to channel green capital between China and any European country, including Hungary. One particular example is that if Hungary wants to issue green bonds in China, in our Chinese panda bond market, you can use the CHT as a labelling device, which means that you pick the green projects that are consistent with the taxonomy. You pick some of the items in the taxonomy, like solar energy, wind power, electric vehicles, batteries, and so on, which are all in the taxonomy. Then, you package these assets into a product. For example, a green bond is issued in China. Then you can invest the money back here in Hungary. Now, this actually allows what I call a two-way capital flow between Europe and China and China and Europe.
The author is managing editor at Eurasia