How do financial institutions and capital "carbon" the way in the first year of climate investment and financing?

  The Ministry of Ecology and Environment, the Central Bank and other nine ministries and commissions announced the list of the first batch of climate investment and financing pilot sites; among the major projects, which are really "climate investment and financing" should be well screened

  This summer, record-breaking extreme weather occurred in many places around the world. Climate disasters such as high temperature, drought, and wildfires have posed a great threat to human life and even survival. "Slowing down global warming" has once again become a hot topic of discussion.

  In fact, the global response to climate change has been intensifying in recent years. Currently, more than 120 countries, including my country, have proposed or are preparing to propose carbon neutrality goals, covering 90% of the global economy, 85% of the population, and 90% of carbon emissions. 88%.

my country's dual-carbon development process is accelerating, from green travel and garbage classification advocacy on the public side, to green transformation and technological innovation on the industrial side.

  Recently, the Ministry of Ecology and Environment, the Central Bank and other nine ministries and commissions announced the list of the first batch of climate investment and financing pilot sites, and 23 regions including Miyun District and Tongzhou District in Beijing, Baoding City in Hebei Province, and Taiyuan City in Shanxi Province were selected. 8 months have passed.

What is climate investment and financing, how to develop it, and what challenges do it face?

This article focuses on these issues to interpret.

  What is climate investment and financing?

Financing support for twin carbon goals

  The term "climate investment and financing" has been around since the 1990s. It was born in response to climate change and developed rapidly due to carbon peaking and carbon neutrality.

Ding Hui, director of the Climate Change Department of the Ministry of Ecology and Environment, introduced at the 2022 Beijing News Shell Finance Summer Summit that the purpose of climate investment and financing is to guide more capital to flow to the field of climate change mitigation and adaptation through effective measures. Climate-friendly companies and projects targeting dual carbon and green and low-carbon transitions.

  "In the current context, it can be simply understood as financing support for the realization of the dual carbon goals. According to the current disclosed green financing investment direction, it is roughly estimated that about 70% of the investment and financing is climate investment and financing." Chief Economist of Industrial Bank Political commissar Lu told the Beijing News Shell Finance.

  According to the "Climate Investment and Financing Pilot Work Plan" (hereinafter referred to as the "Plan") issued by the Ministry of Ecology and Environment and other nine ministries and commissions at the end of last year, it is clear that the scope of climate investment and financing support includes "climate change mitigation" and "climate change adaptation". aspect.

Vigorously developing non-fossil energy sources, implementing energy-saving and carbon-reducing transformation projects, and controlling greenhouse gas emissions from non-energy activities such as industry, agriculture, and waste disposal belong to the category of "climate change mitigation".

  There is an example in a climate investment and financing pilot site.

According to an article on the official account of the local ecological environment bureau, in order to better protect the local ecological environment, all five local mining companies will be shut down by the end of 2020.

How to recycle abandoned mines?

The path to be explored in this area is to use the waste mining area that has been rehabilitated to build a centralized photovoltaic power generation project to provide clean electricity.

At the same time, it will diversify and develop agricultural and tourism integration products such as planting, picking, and new energy science popularization bases, which will drive local employment and cultural tourism development.

  "At present, it is necessary to further increase investment and financing in the field of adaptation to climate change, that is, to deal with the direct threat of climate change to human social and economic activities." said Deloitte China Sustainability and Climate Change Managing Partner Xie An.

"Adapting to climate change" includes improving the adaptability in key areas such as agriculture, water resources, oceanography, meteorology, disaster prevention, mitigation and relief, and strengthening the basic capabilities and infrastructure for adapting to climate change.

  A water conservancy hub changes the ecological environment of one party. Zhang Xiaohui, the former dean of the PBC School of Finance of Tsinghua University, shared this story at the Boao Forum for Asia last year.

Central Sri Lanka has been lacking irrigation water and drinking water for a long time due to civil war and complex geological conditions. China Development Bank has provided loan support for the country's largest water conservancy project "Raghakanda Irrigation".

The project uses a large storage capacity to adjust the water storage in the rainy season to the dry season, and adjust the water in the middle to the north for use. It provides irrigation water for the rice-growing area of ​​Sri Lanka, which produces about 24% of the output. It also promotes the development of fisheries and provides local people with Employment channels are provided.

The adjustment of water resources has improved the local ecological environment and provided basic conditions for Sri Lanka to cope with extreme climates.

  How to develop?

Differentiated exploration and establishment of incentive mechanism

  Among the 23 regions in the first batch of pilot projects for climate investment and financing, there are cities with good economic foundations such as Tongzhou District of Beijing and Pudong New Area of ​​Shanghai, traditional industrial or resource-based cities such as Baotou City of Inner Mongolia Autonomous Region and Lanzhou City of Gansu Province, and others. Tianfu New Area in Sichuan Province, Nansha New Area in Guangdong Province and other new areas.

  "Differentiation is the top priority in promoting climate investment and financing at this stage." Ding Hui said publicly.

Political commissar Lu said that the dual-carbon transition is a nationwide, extensive and profound economic and social systemic change that will affect all aspects, so a broad representation of pilot samples is needed.

For example, if a region is dominated by the service industry, it will be relatively simple to achieve the region’s dual carbon goal to a large extent; if a region is still in the stage of heavy chemical industry, the pressure on carbon reduction will be relatively large.

  Political commissar Lu further stated that in the process of carbon reduction transformation, we must also pay attention to the issue of "just transformation", and we must pay attention to the disadvantaged groups in society. "For example, if so many thermal power plants are no longer needed, what should the workers do?" He proposed that in the transformation process Some things should be considered in advance, such as the clean utilization of coal. Coal can still be mined, but not burned like in the past; for example, the emission standards of thermal power plants should be raised, and the use of carbon capture technology can also solve some problems to a large extent; Another example is whether the coal pit can be installed with photovoltaic panels, and whether it can be pumped for energy storage.

These should be taken into account, not just the carbon reduction step.

  Yang Fuqiang, senior consultant of the Climate Change and Energy Transition Program at the Energy Research Institute of Peking University, also said that research shows that nationwide, energy transition brings more jobs than lost jobs, but in some areas that are highly dependent on traditional energy development , the entire regional economy is closely linked with coal, these regions must develop new formats to ensure a smooth transition in the transition.

  Climate investment and financing are inseparable from government incentives.

The aforementioned "Plan" pointed out that the current local awareness of addressing climate change and low-carbon development is relatively weak, and there is a lack of effective supervision, restriction, assessment and incentive mechanisms.

  In this regard, Lu political commissar analyzed that, for example, whether a new technology can make money after the emergence of a new technology involves the cooperation of mechanisms. There is a term in economics called "internalization of externalities".

Take an electric car. It's hard to say it's better than a gasoline car right now, but it's popular because electric car license plates are relatively more accessible than gasoline cars.

In theory, this is equivalent to creating an institutional condition for the profitability of electric vehicles by making the cost of gasoline vehicles infinitely high (that is, no amount of money can buy them).

At present, the supporting system for many technologies is still being explored and perfected. When the system is not available, even if the technology has matured, its profitability is still a problem.

  What are the challenges?

Criteria for defining climate investment and financing projects need to be established

  Large investment scale, low return rate, and long investment return period are common characteristics of climate change mitigation and adaptation projects, which also bring financing difficulties.

At present, the scale of green investment and financing in my country is about 15 trillion yuan. According to the proportion of 70% of climate investment and financing, the scale of climate investment and financing exceeds 10 trillion yuan. In contrast, it is still in the early stage of development.

Not only that, credit is currently the largest green investment tool, accounting for about 90%.

  Tool innovation is one of the key tasks listed in the "Plan". The Beijing News Shell Finance noticed that many areas have already started planning or exploration.

For example, companies in Guangzhou participated in the issuance of the first batch of carbon-neutral bonds and carbon-neutral asset securitization products in China, successfully issued overseas green bonds in Hong Kong and Macau, and supported cities such as Guangzhou rail transit construction and electric bus replacement, green buildings and zero-landfill of domestic waste. Key areas of green and low-carbon development.

After the announcement of the pilot list, Baoding City stated that it will develop special investment and financing products such as green insurance, M&A investment and financing, green bonds, green supply chain financing, green financial leasing, and carbon emission rights pledge financing that match advantageous industries; Wuhan City Wuchang District stated that it will steadily expand the total amount of climate bonds issued, promote carbon-neutral bonds and climate insurance businesses, and encourage green companies to raise funds through IPOs.

  Although the scope of climate investment and financing support has been clarified by regulation, it is still necessary to establish criteria for defining climate investment and financing projects, otherwise it will easily become a "confused account" for financial institutions.

Some people in the industry pointed out that if there is no clear definition of standards and specific implementation, there may be problems such as "green washing" and "green washing".

According to rough statistics from the Beijing News Shell Finance, among the 23 pilot regions, more than 10 regions mentioned the need to build a climate investment and financing project library in the next step.

  Political Commissar Lu said that at present we are comparing the green industry catalogue issued by the National Development and Reform Commission in 2019, and all industries in the catalogue are considered green.

As the situation develops, a new concept emerges - "transition finance", that is, the financial support required for the transition of high-carbon-emitting economic activities or market players to low-carbon and zero-carbon emissions.

  The "Transition Finance White Paper" released by PricewaterhouseCoopers in May this year shows that transition finance includes projects or activities that are not included in green finance standards but have the effect of mitigating climate change, such as clean and efficient use of coal, long-process blast furnace conversion to electric furnace short-process steelmaking Wait.

For financial institutions, opportunities and challenges coexist in the development of transformational finance. The challenges are mainly in three aspects: first, how to identify and meet customers’ needs for low-carbon transformation; second, how to assess and manage environmental and climate risks; third, how to track and manage transformation Financial practice to improve the transparency of data and information.

  Lv Xuedu, former deputy director of the National Climate Center and chief climate change expert of the Asian Development Bank, has more detailed standards on how to calculate and quantify "climate investment and financing".

He said that a greenhouse gas reduction project may involve a large number of parts that are not related to "climate change mitigation", and the real "climate change mitigation" may only be part of the project.

This requires determining the scope of "climate investment and financing" in terms of policies and methods, distinguishing which ones belong to "climate investment and financing" and which are not "climate investment and financing" in a large project, and formulating detailed operation manuals.

Making this distinction is the basis for further formulation and development of climate investment and financing tools.

  Wang Wen, Executive Dean of the Chongyang Institute for Financial Studies of Renmin University of China and Secretary General of the Green Finance Professional Committee of the China Society for Finance and Banking, believes that this year my country will usher in the "first year of climate investment and financing", and various related work is in the early stage of exploration. As a policy-guided financial tool, the pilot work of climate investment and financing will inevitably encounter various obstacles and problems in the initial stage of implementation. After the climate investment and financing work achieves marketization and economic scale, China will establish a unique experience in climate investment and financing and set a global model.

  Cheng Weimiao, researcher at the Beijing News Zero Carbon Research Institute