China’s central bank to focus on transition finance

The People’s Bank of China will explore more transition finance instruments to support lowering emissions from carbon-intensive industries, its deputy governor, Xuan Changneng, has said.

Transition finance is growing more popular globally. In China, some banks have launched products, such as transition bonds and sustainability-linked bonds (SLB), aiming to “allocate more financial resources to areas with significant emission-reduction potentials”, said Xuan. 

However, prospective investors worry about greenwashing since such funds are channelled into polluting industries. To address that, many experts have pointed out the lack of a commonly recognised standard for transition finance. 

The G20 Sustainable Finance Working Group (SFWG) has been working to fill the gap, said Ma Jun, chair of the Green Finance Committee of the China Society for Finance and Banking. He was speaking at a side event during COP27, this year’s ongoing UN climate talks in Egypt. As the co-chair of SFWG, he introduced the G20 Transition Finance Framework, which is designed to guide private capital to support the low-carbon transition, and minimise greenwashing. The framework was officially approved and launched on Wednesday 16 November at the G20 Summit in Bali.

To promote transition finance, Ma Jun suggests China’s financial regulators should better define criteria for the transition activities of carbon-intensive industries, and the requirements for companies to disclose transition plans and emissions. He also suggests more local governments and financial institutions get started on regional taxonomies and pilot projects. For instance, Huzhou in Zhejiang province has this year introduced the Huzhou Transition Financial Taxonomy, which covers nine carbon-intensive industries. It specifies the scope of transition techniques, and sets benchmarks and target values for transition activities.

The G20 Transition Finance Framework is the result of China–US cooperation, as the SFWG is co-chaired by the two countries. Despite climate collaboration being suspended due to diplomatic tensions, China and the US have managed to deliver on this line of work. Right before the Bali summit, presidents Xi and Biden met in person and agreed that the two countries should work together to facilitate a positive outcome for COP27 – a positive sign for China and the US to restart bilateral climate talks.

Read China Dialogue’s earlier article on how finance can help China’s heavy industries decarbonise.