Green finance can be understood as “financing of investments that provide environmental benefits in the broader context of environmentally sustainable development.” Several instruments are available for green finance, including Green Bonds, Sustainability-linked Loans, Green Loans, and Green Insurance.
Green finance policies
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[China] Guidelines for Establishing the Green Financial System
In 2016, the People’s Bank of China (PBoC), along with six other government agencies including the China Securities Regulatory Commission (CSRC), issued Guidelines for Establishing the Green Financial System. The Guidelines, which form part of the Chinese government’s wider efforts to support the development of an ecological civilisation, aim to promote sustainable development, establish a green financial system, and improve the functioning of the capital market in allocating resources and servicing the real economy.
The guidelines explicitly discuss the role of the securities market in supporting green investment. They recommend improvements in the rules and regulations for green bonds, reductions in the financing costs of green bonds, the formulation of standards for third-party verification of green bonds and green credit ratings, support for the development of green bond indexes, green equity indexes and related products, and encouragement for institutional investors such as pension and insurance funds to make green investments.
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[China] Guidance on Promoting the Investment and Financing in Response to Climate Change
On October 26, 2020, five Chinese government ministries/regulators jointly issued the “Guidance on promoting investment and financing to address climate change”. The Climate Finance Guidance came weeks after Chinese President Xi's announcement at the United Nations' General Assembly to strengthen ambitions for China to become carbon-neutral by 2060 and peak carbon emissions before 2030. While the focus of the guidance is on domestic climate finance including a timeline for having relevant policies for investment ready by 2025 and even the ambition of advancing the construction of a market mechanism for carbon-emission trading through China’s ETS, the guidance also stresses important aspects of climate finance in the Belt and Road Initiative (BRI).
The document also states that China aims to “regulate offshore investment and financing activities” and manage climate risks. The document furthermore emphasizes China's ambition to engage in research and international cooperation on climate investment and financing standards. While this 'guiding opinion' is not a law and thus has little direct legal weight, it is important for greening the Belt and Road Initiative.