What to expect for the next sustainable regulatory moves in China




2021 marks the start of China’s 14th Five- Year Plan. As an important contributor to adopting the Paris Agreement and an active participator in its implementation, China is resolutely committed to tackling climate change. The country has vowed to peak carbon dioxide emissions by 2030 and achieve carbon neutrality by 2060 (The “30 · 60” Goals). Top-down regulation development is expected in China to reach “30 · 60” goals, as regulatory forces still are the main fuels for sustainable investment markets in China. The Green transition is being pushed internally and externally. China is in the position to lead more economies in the green transform, as achieving the green development goal by a country with 1.4 billion people will be an inspirational precedent for the rest of the world.

In this report, we analyse the current sustainable regulatory landscape in China and deliver an inspiring message from PBoC (The Central Bank of the People's Republic of China, Central Bank in China) on green finance with its key measures to achieve the “30 · 60” goals.

By the end of 2020, outstanding green loans in China were about 12 trillion RMB, or 2 trillion USD, ranking the first in the world. Outstanding green bonds in China registered about 800 billion RMB, or about 120 billion USD, ranking the second largest in the world. Such rapid progress in green finance is giving strong support to China’s green transition. An emerging green market like China contains so much potential that has to be done right.

Externally, the EU has been leading the green financial system with its Sustainable Finance Disclosure Regulation (SFDR) and the EU Taxonomy came into force on March 10, 2021. The ripple effect of its green financial system has been pushing the rest of the world of non- EU asset managers to be on guard to manage their climate risk exposures and prepare for further disclosure requirements. As global value chains are inter and intra connected with shared responsibility in the fight with climate change.

GC Insights is tracking closely with the latest development of sustainable developments and macro policies that could be key factors and variables for your businesses in China and in the global markets that accelerate to be climate change mitigation ready.



SUSTAINABLE REGULATORY LANDSCAPE IN CHINA 2021

On September 22, 2020, the Chinese government has pledged to reach carbon emission peak by 2030, and reach carbon neutrality by 2060. To align with the “30 · 60" Goals***, the government has issued serious sustainability-related regulation and compliance, and more is yet to come. Revised Performance Evaluation Rules for State-owned and State-controlled Banks were issued on January 1, 2021, by the Ministry of Finance. It includes an indicator of how well these banks support green industries and companies. The new rules also ask for standardisation in green bonds and rating systems. Under the new rules, policymakers are set to promote more adaptation for these banks to be more inclusive in international green finance standards, in an effort to promote the opening of the country's green finance market.


***The “30 · 60” Goals: China’s vows to peak carbon dioxide emissions by 2030 and achieve carbon neutrality by 2060.

Guidelines on the Investor Relation Management of Listed Companies -- drafted revision was published for public opinions on February 5, 2021. For the first time, the guidelines on the investors’ relation management of listed companies included ESG related information in the communication content between listed companies and their investors. CSRC (China Securities Regulatory Commission) firstly established a basic framework of ESG disclosures in 2018 (Code of Corporate Governance for Listed Companies), while the Shanghai and Shenzhen Stock Exchange added ESG indicators to the corporate information disclosures in September 2020, as voluntary items.

The 2021 Government Work Report was delivered by Premier Li Keqiang on March 5, 2021. The report emphasises green development during the 14th Five-Year Plan and action plans for green development this year. The plan outlines a goal to reach energy consumption and carbon dioxide emissions per unit of GDP to be reduced by 13.5% and 18% respectively. An Action Plan for Peaking Carbon Dioxide Emissions Before 2030 will be formulated in greater detail this year. PBoC (The Central Bank of the People's Republic of China, Central Bank in China) has also identified green finance as a priority for this year (2021) and for the next 5 years.


China’s Interim Rules for Carbon Emissions Trading Management came into effect on February 1, 2021. Marking the start of spot transactions within the quotas of the national carbon market. The rules specify that the MEE (Ministry of Ecology and Environment) shall organise a registration system and trading system for domestic carbon emissions, including agencies for registration and trade, in accordance with national regulations. The national carbon emission registration agency will be responsible for the centrally unified carbon emissions trade. The nationwide carbon market online trading system is expecting to be launched by late June 2021. The carbon price is expecting to rise then. PBoC (The Central Bank of the People's Republic of China, Central Bank in China) is exploring setting up a national carbon accounting system and designing policy tools to directly benefit the real economy's emission reduction efforts while assessing financial institutions on their green financing activities, said Liu Guiping, deputy of the PBoC. In his press conference on April 1, 2021, he mentioned the importance of leading the G20 in International platform on the sustainable finance (IPSF) to issue the ‘Common Ground’ taxonomy' with the EU and other member countries by the end of 2021. Liu also stresses the need to further increase green investment under the BRI (Belt and Road Initiative) and monitor overseas projects to shift away from fossil fuels and promote clean energy.

On March 29, 2021, “the Guidelines for Verification of Corporate Greenhouse Gas Emissions Reports (Trial)” has finalised the verification procedure with eight steps: verification arrangements, the establishment of a verification technical working group, document review, establishment of an on-site verification team, implementation of on-site verification, issuance of "verification conclusions", notification of verification results, and preservation of verification records for at least 10 years. On March 30, 2021, the MEE(Ministry of Ecology and Environment) organised the drafting of the "Interim Regulations on Carbon Emission Trading Management (Draft Modification) Draft)", now soliciting opinions until April 30, 2021.

The Shenzhen Special Economic Zone Green Finance Regulations has come into effect on March 1, 2021. This is the Mainland’s first set of regulations to govern local green finance development. Under the rules, listed financial companies that registered in Shenzhen, green bond issuers, and other financial institutions that are entitled to preferential green finance policies shall disclose environment-related information in a mandatory manner beginning on January 1, 2022.

Shenzhen-located banks or branches with assets worth over RMB 50bn and qualified institutional investors, including mutual fund managers with more than RMB 10bn asset under management (AUM) and private fund manager with at least RMB 5bn AUM, also must report environmental data in January 2023. The mandatory disclosure covers information regarding the environmental impact of enterprises, projects, or assets that receive investments from the aforementioned institutions. Under this green finance code, financial institutions shall formulate relevant green finance systems and carry out the outlined relevant activities to address green finance concerns to align with the regulations.

Penalties are applicable if the entity or branch fails to comply. Ranging from a fine of three ties the insurance premium, or a fine of RMB50,000 yuan to 200,000 yuan on the investment project. A fine of 1-10% of the loan or investment amount shall be imposed when damage to the ecological environment is made by the underlying project.

Furthermore, financial institutions that fail to conduct Green Investment Assessment in post-investment management shall be penalised with a fine of RMB50,000 to 200,000 yuan. Any entities that fail to disclose environmental information that aligns with regulations or any violations of the "anti greenwashing" system can subject to administrative penalties.



(written by Yitong Yuan)



To read the full report, please request via: info@gc-insights.com




- END -



For more information about China ESG, please scan our QR Code and follow our account. For questions or collaborations, please contact us at info@gc-insights.com









5 views