Finance


Related standards that can be linked with requirements for disclosure on progress include governance codes for stock exchanges, green lending and investing standards, green


standards for SWFs, environmental liability


standards, and mandatory endorsement of voluntary finance and investment codes. When such standards and progressive policy are combined the effects can be impressive, as is the case in the rapid progress of the green finance sector in China (see Box 11).


5.3 Supporting institutions and facilities


Policy frameworks also need to support institutions and facilities that can finance the transition to a Green Economy. Key areas of focus include market-based instrument (i.e. emissions trading schemes, payment for ecosystem services schemes, etc.) green bond markets,


listing rules and corporate ESG performance, the role of DFIs, greening sovereign wealth funds, and fiscal policies


Market-based instruments: Emissions trading schemes Emissions trading schemes are still new to financial markets and early pilots such as the EU Emission Trading System (EU ETS) have proved useful, but need improvements if they are to be more effective. Domestic and international policies in both developed and developing countries need to ensure strong and sustained price signals on carbon emissions and create well-designed carbon markets that avoid an overabundance of permits or a lack of enforcement capacity.


Expanding and deepening the international carbon market will need to include greater clarity on the future interplay of the CDM, Joint Implementation projects, and emerging credit mechanisms such as Nationally


Box 11: Greening the finance sector in China Chinese


policy makers have in recent years


introduced green credit guidance for the country’s banking sector and environmental liability guidance for the insurance industry. China’s leading banks are working to operationalise revised credit assessment systems across their main business lines. Also, the country’s city-based commercial banks, rural banks and cooperatives are involved in greening the country’s credit system. Similarly, 20 of the country’s insurers are actively exploring new environmental liability insurance products and services, while a series of pilot environmental insurance initiatives have been carried out with a number of provincial and municipal authorities around the country.


The China Banking Regulatory Commission (CBRC) is tasked with regulating and supervising banks and non-bank financial institutions. In 2007, CBRC introduced


Energy Conservation and


compliant with environmental laws and regulations and by withdrawing existing lending in extreme cases. Banks are required to submit a report to CBRC annually to outline their advances in the area of green credit and in turn the regulator reports developments to the State Council. The CBRC encourages its regulated institutions to apply international protocols that support sustainability in financial services.


Emission


Reduction regulations requiring financial institutions to establish an organisational framework and internal procedures to advance green criteria. Among other things, the CBRC’s regulations require a senior banker in each regulated institution to be responsible and accountable for green credit as well as to boost lending to the renewable energy and green sectors.


The CBRC sees two roles for the institutions it regulates. First, through lending to facilitate new energy sectors such as wind and solar. Second, by imposing restrictions on clients that are non-


The role of international financial institutions in supporting the greening of the Chinese financial sector is important. For example, the Industrial Bank of China, Pudong Development Bank, and Beijing Commercial Bank have worked closely with the IFC to advance energy efficiency projects. The IFC provides guarantees and assists the banks in preparing for CDM projects. The Industrial Bank of China estimates that over two years the reduced CO2


emissions from its energy efficiency projects is


equivalent to the total emissions of the Beijing taxi fleet.


On the banking side, ICBC, the largest bank in the world by market capitalisation, has created a Green Credit Policies Department in an effort to become the leading green bank in China. In addition, the bank is active in disaster relief and rural education. On green credit, ICBC classifies clients into nine categories and has a colour coding system – black, green, red, and grey – to assess eligibility for credits.


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