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China’s Green Finance Policies

China’s climate actions are critical to the planet’s net-zero future. During the UN General Assembly in September 2020, President Xi committed to bring its emissions to a peak before 2030 and to become fully carbon neutral by 2060. These objectives have also been included in the country's latest five-year plan, covering 2021-2025.

Research estimates that China needs to close an annual funding gap of about RMB1.1 trillion ($170 billion) in the coming 30 to 40 years to achieve its ambitious carbon peak and carbon neutrality goals. This will inevitably require a robust financial system to encourage, facilitate and direct finance into these areas.

As China moves towards carbon neutrality, it will need to expand its financial tools and use fiscal and taxation policies more effectively.

According to policy recommendations from the Ministry of Finance published in May 2022, a basic economic policy framework must be developed by 2030 to promote green and low-carbon development. Based on the recommendations, the tax system will be adjusted to include more preferential policies encouraging energy and water conservation and carbon emission cuts. Import tariffs should also be adjusted to meet low-carbon development requirements.

Listed below are some key developments in Chinese green finance over the past two to three years.

In April 2021, an updated version of the Green Bond Endorsed Project Catalogue (2021) was issued to replace the previous version issued in 2015. The Catalogue 2021 has achieved three breakthroughs: Carbon-intensive projects such as cleaner use of coal and other fossil fuels are no longer supported; unified the criteria for defining green projects among regulatory authorities of green bonds for the first time; and provides a stable framework and room for flexibility for domestic green bond development.

To align Chinese taxonomies with international taxonomy frameworks and principles, China has participated in various international initiatives.In November 2021 and with an updated version in June 2022, the EU and China (the EU Commission and the People’s Bank of China) published the Common Ground Taxonomy reports to provide more clarity and transparency about the similarities and differences between taxonomies and potentially contribute to the analysis to lower the transboundary cost of sustainable investments

According to the 14th Five-Year-Plan of Finance Standardization, improving green financial standards is among the five pillars supporting China's green finance system. China issued multiple green finance-related industry standards in 2021 and 2022, that serve as guidelines and institutional capacity building for the green finance system.

  • In July 2021, People’s Bank of China (PBOC) released the Financial Institutions Environmental Information Disclosure Guideline proving guidelines on how financial institutions should disclose environmental information in a standardized and structured way.

  • In July 2021, PBOC released the Environmental Rights Financing Tools, which set out general requirements and process of financing based on environmental rights (right to discharge pollutants, rights to emit emissions, right to use water, right to use energy, etc.).

  • In April 2022, China Securities Regulatory Commission (CSRC) released the Carbon Financial Products, breaking down carbon financial products into three categories: carbon market financing tools, carbon market trading tools (derivatives), and carbon market support tools.

Climate finance and related carbon financing products have recently received considerable attention and development.

  • In October 2020, five departments of China jointly issued the Guiding Opinions on Promoting the Investment and Financing in Response to Climate Change, proving that climate finance was part of green finance, and climate finance should benefit both climate mitigation and climate adaptation activities.

  • In December 2021, nine Chinese government departments jointly issued Climate Investment and Financing Pilot Working Program. More than 30 cities are now participating in climate finance pilot programs, encouraging financial institutions to explore carbon funds, pledges of carbon assets, and carbon insurance.

The China Banking and Insurance Regulatory Commission (CBIRC) issued the Banking and Insurance Sector Green Finance Guidelines on 1 June 2022. These guidelines are the first to explicitly refer to ESG and to ask banks and insurance agencies to effectively incorporate the concept into their operations.


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