Seven ministries and commissions, the People’s Bank of China and MEP included, jointly released the Guidelines for Establishing Green Financial System (hereinafter referred to as the Guidelines) recently. Bie Tao, Deputy Director General of the Ministry’s Department of Policies, Laws and Regulations, interpreted the background and outline of the Guidelines, and introduced the Ministry’s next plans.
Q: What is the background and significance of the Guidelines?
A: On Aug. 30, General Secretary Xi Jinping chaired the 27th session of the Central Leading Group for Comprehensively Deepening Reforms and deliberated and adopted the Guidelines. The meeting pointed out that developing green finance is a major measure for achievement of green development and an integral part of the structural reform of supply side. On Aug. 31, seven ministries and commissions, the People’s Bank of China and MEP included, jointly released the Guidelines for Establishing Green Financial System. This represents a new progress in the institutional reform of ecological civilization, and has brought new mechanisms for guiding green development and provided new tools for facilitating the improvement of environmental quality.
China has arduous environmental governance tasks and great demand for environmental investments, so it is opportune to put in place a green finance system now. The fifth plenary session of the 18th CPC Central Committee has proposed new objectives for completing the building of a moderately prosperous society in all respects, which is, to achieve “the overall improvement of eco-environmental quality”, to reduce the total pollutant load by a large margin, and to pay close attention to padding up the prominent short board which is the ecological environment. In the 13th FYP period from 2016 to 2020, the country will focus on the improvement of environmental quality, and put up a good fight against air, water, and soil pollution. The State Council has promulgated the action plans for prevention and control of air, water, and soil pollution, and put forward concrete indicators for environmental improvement.
Government financial inputs are far from being enough for the attainment of the above goals and indicators for environmental improvement during the 13th FYP period, so we must be creative in developing the green finance policy framework, on the one hand, draw social capitals into China’s eco-environmental protection area, and on the other hand, facilitate the fast and green transition of the financial sector. The Guidelines is both necessary and opportune, by sending a new message regarding the national investment and financing policies, providing new areas for the social capitals to flow to, and carving out new investment channels for environmental governance.
Q: What areas does the green finance system entail as specified by the Guidelines?
A: The green finance system entails seven basic areas, as stipulated by the Guidelines: a. vigorously develop green credits; b. enhance the role of the securities market in supporting green investment; c. establish green development fund, and mobilize social capitals through the Public and Private Partnerships (PPP); d. develop green insurance; e. improve the environmental rights trading market, and develop related financial instruments; f. support local government initiatives to develop green finance; g. promote international cooperation on green finance.
Q: What financial tools and instruments does the Guidelines specify for eco-environmental protection?
A: Many financial tools and instruments in the Guidelines are highly relevant and applicable to eco-environmental protection.
In terms of green lending, the Guidelines stipulates that in order to establish a policy framework for green lending, we will allow projects supported by green loans to apply for fiscal subsidies on interest payments, and shape an incentive mechanism for green credits and other green businesses and a disincentive mechanism for curbing loans to industries with high pollution, high energy intensity, and overcapacity. We will enable the self-regulatory organizations of the banking sector to phase in a green evaluation mechanism of banks, guide financial institutions to provide green finance businesses, and better manage the environmental risks. Researches will be conducted to clarify the due diligence requirements, conditions for immunities from legal prosecution and propose relevant legislative suggestions. We will support and guide banks and other financial institutions to establish a credit management system that conforms to the characteristics of green enterprises and projects and reduce the cost of green loans. We will incorporate the enterprise environmental information including environmental violations into the financial credit information database. We will establish a mechanism to share enterprise environmental information, which should provide a basis for loan and investment decisions of the financial institutions.
In terms of green securities, the Guidelines stipulates that we will research and improve the relevant regulations and self-discipline rules for issuance of green bonds; clarify that funds raised by the issuance of green bonds must be fully (or mainly) used for green projects; actively support the qualified green enterprises to obtain financing via initial public offerings and secondary offerings; actively help listed green enterprises to issue additional shares via secondary offerings according to legal procedures; support the development of green bond indices, green equity indices and related products; encourage financial institutions to develop green index based financial products, such as mutual fund products or private equity fund products; gradually establish and improve the mandatory environmental information disclosure system for listed enterprises and bond issuers; encourage third party professional organizations to participate in the collection, research and release of corporate environmental information and analytical reports.
In terms of green funds, the Guidelines stipulates that we will support the establishment of all kinds of green development funds and their market-based operations; support the introduction of the PPP model in the green industry, encourage the bundling of energy saving and emission reduction projects, environment protection projects and other green projects with related higher-return projects, and establish a green service charge mechanism for projects with a “public goods” nature; improve relevant rules and regulations on green PPP projects, and encourage local governments to release operational rules based on experience of past PPP projects; encourage all kinds of green development funds to support green PPP projects.
In terms of environmental insurance, the Guidelines provides that we will establish a compulsory environmental pollution liability insurance system in areas of high environmental risks; formulate and revise relevant laws and regulations of compulsory environmental pollution liability insurance according to procedure; include enterprises under the coverage of compulsory environmental pollution liability insurance in areas in which there are higher environmental risks and concentrated environmental pollution incidents; encourage insurance institutions to play an active role in prevention of environmental risks, to carry out “environmental examination” for enterprises, to inform the environmental protection departments of the environmental risks discovered, and to support environmental risk supervision; encourage and support insurance institutions to innovate green insurance products and services; encourage insurance institutions to make full use of their specialties on risk management, and provide education on environmental risk management to enterprises and the public.
Those measures will substantially promote the establishment of an all-dimensional, multi-layer green finance system, and provide financial support mechanism for enhancing environmental governance capacity.
Q: What progress has MEP made in respect of environmental economic policies?
A: Since 2006, the environmental protection departments have made preliminary explorations in development of green lending, green insurance, green taxation, and other environmental economic policies, and made positive progress in this regard. Especially in recent years, MEP has worked with the People’s Bank of China and other departments and released the Guidelines for Corporate Environment Credit Rating, and together with NDRC, released the Guidelines for Strengthening the Development of Corporate Environment Credit. In July, MEP, together with 30 State departments including NDRC and the People’s Bank of China, jointly released the Memorandum of Understanding on the Joint Punishment of Bad Faith Businesses and Related Persons in the Environmental Protection Sector. The development of the environmental credit system is now on a faster track, and the financial institutions may adopt differentiated investment and financing measures based on the business’ environmental credit evaluation results. This provides a strong handhold for the implementation of green finance.
Q: What are the next plans laid out by the Ministry?
A: In the next step, the environmental protection departments at all levels will take the initiative to collaborate with the financial regulators, accelerate the establishment of green finance system, constantly improve the valid supply of investments in environmental governance, and cater to the financial demands for environmental governance.
First, we will tighten the environmental legislations, which will be a catalyst for creating demand for environmental investments. We will enforce and implement the newly revised Environment Protection Law, Air Pollution Prevention and Control Law, and Environmental Impact Assessment Law, pay close attention to amending Water Pollution Prevention and Control Law, facilitate the formulation of environmental tax law, soil pollution control and other laws, pollution permitting regulations and other regulations, and environmental pollution liability insurance rules and other rules. We will translate tough environmental regulatory requirements into realistic environmental governance tasks and further into tangible environmental investment demands.
Second, we will combine incentives with constraints, and push for the businesses to prevent and tackle environmental pollution. On the one hand, we will, through rigid enforcement, urge the industry to be voluntarily compliant, severely punish the environmental incompliances, and in accordance with the law, implement such measures as daily penalty, detentions, seal-up and seizure, halting operations to make improvements, and even criminal punishments. On the other hand, we will evaluate the corporate management credit, make public the businesses’ compliance records, and availing of the public supervision and through the environmental public benefit litigation protocols, work with relevant State departments to, following the social credit cooperative mechanism, give incentives to good faith and compliant businesses, punish bad faith and incompliant businesses, push for the businesses to raise funds through multiple channels such as loans and issuance of bonds, and actively tackle environmental pollution and restore ecological damages.
Third, we will accelerate the establishment of several key institutions and mechanisms. We will promote the development of environmental pollution liability insurance institutions. The Ministry will work with China Insurance Regulatory Commission and pay close attention to developing relevant plans and regulations, in accordance with the Master Plan for Institutional Reform of Ecological Civilization about “establishing compulsory environmental pollution liability insurance system in areas with high environmental risks”. We will select areas with fairly high environmental risks and more frequent pollution incidents, and enable related enterprises to be covered by the compulsory insurance; encourage insurers to give environmental examination on businesses, and introduce market-based mechanisms to raise the ability to canvass and prevent environmental safety hazards. Once the insured businesses suffer environmental damages, the insurers will compensate the pollution victims in accordance with law and in a timely fashion, help them resume operations and life with reasonable safeguard, relieve the burdens of the government and the society, prevent the businesses from a predicament of survival due to one-time environmental pollution damages, and promote the businesses to realize sustainable development on the premises of better environmental management. We will improve the mandatory environmental information disclosure system of listed companies and bond issuers. We will, in our effort to enforce the newly revised environmental protection law, air pollution prevention and control law, and other relevant laws, regulations, and rules, work to formulate and strictly implement the requirements for disclosure of the following information by listed companies that are announced by the environmental protection departments as key polluters: the attainment of main pollutants, the establishment and operation of environmental facilities in businesses, and the specifies of major environmental incidents. Also, we will mete out harsher punishments to the listed companies and bond issuers for forging environmental information, promote the development of inter-bank green bond market, and offer more sufficient financial support for environmental governance. Besides, we should strengthen collaboration, establish a policy framework in support of green lending, enter the businesses’ environmental incompliance and irregularity information and other environmental information into the basic database of financial credit information, and establish a mechanism to share enterprise environmental information, which should provide a basis for loan and investment decisions of the financial institutions.
