Achieving carbon peak by 2030 and achieving carbon neutrality by 2060 is a major strategic decision of the Chinese government. It is an important starting point for China to enter a new stage of development, implement new development concepts, and build a new development pattern. In order to achieve the goal of carbon peak and carbon neutrality, China needs to gradually reduce the proportion of high pollution and high energy consumption industries in the economy, promote the transformation and upgrading of the economy, energy, and industrial structure, strengthen technological innovation, vigorously develop clean energy, and promote high-quality economic development. At the same time, commercial banks are also required to play an important role in helping companies to transform production lines for energy conservation and emission reduction, support green and low-carbon projects, and participate in carbon emission rights trading.
Carbon and opportunities brought by the commercial banks
to achieve carbon neutrality target will produce a large-scale green investment demand, will offer commercial banks are prepared to finance green business opportunities for rapid growth.
Huge macro investment opportunities. The Institute of Climate Change and Sustainable Development of Tsinghua University estimates that a cumulative additional investment of approximately RMB 138 trillion is required to achieve carbon neutrality, which is more than 2.5% of annual GDP. The International Research Institute of Green Finance of Central University of Finance and Economics released the “China Green Finance Development Research Report (2020)”, pointing out that there will be a gap of 0.62 trillion yuan in new green funds in 2019, and the demand for green investment and financing is still growing by an annual increase of 1 trillion yuan . In the face of a trillions of billions of green investment funding gaps, commercial banks are required to actively participate.
The support and guidance of regulatory policies will strengthen the green financial market. On April 15, 2021, the People’s Bank of China and the International Monetary Fund jointly held a high-level seminar on “Green Finance and Climate Policy”. The Governor of the People’s Bank of China Yi Gang pointed out that the People’s Bank of China will be committed to building a strong policy system. Develop a rich and diversified market system and strengthen international coordination to play an active role in achieving carbon neutrality. The policy support of financial regulatory agencies will give rise to a multi-billion-level green financial market, providing huge development opportunities for commercial banks. It is estimated that before 2030, China will need to invest 2.2 trillion yuan in carbon emission reduction every year, and from 2030 to 2060, it will need to invest 3.9 trillion yuan every year. To complete these investments, government funds alone are far from enough, and more social capital needs to be guided and encouraged to participate. China’s support for green finance has increased the confidence of international institutions in the development of China’s green finance market. According to Deutsche Bank’s forecast, the size of China’s green finance market may increase to RMB 1 million in 2060.
The development of the carbon trading market brings new opportunities for intermediate business income. By the end of 2020, China has established eight major cities in eight regions (Guangdong, Hubei, Tianjin, Beijing, Shanghai, Shenzhen, Fujian, and Chongqing) in power generation, petrochemicals, chemicals, building materials, steel, non-ferrous metals, papermaking, and domestic civil aviation. Energy-consuming industries are the mainstay. Commercial banks, enterprises, third-party carbon emission asset management institutions, and carbon emission exchanges have jointly formed a carbon emission trading system. For commercial banks, the development of carbon financial services can play three important roles: one is to provide transaction settlement, fund clearing and custody services in the carbon trading process; the other is to provide financial support for energy-saving and emission-reduction enterprises to increase the carbon trading market Liquidity; the third is to help the market form mid- and long-term price expectations for carbon credit assets. By actively participating in the construction of the carbon market, commercial banks strengthen the financial attributes of the carbon market and help promote the formation of a nationally unified price discovery mechanism that reflects the true value of carbon assets. For commercial banks with carbon trading settlement services, they can also expand deposit sources and expand intermediary business.
Carbon and challenges for commercial banks to bring
China promised to complete in less than 30 years and from carbon to carbon peak, half the carbon in major European countries and time, task is urgent, unprecedented challenges.
Changes in the economic growth paradigm. China is a developing country, and industrialization and urbanization have not yet been completed. To achieve carbon peak and carbon neutrality, the economy and society will usher in a broad and profound transformation, which will push Chinese companies to seek high-quality development. On April 30, 2021, General Secretary Xi Jinping presided over the 29th collective study of the Political Bureau of the Central Committee and emphasized that the strategic determination of ecological civilization construction must be maintained, and the rapid development of strategic emerging industries, high-tech industries, and modern service industries must be promoted. In the process of economic transformation and upgrading of China’s economy, the choice of the direction of credit support for commercial banks will test the bank’s business development capabilities. Under the goal of carbon peaking and carbon neutrality, China will enter a new economic development mode with green renewable energy as the main energy structure. Inefficient and energy-consuming industries or enterprises will face more restrictions, which will force high-energy-consuming industries or corporate technology. Progress, the strength of scientific research capabilities will determine the strength of the core competitiveness of an enterprise.
The risk of unbalanced regional economic development. In the process of green transformation, the regional economy faces new risks of unbalanced development. Regions or provinces with more high-carbon companies. Will face greater economic growth pressure. Resource-based companies in these regions will increasingly find it difficult to obtain policy and financial support. Some provinces with high carbon emissions will face greater pressure to reduce carbon emissions and green transition. With the overall green transformation of economic and social development, the relatively backward development of the central and western regions is facing a decline in the carrying capacity of the regional ecological environment, the lack of competitiveness of resource-based enterprises, the lack of independent innovation capabilities of enterprises, the shortage of high-tech talents, and the institutional mechanism of green development. Insufficiency and many other challenges.
Green transformation brings risks of changes in the value of bank assets. From carbon peak to carbon neutrality, it will take 70 years for the European Union, 43 years for the United States, and less than 30 years for China, and we are still in the developing country stage with a short time and a steep curve. The risks faced by Chinese financial institutions have become more prominent, and the banking industry needs to pay attention to assessing and managing their environmental and climate risks. In the context of major countries in the world announcing carbon neutrality targets and stepping up efforts to implement the Paris Agreement, the transformation risks brought about by the response to climate change will become more and more important for many industries and commercial banks with climate risk exposure. The more prominent. At present, most commercial banks in China have not yet fully understood the risks associated with climate transition, and generally lack forward-looking judgments and risk prevention mechanisms for climate transition risks.
Business Transformation Strategies of Commercial Banks under the Background of “Dual Carbon”
The development of carbon neutral business is a must-answer question for commercial banks to face opportunities and cope with challenges. It is an inevitable requirement for fulfilling social responsibilities and promoting sustainable economic and social development. It is also an urgent need to implement regulatory requirements and prevent and control environmental and social risks. It is an inevitable choice to cultivate new profit growth points, enhance comprehensive competitiveness, and promote its own sustainable development.
to better adapt to a carbon-neutral trend, commercial banks should be long-term, comprehensive, in-depth implement a carbon neutral strategy, strengthening financial green layout, build world-class carbon and financial institutions. On the one hand, increase support for the green environmental protection industry to achieve carbon neutrality for customers and businesses; on the other hand, the use of big data, cloud computing, blockchain and other technical means to manage carbon footprints will increase the credit resources and interest rates of enterprises. Linked to the company’s carbon footprint, while reducing energy use and carbon emissions from its own business operations. The steps taken by commercial banks to implement the carbon neutral strategy must be coordinated with China’s promotion of a comprehensive green transformation of economic and social development, and they must also be consistent with their own business development processes. Three stages can be considered.
The first stage (2021-2025), this stage needs to establish the bank’s carbon neutral strategy, green finance philosophy, values and culture, in terms of organizational structure, policy standards, process management, risk management, capacity building, information disclosure, etc. , To build a carbon neutral strategy system for commercial banks and further implement them.
In the second stage (2026-2030), the main task of this stage is to peak carbon. The bank’s carbon neutral strategy system is becoming more mature. The concept of green and low-carbon finance has gradually penetrated into the entire bank’s operation process. The organization system of green finance has been continuously improved. The risk identification system and financial pricing mechanism for the environment and resources are mature and efficient, and can be targeted at customers. Need to provide an effective green finance integrated service plan. The business development of banks not only forms an effective financial support for China’s ecological civilization construction and green development, but also plays an important role in the global green financial system.
In the third stage (2031-2060), China’s economy and society have extensively formed green production and lifestyles. After the peak carbon emissions have been steadily reduced, the long-term goal of 2035 will be achieved, and carbon neutrality will be achieved by 2060. China will become the world’s largest green credit center and the largest carbon trading center. The carbon neutral system and standards of China’s banking industry can lead the world. Commercial banks have developed data analysis systems and methodologies that are suitable for their own business operations to assess environmental risks. , And realize the digitization of carbon neutrality.
to adapt to achieve peak carbon, carbon-neutral policy deployment requirements, policy support and guidance on regulatory authorities, on the basis of advanced international banks and carbon in the development of related experience, commercial banks should be the organizational structure, policies, systems, processes Starting from six aspects of management, risk management, capacity building, and information disclosure, we will build a carbon-neutral strategic system and build a carbon-neutral operating system in an all-round way.
Organization. Establish a three-level carbon neutral organization structure of the Double Carbon Strategy Committee-Carbon Neutral Management Office-Carbon Neutral Professional Team. The Double Carbon Strategy Committee is responsible for determining the carbon peak, carbon neutral banking business development strategy, the carbon neutral management office coordinates the management and promotion of the bank’s carbon neutral financial business development, and the carbon neutral business team formulates carbon neutral financing policy standards, Conduct environmental and social risk audits and risk inspections, and promote the design of carbon-neutral financial products.
Policy system. Relying on the industry credit policy platform, refine and refine key industry environmental and social key risk indicators, distinguish “green” and “grey” assets, control the growth of “grey” assets, improve special credit policies for green credit in key areas, and guide banks We will do a good job in financial services to help achieve carbon peak and carbon neutral goals.
Process management. The “one-vote veto system” is adopted for projects that do not meet carbon emission standards. In the contract, customers should be required to submit environmental and social risk reports, and corresponding guarantee clauses, commitment clauses and relief clauses should be added. Customers with potential major environmental and social risks should be strengthened Dynamic analysis and timely adjustments in asset risk classification, provisioning and loss write-off, etc.
Risk Management. Improve the bank’s green credit classification and include carbon emission levels in the classification standards; clarify the content of risk monitoring reports, reporting routes and specific measures, and incorporate them into the monitoring system management; in addition to collecting and suppressing loans for high-carbon projects, it should also be proposed Solutions to help customers correct, improve and enhance their environmental risk management capabilities in a timely manner, and promote customers’ green and low-carbon upgrades.
Skill building. Strengthen the building of carbon neutrality capabilities of commercial banks, establish customer information files and form a carbon neutral product catalog related to the level of corporate carbon emissions, include leading companies in low-carbon environmental protection transformation into the marketing whitelist, and the marketing team’s financial needs for whitelisted customers are fast response. At the same time, establish scientific evaluation indicators to promote the development of carbon neutral business.
Information disclosure. Consider replacing the “Corporate Social Responsibility Report” with the “Sustainability Report”. From the perspective of international practice, because the “Sustainability Report” covers the three bottom lines of enterprises, that is, economic, environmental, and social responsibility performance, compared with the existing “Social Responsibility Report”, the disclosure content is more extensive, more comparable, and more influential. big. Actively make use of various international and domestic academic exchanges, seminars, forums and other occasions to vigorously promote the concept of carbon neutral finance, publicize the bank’s path and effectiveness of carbon neutrality, and build its own carbon neutral brand.
Carbon-neutral financial products are an important tool for commercial banks to support the dual-carbon goals, expand the scope of commercial banking business, and provide huge development space for banking financial innovation and support for high-quality economic development. In terms of retail products, we should draw on international experience to launch green building credits for energy-saving offices and homes. In terms of corporate carbon neutral business, we carry out carbon neutral project financing, credit guarantees, securitization, technology leasing, carbon products and product services, carbon trading, venture capital and private equity, and reserve indexes. In terms of asset management business, including investment funds, carbon funds and catastrophe bond funds, banks provide companies and individuals with green credit and wealth management products.