Shanghai event highlights clean energy and climate-sensitive project financing

China will continually optimize its financial policies to achieve low-carbon development targets, officials and experts said at a key event in Shanghai over the weekend.

In this context, focus will be on promoting energy transition and involving climate-related factors in assessing financial risks.

The move is part of a high-level policy guidance issued over the weekend to meet carbon neutrality goals by 2060.

In addition, an action plan for peaking carbon emissions by 2030 and a set of policies and measures in key industries are in the pipeline, said Xie Zhenhua, China's special envoy for climate change affairs.

The 26th United Nations Climate Change Conference of the Parties, or COP26, will be held in Glasgow, Scotland, from Sunday to Nov 12. "Multilateralism" is a key principle for all parties to achieve the global warming control targets as determined in the Paris Agreement.

Countries should take common, fair, but diversified responsibilities depending on different capabilities and national conditions, Xie said at the 2021 Bund Summit in Shanghai on Saturday, which was organized by China Finance 40 Forum.

Developed countries should honor their investment commitment of $100 billion per year to transfer to developing countries, as well as guide the investment of public funds. "Based on that, they need to actively develop green finance, optimize policy framework and information disclosure systems and lead social investment to low-carbon development fields," he said.

A senior official of the People Bank of China, the central bank, said at the summit that China will build a system of standards for financing the energy transition. So-called transition finance should support the fields that meet standards of coal consumption reduction and substitution, while financing for highly polluting projects and those that entail high energy consumption should be withdrawn.

Compared with green finance, transition finance will be more flexible and effective to meet the huge financing demand for transforming the country's energy structure, said Liu Guiping, deputy governor of the PBOC.

Liu also disclosed that the PBOC is conducting stress tests at financial institutions to evaluate the potential influences of climate-related factors and assess potential risks.

Promoting the transition toward a low-carbon development model has gained broad support from policymakers to scholars, and from business leaders to multilateral organizations.

Former US secretary of state Henry Kissinger said in a video dialogue at the summit that right now, despite the conflicts, competition and differences among nations, issues like public health and climate change underscore global common interests.

China has decided to stop financing coal energy projects, primarily for the benefit of humanity, and "I think it is a constructive contribution for the sake of all of humanity," said Kissinger.

A latest research report from China's central bank showed that in the long run, the low-carbon transition will foster economic growth and support price stability. In the short term, however, the transition will probably raise production costs, drive up prices of traditional fossil energy and exacerbate inflationary pressure, said Zhu Jun, head of the PBOC's international department.

The recent rise in energy prices globally reflects the instability of energy supply caused by climate change and extreme weather events, so the risk of low-carbon transition should be well controlled, said Zhu.

The PBOC started to include climate-related risks in the monetary policy system since 2016. In the next stage, it will focus on streamlining green finance taxonomies, improving climate-related information disclosure regulation and conducting stress tests related to climate risks.

"Internationally, China and the European Union are studying to promote the convergence of green taxonomies, and plan to release a common catalogue of sustainable finance in the near future, which will provide a basis for forming a globally consistent green taxonomy system," she said.