In order to realize China’s solemn commitment to the “double carbon” goal, climate investment and financing is playing an irreplaceable role. In 2020 and 2021, relevant ministries and commissions issued documents related to Climate Investment and financing for two consecutive years, clarifying the development direction and objectives of China’s climate investment and financing, aiming to provide strong support for green, low-carbon and high-quality development.
“The introduction of relevant documents shows China’s firm determination to deal with climate change and achieve the goal of national independent contribution, and points out the way forward for green development of enterprises and Climate Investment and financing activities of financial institutions.” Recently, Han Guoqiang, Secretary of China’s Agricultural Bank Of China Limited(601288) board of directors, said in an interview with 21st Century Business Herald.
As the main part of green finance, climate investment and financing business is an important focus for commercial banks to practice ESG concept and strengthen ESG management. In recent years, Agricultural Bank Of China Limited(601288) conducted the ESG concept from top to bottom, built a relatively perfect ESG organizational structure and management mechanism, and gave full play to the leading role of the board of directors in ESG strategic deployment and decision-making. In the past year, the board of directors of Agricultural Bank Of China Limited(601288) made important strategic decisions on a series of ESG issues such as climate investment and financing, including formulating the “14th five year plan” of Agricultural Bank Of China Limited(601288) , which listed green finance as one of the three strategies of the bank. On this basis, the development plan of Green Finance (2021-2025) was formulated, taking climate change as the core area of green financial support.
Data show that by the end of 2021, Agricultural Bank Of China Limited(601288) green loans were close to 2 trillion yuan. Han Guoqiang told the 21st Century Business Herald that most of them are related to Climate Investment and financing and are at a relatively leading level in the industry. Moreover, while providing financing services for the economy through green credit and green investment bank, ABC also actively participates in green investment through green bonds, green funds, ESG financial products and other ways.
“Over the years, ABC has actively explored and accumulated some experience in developing green investment and financing business. To sum up, it has four aspects: adhering to governance guidance, innovation drive, risk control and open cooperation.” Introduction by Han Guoqiang.
At the same time, Han Guoqiang said that as China’s climate investment and financing work is still in its infancy, there are still some immature places. As far as financial institutions are concerned, there are some problems, such as inconsistent Climate Investment and financing standards, weak data base and imperfect information disclosure standards, and the design of incentive mechanism needs to be further improved. To this end, the ROK strongly put forward policy suggestions on formulating targeted policies for Climate Investment and financing, improving the standards of Climate Investment and financing projects, improving the carbon trading market, strengthening exchanges and cooperation and talent training.
Climate Investment and financing documents indicate the direction for financial institutions
21st century: in October 2020 and December 2021, relevant ministries and commissions issued the guiding opinions on promoting investment and financing in response to climate change and the notice on carrying out climate investment and financing pilot work respectively. What are the main purposes of these two documents, what problems can be solved in the development of Climate Investment and financing in China, and what difficulties still exist?
Han Guoqiang: the guiding opinions on promoting investment and financing in response to climate change (hereinafter referred to as the “opinions”) and the pilot work plan on Climate Investment and financing (hereinafter referred to as the “plan”) have been successively issued to deeply implement the major decisions and arrangements of the CPC Central Committee and the State Council on carbon peaking and carbon neutralization, In terms of institutional mechanism construction in the field of Climate Investment and financing, clarify the overall goal and realization path.
Among them, the opinions is the top-level design of China’s climate investment and financing, which establishes the definition and overall objectives of Climate Investment and financing, and defines the scope of support, the construction of standard system and policy system, and the guidance of private capital and foreign investment. The plan is the specific implementation path of the pilot work of Climate Investment and financing. It defines the pilot objectives, key tasks, measures and organizational implementation path. On the whole, it strengthens the local main responsibility of the pilot area.
The successive issuance of relevant documents shows China’s firm determination to deal with climate change and achieve the goal of national independent contribution, and points out the way forward for green development of enterprises and Climate Investment and financing activities of financial institutions.
However, as climate investment and financing is still in its infancy in China, there are still some immature places. From the perspective of financial institutions, I think there are three main difficulties:
First, the climate investment and financing standards are not unified. In October last year, the China Society of technology and economics issued the guidelines for the classification of Climate Investment and financing projects (hereinafter referred to as the guidelines), which means that it provides a reference basis for the identification of Climate Investment and financing projects at the national level for the first time, but there are still problems such as only standardizing and qualitative but lacking quantitative standards. In addition, climate investment and financing is an important part of green finance. The guide is basically consistent with the relevant standards of green finance, but it highlights the attribute of coping with climate change, focuses more on the scope of support, and has differences in some details. For example, there are differences in the definition of natural gas and nuclear energy compared with the catalogue of green bond support projects (2021 Edition), Compared with the green industry guidance catalogue (2019 Edition), the clean and efficient utilization of traditional energy is deleted.
Second, the data base is weak and the information disclosure standards are imperfect. The contribution of enterprises to climate change can be evaluated mainly from the relevant information such as carbon emissions and carbon intensity. However, at present, the institutional constraints of enterprise climate information disclosure, technical systems such as carbon accounting, information sharing platform and third-party evaluation institutions are not mature. The above two difficulties are not conducive for financial institutions to choose Climate Investment and financing customers and projects for support. However, it is believed that with the opening of the pilot Climate Investment and financing, the relevant standards and enterprise information disclosure will be further improved.
Third, the design of incentive mechanism needs to be further improved. The people’s Bank of China has launched a carbon emission reduction support tool to leverage social funds to promote carbon emission reduction in a steady, orderly, accurate and direct way. Recently, among the first batch of 85.5 billion yuan of carbon emission reduction support tool funds issued by the people’s Bank of China to relevant financial institutions, Agricultural Bank Of China Limited(601288) received 11.368 billion yuan. We expect that national and local governments will also continue to increase their support for Climate Investment and financing, and comprehensively use monetary policy tools, fiscal and tax policies and differentiated regulatory provisions to guide financial institutions to increase capital supply and enhance their enthusiasm to support climate change.
21st century: with the increasing attention and investment of the whole society in Climate Investment and financing in the future, what changes and opportunities do you think will be brought to relevant industries?
Han Guoqiang: the scope of Climate Investment and financing support includes mitigation and adaptation. Among them, the mitigation of climate change includes adjusting the industrial structure and actively developing strategic emerging industries; Optimize the energy structure, vigorously develop non fossil energy, and implement energy conservation and carbon reduction transformation projects; Carry out pilot demonstration of carbon capture, utilization and storage; Control greenhouse gas emissions from non energy activities such as industry, agriculture and waste disposal; Increase forests, grasslands and other carbon sinks.
Adaptation to climate change includes improving the adaptability of key areas such as agriculture, water resources, forestry and ecosystem, ocean, meteorology, disaster prevention, mitigation and relief; Strengthen the construction of adaptation infrastructure, accelerate the construction of infrastructure and improve scientific and technological capacity.
With the attention and investment of the whole society in Climate Investment and financing in the future, it is expected that there will be large growth space in clean energy industry, energy conservation and environmental protection industry, ecological environment industry, green and low-carbon technology and other fields, which will also be the focus of green finance and Climate Investment and financing business expansion of financial institutions.
ESG governance leads the development of Climate Investment and financing business
21st century: at the level of corporate governance, Agricultural Bank Of China Limited(601288) how does the board of directors pay attention to ESG issues such as climate investment and financing, what work has been done and what are the plans for the next step?
Han Guoqiang: the objectives of China’s 14th five year plan put forward three goals: achieving new progress in the construction of ecological civilization, reaching a new level of people’s well-being and improving the efficiency of national governance, respectively focusing on the three themes of E, s and G. In the field of environment, especially after the national “30.60” strategic goal is put forward, climate investment and financing has become the most effective way to ensure China’s carbon peak and carbon neutral capital demand. As a large state-owned financial institution, we are duty bound. To this end, Agricultural Bank Of China Limited(601288) has built a relatively perfect ESG organizational structure and management mechanism to strengthen the strategic leading role of the board of directors.
Agricultural Bank Of China Limited(601288) the board of directors is responsible for formulating the bank’s ESG strategy and objectives, assessing relevant risks and strategy implementation. Take the lead in upgrading the “strategic planning committee” of the board of directors to the “strategic planning and Sustainable Development Committee” to assist the board of directors in formulating and evaluating ESG strategies and objectives. The “three rural” finance and Inclusive Finance Development Committee, risk management and consumer rights and Interests Protection Committee and the related transaction control committee respectively consider the “three rural” finance and Inclusive Finance Consumer protection, related party transactions and other ESG core issues. Establish a green finance committee, a risk management and internal control committee, a consumer rights and Interests Protection Working Committee and a management committee of the agriculture, rural areas and Inclusive Finance Division at the senior management level to be responsible for implementing the management of ESG issues such as green finance, climate investment and financing, consumer rights and interests, inclusive business and so on. In addition, we also promote the inclusion of sustainable development in the articles of association, providing an institutional basis for the board of directors to perform ESG’s duties.
Agricultural Bank Of China Limited(601288) give full play to the leading role of the board of directors in ESG strategic deployment and decision-making. In the past year, the board of directors of Agricultural Bank Of China Limited(601288) made important strategic decisions on a series of ESG issues such as climate investment and financing, including formulating the “14th five year plan” of Agricultural Bank Of China Limited(601288) , which listed green finance as one of the three strategies of the bank. On this basis, the development plan of Green Finance (2021-2025) was formulated, taking climate change as the core area of green financial support. The board of directors regularly evaluates and reviews the phased implementation of the plan, grasps the direction of the implementation path and ensures the realization of the planning objectives. The board of directors pays close attention to ESG management, green finance and climate risk, regularly listens to reports on special issues and makes scientific decisions, actively constructs ESG governance structure, and integrates climate risk into the comprehensive risk management system. By setting up topics, conducting research, special training and other forms, improve directors’ ESG performance ability, conduct ESG concept from top to bottom, and promote the deep integration of ESG concept and operation management.
Next, Agricultural Bank Of China Limited(601288) the board of directors will optimize the strategic transmission, incorporate ESG into the annual work plan of the board of directors, determine the key points and work points of annual ESG performance, as an important work content of directors’ performance, and promote the implementation of sustainable development strategy in all fields of business development and operation management from top to bottom.
Three objectives and four experiences of Climate Investment and financing of ABC
21st century: can you give us some details about the specific strategic planning and deployment of Agricultural Bank Of China Limited(601288) in Climate Investment and financing, and whether there are specific objectives?
Han Guoqiang: Agricultural Bank Of China Limited(601288) identified green finance as one of the three strategies of the bank, issued strategic planning and deployment related to Climate Investment and financing, and defined the specific implementation path. The 14th five year plan of China Agricultural Bank Of China Limited(601288) deliberated and adopted by the board of directors emphasized the implementation of ESG governance responsibility and vigorously promote the development of green finance from the perspective of corporate governance. ESG work was incorporated into the bank wide strategic level for the first time. It is clearly stated that Agricultural Bank Of China Limited(601288) should closely focus on the strategic deployment of carbon peak and carbon neutralization, fully implement the mission of large state-owned banks to support green and low-carbon circular development, comprehensively promote the green transformation of operation and management, further improve the green financial business system, and strive to build a bright and widely recognized green financial advantage brand. In the Agricultural Bank of China’s green finance development plan (2021-2025) and the guiding opinions on accelerating the development of green finance business, it further defined the key areas, implementation paths and key measures for the development of green finance. It is required to promote the full integration of the concept of environment, society and Governance (ESG) into the whole process of operation management and business, explore the integration of ESG risk into the comprehensive risk management system, and build the management system, product system, marketing system and risk control system of green financial business.
In terms of objectives, we strive to achieve three objectives: business increment and expansion, striving for a first-class green brand, practical environment and climate risk management.
First, business increment and expansion. Green investment and financing business has achieved larger scale, optimized structure and leading growth. By the end of 2025, the balance of green credit (PBOC caliber) will reach about 3 trillion, and the balance and proportion of green bonds, green leasing and ESG wealth management will continue to increase. Vigorously support six green industries, including clean energy, green upgrading of infrastructure, energy conservation and environmental protection, cleaner production, ecological environment and green services.
Second, strive to create a first-class green financial brand. Establish a multi-level and three-dimensional business system covering green credit, green direct financing, green consumer finance and carbon finance, Agricultural Bank Of China Limited(601288) green finance brand image has become a first-class brand widely recognized in the market.
Third, implement environmental and climate risk management. Environmental and climate risk identification, assessment and management tools are in line with the advanced level at home and abroad, and the non-performing loan rate of green credit is significantly lower than the average loan level of the whole bank.
21st century: by the end of 2021, Agricultural Bank Of China Limited(601288) green loans are close to $2 trillion. How many of them belong to Climate Investment and financing? What is the level compared with peers? At the same time, what useful lessons have Agricultural Bank Of China Limited(601288) accumulated in these businesses? In addition to loans, “investment” is also a very important part of Climate Investment and financing. What work has Agricultural Bank Of China Limited(601288) done in this regard and whether it has formed replicable experience?
Han Guoqiang: by the end of 2021, the balance of Agricultural Bank of China’s green loans was nearly 2 trillion yuan, most of which were related to Climate Investment and financing and were at a relatively leading development level in the industry. As a bank committed to promoting climate friendliness, while providing financing services for the economy through green credit and green investment bank, ABC also actively participates in green investment through green bonds, green funds, ESG financial products and other means.
First, actively participated in green bond investment in clean energy, green transportation, green construction and other industries. In 2021, the investment in green credit bonds was 23 billion yuan.
Second, give full play to the investment advantages of ABC financial management, ABC Huili, ABC life and other subsidiaries. By the end of 2021, the Agricultural Bank of China had invested more than 6 billion yuan in financial green bonds and issued more than 17 billion yuan of ESG products; The scale of new energy theme fund products issued by ABC Huili reached 28.8 billion yuan; ABC life has invested more than 1.4 billion yuan in bonds, insurance creditor’s rights plans and trust products, which has strongly supported the development of green economy.
In recent years, ABC has actively explored the development of green investment and financing business and accumulated some experience. To sum up, there are four aspects:
First, adhere to governance guidance. The board of directors has a strategic planning and Sustainable Development Committee, the first in the industry to set up a “carbon neutrality” working committee, and a green finance committee at the senior management level.
At the same time, green finance was listed as one of the bank’s three major strategies in the bank’s 14th five year plan, which provided strong strategic support and guarantee for the development of green finance business.
Second, adhere to innovation driven. We will comprehensively promote innovation in systems, products and services. For example, in terms of institutional innovation, it has successively issued a number of new energy credit policies such as typhoon power and Cecep Solar Energy Co.Ltd(000591) power generation; In terms of product and service innovation, the first batch of green bond investment and financing businesses such as carbon neutral bonds and sustainable development linked bonds were carried out in the financial industry, and the first pledge loan of carbon emission rights was successfully implemented in the national carbon trading market.
Third, adhere to risk control. Attach great importance to the sustainable development of green financial business and actively respond to potential risks in development. In the systems and measures related to risk management, ABC strengthened the comprehensive coverage, classified management and whole process control of environmental and social risk management, and implemented the “one vote veto system” for non eco-friendly customers and projects. Implement industry quota management for key customers with high energy consumption and high emission. At the same time, actively use ESG risk management tools such as scenario analysis and stress test to study the impact of climate change on corporate financial status and credit risk, and strive to improve the fine management level of environmental and social risks.
Fourth, adhere to openness and cooperation. ABC has always adhered to the principle of openness and inclusiveness, actively integrated into international mainstream standards and actively implemented the United Nations agenda for sustainable development. The first batch signed one of the “one belt, one road” green investment principle, successfully joined the responsible bank principle (PRB principle), took part in the fifteenth conference of the parties to the Convention on biological diversity, signed the joint declaration of the banking financial institutions supporting biodiversity conservation and the climate friendly bank Beijing initiative. Become the supporting organization of the working group on climate related financial disclosure (TCFD).
The effective combination of Climate Investment and financing and “agriculture, rural areas and farmers” business is of far-reaching significance
21st century: Agricultural Bank Of China Limited(601288) is the national team and main force of financial services for “agriculture, rural areas and farmers”. How can Climate Investment and financing be effectively combined with “agriculture, rural areas and farmers”?
Han Guoqiang: the central rural work conference stressed that agricultural and rural carbon reduction and sequestration is not only an important measure of carbon peaking and carbon neutralization, but also the potential. “Agriculture, rural areas and farmers” county business is the characteristic and traditional advantage of ABC, and it is the key area involved in Climate Investment and financing. The agricultural industry generally has the attribute of carbon sink. According to the calculation of the balance of ABC’s green loan, the loan for ecological agriculture per 100 million yuan can promote the reduction of 0.787 tons of carbon dioxide equivalent, about 1.37 times the average emission reduction level of the bank’s green credit. Therefore, increasing the loan for ecological agriculture is conducive to promoting greater energy conservation and emission reduction and generating good social benefits.
Agricultural Bank Of China Limited(601288) under the board of directors, there is a “three rural” finance and inclusive financial development committee, which is responsible for reviewing the “three rural” development strategy and major issues, supervising the implementation of the “three rural” development strategy, and paying high attention to the sustainable development of the “Three Rural” business. Promoting the effective combination of Climate Investment and financing and “agriculture, rural areas and farmers” business and making green the background of “agriculture, rural areas and farmers” business has far-reaching strategic significance for ABC. To this end, we issued the guiding opinions on vigorously developing the green financial business of “agriculture, rural areas and farmers”, focusing on the key areas such as comprehensive improvement of rural environment, treatment of agricultural non-point source pollution, remediation and restoration of agricultural land, efficient and water-saving irrigation of agriculture, development of ecological circular agriculture, green upgrading of county industry, development of county energy-saving and environmental protection industry, clarifying objectives and tasks, and issuing policies and measures. At the same time, in order to solve the practical difficulties faced by the branch in finding Climate Investment and financing projects, Agricultural Bank Of China Limited(601288) cooperated with the Ministry of agriculture and rural areas to issue more than 2000 lists of agricultural green projects, and cooperated with the Ministry of industry and information technology to issue more than 1000 lists of County green parks, green manufacturing demonstration lists, green factories and enterprises with nationally recognized green products, Guide branches to lock green asset projects from top to bottom.
The ecological environment in China’s county areas is complex and diverse. The innovation of “agriculture, rural areas and farmers” green products must be adjusted to local conditions. For example, Zhejiang Lishui pilot area branch mainly innovates green financial products such as agricultural water rights, forest rights, ecological compensation and asset rights and interests. For example, the nine provincial (District) branches along the Yellow River mainly focus on key projects such as the ecological environment protection of the Yellow River Basin, the Yellow River Anlan project and the construction of green ecological corridor to support the ecological protection and green development of the Yellow River Basin. Product innovation based on local ecological resource endowments, such as Hubei “carbon sequestration forestry loan”, Fujian “forestry carbon bill” pledge guarantee loan and other regional characteristic products. By the end of December 2021, Agricultural Bank Of China Limited(601288) county green credit balance was 698.2 billion yuan, an increase of 173.4 billion yuan over the beginning of the year, with a growth rate of 33.07%, higher than the average growth rate of county loans.
Four suggestions for better promoting the development of Climate Investment and financing
21st century: Climate Investment and financing is a special part of green finance. In order to promote the better development of green finance, the financial supervision department has issued a series of support policies. Similarly, in order to promote the better development of Climate Investment and financing business, what are your suggestions on policy support?
Han Guoqiang: in order to promote the better development of Climate Investment and financing business, I have the following four suggestions on policy support:
First, formulate targeted policies for Climate Investment and financing. At present, the state has issued a series of support policies for carbon peak, carbon neutralization and green finance, which are also applicable to the field of Climate Investment and financing. It is suggested to further formulate more targeted support policies and measures according to the characteristics of Climate Investment and financing, such as differentiated arrangements in fund arrangement, risk weight and assessment and evaluation.
Second, improve the standards of Climate Investment and financing projects. At present, climate investment and financing is still in the pilot exploration stage, and there are still some problems in the actual operation of financial institutions, such as lack of focus on support objects, lack of in-depth policy understanding and so on. It is suggested to link up with the current standards such as the green industry guidance catalogue (2019 Edition), study and clarify the unified standards for Climate Investment and financing projects, so as to guide financial institutions to provide accurate financial services.
Third, improve the carbon trading market. At present, the trading activity of carbon trading market is not high, and there is no price discovery mechanism. It is necessary to further cultivate carbon trading subjects, enrich the types of carbon trading products, and design a set of carbon trading financialization path and basic system in line with the characteristics of trading products and China’s national conditions based on the particularity of carbon emission rights.
Fourth, strengthen exchanges and cooperation and personnel training. It is suggested to guide government departments, financial institutions, environmental protection enterprises and think tanks to carry out in-depth exchanges and cooperation in combination with the pilot work of Climate Investment and financing, summarize work experience and promote advanced models focusing on Climate Investment and financing project identification, product innovation and risk management. At the same time, we should pay attention to cultivating compound talents who understand both finance and climate industry and expert talents with international vision, so as to provide guarantee for the high-quality development of Climate Investment and financing business.
