Caixin
Dec 14, 2020 06:56 PM
OPINION

Opinion: Shenzhen Passes China’s First Local Green Finance Rules — Now What?

Guo Peiyuan is a cofounder of SynTao Co. Ltd., a Chinese consultancy promoting corporate social responsibility.

On Oct. 29, lawmakers in the southern metropolis of Shenzhen passed regulations that required local financial institutions to disclose information on their environmental impact. The regulations, effective March 1, were the first passed by a local legislature in China.

Green finance refers to fundraising and investment aimed at sustainable development projects and low-carbon technologies. When providing financial products and services, financial institutions should disclose the environmental impact of enterprises, projects or assets they invest in, the regulations said.

 Read more 
China Sketches Out Rules for Green Finance

In early December, Shenzhen-based China Emissions Exchange and Chinese consultancy SynTao Co. Ltd. jointly issued a report on environmental information disclosure among 76 Shenzhen-based financial institutions, including 14 banks, 10 insurers, 15 securities firms, 12 trust firms and 25 fund firms.

The institutions generally perform well, with over 60% of the 76 institutions releasing environmental information through special reports, annual reports or their websites.

However, their environmental impact is not fully reflected in the disclosure. Although 60% of the surveyed financial institutions disclosed management mechanisms for tackling environmental issues, only 9% revealed their activities for addressing climate change risks. Meanwhile, just 26% showed how they take into account environmental factors in their investment and financing activities, and 32% disclosed their environment-related emissions and energy and resource consumption from their normal operations.

shenzhen chart

Specifically, banks outperform other types of financial institutions in disclosing all four of the aspects mentioned above. For example, all 12 lenders that disclosed environmental information have revealed their outstanding green loans which support climate and environmental projects. Their performance may be attributed to the banking industry’s relatively complete policy guidelines for supervising green finance.

There are currently three major challenges for financial institutions in Shenzhen to implement environmental information disclosure.

Firstly, financial institutions have insufficient motivation. Among those who fail to disclose environmental information on a regular basis, 78% said that they would not do so unless they were forced to. Some 61% of institutions surveyed said “regulatory or shareholder force” is the most important factor that drives them to regularly disclose environmental information.

Secondly, the financial sector does not have standards for disclosing environmental information. “Guidelines that fit the financial industry” are the second most crucial factor to promote disclosure, according to the survey. The lack of unified standards relevant to the industry has, to some extent, impeded environmental information disclosure by financial institutions.

Thirdly, financial institutions have trouble obtaining environmental information from domestic enterprises and projects they invest in, especially data on greenhouse gas emissions.

Accordingly, it is necessary to improve the disclosure of environmental information by enhancing supervision, building up uniform standards, and encouraging corporations to participate.

This commentary has been edited for length and clarity.

Contact translator Luo Meihan (meihanluo@caixin.com) and editor Michael Bellart (michaelbellart@caixin.com)

The views and opinions expressed in this opinion section are those of the authors and do not necessarily reflect the editorial positions of Caixin Media.

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