Green Finance: An Apt Answer to China’s Pollution Related Crisis

About a month back a documentary called Under the Dome was released by Chai Jing, a reputed journalist. This documentary shook the entire nation as it highlighted the serious extent of air pollution in the country. The documentary was watched by more than 200 million people across the nation in just about a week.

Pollution is a grave concern and environmental issues such as water scarcity, climatic change, pollution and waste are adversely affecting social stability and economic growth in China. However, China’s latest Green Finance Committee has emerged as a ray of hope. It is a golden opportunity for the nation to tackle the dome of pollution which is imposing threats to social stability and economic growth in china.

Launching of the Green Finance Committee

China’s novel Green Finance Committee was set up last week amidst a lot of expectations and enthusiasm. The Green Finance Committee is composed of an elite group from the country’s financial community and that includes top bracket regulators, asset managers, thought leaders, banks, and insurers. This committee is definitely a giant leap in the nation’s interest in and efforts toward Green Finance.

Developing Green Finance: A Dream in the Making

Pan Gongsheng, PBOC Deputy Governor said at the launch of the Green Finance Committee that the banks and all other chief government organizations are making concerted efforts and taking effective steps for developing green finance. He further stressed on the key role of the country’s finance sector in directing the capital flow away from businesses and sectors that contribute to really high environmental impacts.

Banks are encouraging allocation of funds toward those sectors that are dedicated to delivering solutions to present environmental issues and challenges. It is believed that the GFC has come up to address the nation’s societal development. GFC is definitely a milestone as far as China’s green finance is concerned. GFC is also, considered to play a vital role in accelerating China’s economic upgrade.

Chief Objectives of GFC

The GFC will primarily focus on six main aspects namely responsible investment, green finance services, financial and fiscal policy support, legal and financial infra-structure development, promotion and advancements of green sectors and building awareness. Each area will be delegated to a working group which will be responsible for conducting research on best international practices, green bonds, environmental externalities valuation, financing green sector models, environmental lender liability and information disclosure. With the increase in environmental regulation, accurate accounting of all environmental costs and debt reviews would be required for enabling effective business decision making.

Environmental Risks and Concerns Identified by the GF Task Force

The GFC is the brainchild of the Green Finance Task Force. GFTF comprised of a team of forty experts who came together for reviewing the issue. The report of the task force consisted of 14 recommendations that included the necessity for measuring and integrating environmental risks that presently are being projected in the market prices.

As per the report, China’s present accounting system has been unsuccessful in evaluating effectively the environmental costs resulting from industrial operations and infrastructure projects. This has led to a grave underestimation of investment and commercial risks. If China is able to adopt effective integration of environmental costs into an operational policy framework, companies, consumers and investors are bound to make the correct choice.

Role of GFC in a Nutshell

Chinese industry has been responsible for carbon emissions that have resulted in losses to the global economy amounting to about US$765 billion every year in terms of flooding, reduced crop yields, acidification, disease, and biodiversity loss. If organizations were to pay for these losses, it would certainly obliterate their profits.

The chief role of the GFC is to help Chinese financial institutions and policy makers in evaluating environmental impacts grossly in financial terms, offering an effective overarching metric for assessing risk as well as opportunities across investments, products, operations, and supply chains.