Financial sector key to carbon neutrality goal

Such a conclusion is not new internationally. In fact, there have been many similar examples in the past few years in many other countries. Yet, this has only started to draw people's attention at home now. As a result of changes in market expectations, regulators may worry that sudden changes in expectations will cause market turbulence. These risks really require attention and response and are worth noticing.

My argument is that various research projects shall be made in this regard so that the market will have a stable view on this issue. Meanwhile, regulatory authorities shall also set up a standard framework for risk analysis for climate and environment issues.

Information disclosure on climate-related matters shall be enhanced. European countries have long seen climate change as an important means to green development. Therefore, enterprises and financial institutions have started climate information disclosure at a comparatively early stage.

For instance, banks and asset managers will disclose the amount of carbon emissions that are caused by the projects that their loans and investments supported.

Right now, financial institutions in China have not started such steps, yet many organizations in other countries have started them. If we are not aware of the amount of carbon emissions related to our investment, carbon neutrality will be hard to plan.

It is important to be precise about the risk exposure of brown assets. Financial institutions abroad have started to disclose the risk exposure of brown assets. Brown assets mainly include high-carbon assets, such as iron and steel, fossil fuels, nonferrous metals and paper-making.

Innovation is needed about carbon-related products. In reaching carbon neutrality, the role of the market must be brought into play. There are several areas that have gained market attention. For example, financial products related to carbon footprint are popular already.

The bond market can develop financial products related to carbon footprints while banks can develop loans related to carbon footprints. For example, if the amount of carbon emission of the loan receiver can be reduced during operation, loan interest can go down accordingly.

This will help financial products to incentivize their receivers to reduce carbon emission. Such methods have proved effective in many countries and I believe China should carry out trials on it as well.

The green transition of financial products is also important. In our economy, most GDP is generated from high-carbon and carbon emission industries. And it would be impossible for us to cut financing support to these industries right away. But it is feasible that we give extra green requirement for their new credits and ask them to work harder on green transition.

Asset owners also have their role to play. In the asset management industry in China, most asset managers use ESG－environmental, social, and (corporate) governance－to choose and decide their investment targets, while in Western countries, asset managers have greater role in guiding their investment.

In the end, financial institutions shall also work to achieve carbon neutrality in their own operations. There are many good practices worldwide as 30 global big financial institutions have achieved neutrality in their own operations.

In China, Haitong International Securities is said to be the first to announce its own plan on this issue. It announced that it will reach carbon neutrality within five years.

The writer is a member of the China Finance 40 Forum, a Beijing-based think tank.

The views don't necessarily reflect those of China Daily.