Green finance, pension reform key to boosting sustainable investment

A Chinese central bank official called for the expanded supply of green-labeled assets and investment targets, and planning to channel more pension funds into sustainable investment fields.

China has huge room to expand the green finance market which can foster low-carbon development as well as facilitate the process of RMB internationalization, said Wang Xin, head of the Research Bureau of the People's Bank of China, the central bank.

One of the most important aspects is to encourage the innovative development of financial products including green loans and bonds, Wang said at a forum held by the China Finance 40 Forum, or CF40, on Sunday.

In the meantime, the central bank is paying attention to the reform of China's pension insurance system, including enterprise annuities and individual commercial pension insurance. The reform would channel more pension funds into sustainable investment projects, said Wang.

Monetary authorities aim to build standards and a policy framework for sustainable investment, and promote prospective studies on climate-related financial risk management, the central bank official added.

Globally, pension funds are keen on sustainable investment projects in recent years, including those labeled "environment, social and governance", or ESG.

The Net-Zero Asset Owner Alliance, which was launched at the United Nations Climate Change Summit in September 2019, has expanded its membership to 46 large institutional investors dominated by pension funds management companies and insurance companies from the United States and Europe.

The alliance is committed to tackling global warming and reducing the carbon emissions of their investment portfolios to net-zero by 2050. Some activities of global pension funds include promoting best practices in climate risk management, participating in the establishment of ESG indexes, and the rating of financial products' sustainability.

For China, a big issue is the development of enterprise annuities and individual commercial pension insurance which is lagging behind some major developed economies, and how to make the investments sustainable, said Liu Linan, general managing director of the asset and liability management department of the Postal Savings Bank of China.

The nation's top banking and insurance regulator, the China Banking and Insurance Regulatory Commission, announced on Friday the start of pilots in the wealth management products of banks with the purpose of providing financing measures for older customers.

This pilot program plans to increase the financial product supply in the system of individual commercial pension insurance, and encourage long-term value investing, analysts said.

Wealth management subsidies of four State-owned and joint-stock commercial banks－Industrial and Commercial Bank of China, China Construction Bank, China Merchants Bank and China Everbright Bank－will launch four pilot products in four different cities, with each raising funds of no more than 10 billion yuan ($1.55 billion), the CBIRC said.

"The reform of China's pension system relates to sustainability of economic development and the long-term investment funds supply in the capital market, which also influence the stability of the whole financial system," the PBOC's Wang said.

"Therefore, the central bank should also pay high attention to the reform of the pension insurance system, including the construction of the second pillar (enterprise annuities) and the third pillar (individual commercial pension insurance), so that more pension funds can be invested in the capital market, including the market of sustainable investment," he said.

The central bank official also highlighted that whether the sustainable investment targets, such as those for clean energy and nonfossil fuel, are profitable or not, it is an issue that is noteworthy, because profitability is a key measure in valuing financial products from the perspective of serving customers and trustees.

"Now some domestic institutional investors, including banks, are also actively building some indexes, which is important for investment. They can better compare the subject matter, growth and income," Wang added.