China's central bank vows to limit investment in carbon assets

BOAO • China's central bank will limit investment of the country's foreign exchange reserves in high-carbon assets as part of the nation's efforts to cut carbon emissions and move towards a greener economy, Governor Yi Gang said.

"We will continue to increase the allocation of green bonds in foreign exchange reserves, and limit investments in high-carbon assets," he said at a panel discussion at the Boao Forum on Asia in Hainan province on Tuesday.

China will evaluate the impact of climate change on financial stability and monetary policy in a timely manner, Mr Yi said, adding that the central bank is studying how to "systematically incorporate climate change factors in the stress tests for financial institutions".

With a target to be carbon neutral by 2060, he said China has less time than developed economies like the United States and European countries in achieving its goals. "We will need to put in more serious effort to prepare, and ask financial institutions to transform early," he added.

Some of the problems in the development of China's green finance include poor environmental information disclosure, Mr Yi said.

But the shift to cleaner energy poses an existential threat to polluters that could have ramifications for the financial sector, Dr Ma Jun, a former member of the People's Bank of China's (PBOC) monetary policy committee, said at the forum. Firms in high-polluting industries will face a decline in revenue, leading to more bad loans, he added.

The PBOC is doing its bit to promote green finance to help the nation achieve its carbon-neutral targets, and is also starting to factor climate risks into its policymaking.

Mr Yi said during the International Monetary Fund's annual meetings last week that the PBOC has been working on tools to provide cheap funding to encourage carbon emission reduction.

China had almost 12 trillion yuan (S$2.5 trillion) of green loans outstanding at the end of last year, with 8 trillion yuan of those invested in projects to help reduce carbon emission, according to PBOC data.

BLOOMBERG

  • $2.5 trillion

    Green loans outstanding in China at the end of last year.

A version of this article appeared in the print edition of The Straits Times on April 22, 2021, with the headline 'China's central bank vows to limit investment in carbon assets'. Subscribe