Chongqing - Transition finance products and instrument innovation have grown significantly in recent years, said Wang Yao, Director General of the International Institute of Green Finance at the Central University of Finance and Economics.

With the international development of transition finance, China has made progress in green finance to attract more private capital to fund the transition. 

In the last four years, we have seen significant growth in financial product innovations within instruments, such as transition bonds and transition loans, as well as sustainability-linked bonds and loans that link financing costs to environmental performance, said Wang.

Transition finance is a concept that allows financial services to be provided for high carbon-emitting industries, such as coal-fired power generation, steel, cement, chemical, paper-making, aviation, and construction, to fund the transition to decarbonization, China Daily reports.

More capital into transition finance  

 

As of November 2022, the market in transition and sustainability-linked bonds was US$200 billion. "Currently, we see a lot of international efforts in formulating financial standards for transformation," said Wang. 

In China, some regions or cities lead in transition finance, playing influential roles for other cities. Huzhou, Zhejiang Province, is a typical example, as the local government published its catalog of project types eligible for transition finance in January 2022. 

With a specific focus on the textile industry, it helped market actors identify transition projects in the city. This catalog allowed local textile firms to apply for a 200-million-Yuan loan to upgrade old equipment, which helped avoid over 600 tons of carbon emissions annually. 

"The Huzhou experience in developing its catalog can serve as a good model for promoting transition finance in various industries in the Chongqing and Chengdu region," said Wang.

Positive signals on green investment

 

 

With the continuous development of China's green finance and environmental, social, and governance (ESG), investors in the domestic market are becoming more aware of green investment. 

"Green investment is expected to offer numerous opportunities in the future," said Wang. "There are several areas where China should send encouraging signals to global investors."

Firstly, China should showcase its policy measures, corporate practices, and green development achievements in ESG to international investors so that they can have a comprehensive understanding and confidence in China's sustainable development prospects.

Secondly, China needs to strengthen the construction and promotion of ESG standards. For instance, it should improve the application of ESG-related data and analysis tools to provide investors with reliable and comprehensive ESG information.

Finally, China needs to strengthen environmental governance and financial markets, while international exchange and cooperation in green finance and ESG investment will be an important part of this process. 

Wang continued this will provide more green investment opportunities for international market investors and strong support for the sustainable development of China's economy.