China to Assess Banks’ Green Finance Performance

China’s central bank to begin quarterly assessments of 24 major banks on their green finance performance under a new evaluation system. 

The People’s Bank of China (PBOC) has finalised its new evaluation system for assessing banks’ performance in developing and promoting green finance business.

The central bank released draft guidelines last July setting out a system for grading banks quarterly on their green finance performance, based on quantitative and qualitative indicators.

The results of the green finance assessments will be included in financial institutions’ ratings, as well as in the central bank’s other policies and prudential management tools, the PBOC said in the final guidelines.

The assessments will account for green loans and green bonds initially, and over time be expanded to other green finance areas – including green securities, green equity investments, green leases, green trusts, and green financial management.

Under the evaluation system, the PBOC will give an 80% weighting to quantitative indicators:

  • the total value of a bank’s green finance business against its total assets (25%)
  • the total value of a bank’s green finance business against other participating banks (25%)
  • the year-on-year growth in a bank’s green finance business (25%)
  • the total risk of a bank’s green finance business, including non-performing green loans and overdue or unpaid green bonds (25%)

The other 20% weighting will be given to qualitative indicators:

  • a bank’s implementation of national and local green finance policies (30%)
  • a bank’s establishment and development of its green finance systems and governance (40%)
  • the financial support a bank provides to green industries (30%)

The green finance assessment work will begin for 24 major banks on 1 July, and be carried out quarterly thereafter.

The PBOC’s notice on the evaluation system is available here.

The growth of green finance is one of the PBOC’s key priorities for 2021 as well as for the duration of China’s 14th Five Year Plan. China has pledged to achieve peak carbon by 2030 and carbon neutrality by 2060.

Earlier this month, PBOC governor Yi Gang said China will implement mandatory disclosures of climate-related information for commercial banks and listed companies, though a timeline was not provided. The comments were made at the 2021 Green Swan Conference, a three-day forum hosted by the BIS (Bank for International Settlements).

Yi also said the PBOC has conducted a stress test to assess the impact of climate risks on China’s financial system, and that the results will be disclosed “at an appropriate time in the future”. The central bank will also set a timeframe for the “green transformation” of commercial banks, whereby green assets will be given a different risk weighting, he said.

Separately, the CBIRC (China Banking and Insurance Regulatory Commission) has issued new corporate governance guidelines for banks and insurance companies, following a January consultation on a draft version of the guidelines.

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