High-quality Development of Green Finance(Zhongguancun Fintech Industry Development Alliance)

Ning Du: High Quality Development of Green Finance

Abstract

From March 23 to 24, 2022, the “2022 Zhongguancun Forum Series Activities - the Ninth Zhongguancun Financial Technology Forum Annual Meeting” was successfully held. Ning Du, Vice President of Zhongguancun Financial Technology Industry Development Alliance and CEO of REGTEK(Beijing) Technology Co., Ltd., attended the meeting and delivered a keynote speech entitled “High Quality Development of Green Finance”. Ning pointed out that finance effectively supports green development, which not only provides financial guarantees for all industries to successfully achieve the Dual Carbon Goal, but also serves as an important condition for the sustainable and healthy development of the financial industry itself. Financial support for various industries should not only focus on the industry’s “dual carbon” status quo, but also on its development trend in the context of dual carbon economy. At the same time, financial support for green development should also fully consider the risk of failure of the enterprise’s “dual carbon” transformation. Now we are talking about green finance, which is based on digital base and oriented to quantitative results, so we should work hard to develop digital green finance in the following five aspects: First, we should realize the digitalization of policies; Second, automatic translation of standards should be realized; Third, carbon factor should be introduced into the business system of commercial banks; Fourth, carbon-related big data system needs to be established; Fifth, we should establish and improve the green development stress test system.

Vice President of Zhongguancun Financial Technology Industry Development Alliance and CEO of REGTEK(Beijing) Technology Co., Ltd.

Good morning, everyone!

I’m glad to use the online and offline synchronous meeting styles to exchange green finance ideas with you today in a low-carbon way.

Green finance is not a new term. As early as 2007, the State Environmental Protection Administration, the People’s Bank of China and the China Banking Regulatory Commission jointly issued the Opinions on Implementing Environmental Protection Policies and Regulations to Prevent Credit Risk, aiming to strengthen the linkage and cooperation between environmental protection departments and financial institutions, use credit methods to promote energy conservation and emission reduction. This can be said to be the early policy of green finance. In the past two years, “Green Finance” has become more popular after the 30-60 Dual Carbon Target was put forward. The most significant impact of the Dual Carbon Goal on green finance is that green development has changed from a liberal arts proposition to a scientific proposition with quantitative results. In 2025, just three years later, the energy consumption per unit of GDP will be 13.5% lower than that in 2020; The carbon dioxide emissions per unit of GDP will decrease by 18% compared with 2020; The proportion of non-fossil energy consumption should reach about 20%; The forest coverage rate should reach 24.1% and the forest volume should reach 18 billion cubic meters. These digital objectives are clear, objective, urgent, assessable, and auditable. All walks of life need to plan, design, and implement in stages according to this objective. At the same time, we need to constantly review the implementation effect to determine whether the quantity requirements can be completed on schedule. Under this premise, whether the financial institutions can provide green financial services that adapt to the development of the times is not only the key financial guarantee for each industry to successfully achieve the Dual Carbon Goal, but also an important condition for the sustainable and healthy development of the financial industry itself.

So, how can financial “blood” effectively support green development? Let’s first look at several cases from the perspective of “carbon”:

First, let’s start with carbon emissions. The main carbon emission of an electric power enterprise comes from its line loss rate. We can see that with great efforts, the line loss rate of China’s electric power enterprises has decreased year by year, from 5.55% in 2015 to 4.69% in 2020. If only from the perspective of the amount of carbon emissions, it is easy for financial institutions to make a decision when lending to power enterprises. For example, an enterprise with the line loss rate of 3.5% can be considered as a good enterprise, more loans should be issued, and more interest discounts should be given. Enterprises with 10% of the line loss rate should be restricted from applying for the loan. However, the carbon emissions calculated by the line loss rate alone are far from enough to support the judgment of bank lending. In February this year, the National Development and Reform Commission and the National Energy Administration issued the Opinions on Improving the System, Mechanism and Policy Measures for Green and Low-Carbon Energy Transformation, which put forward a series of requirements for electric power enterprises from the perspective of overall strategy, such as: Optimizing the operation of transmission network and power system as a whole, and improving the transmission and consumption capacity of renewable energy power; Evaluating the adaptability of green and low-carbon development of the existing power system, improving the technology and optimizing the system in terms of grid structure, power supply structure, source-network load-storage coordination, digital and intelligent operation control, etc.; Promoting the market-oriented construction of power demand response, promoting the integration of demand-side adjustable resources into the power and energy balance, playing the role of demand-side resources in peak shaving and valley filling, promoting the balance of power supply and demand, and adapting to the operation of new energy power. The line loss rate is only a linear increase in the old paradigm, while the new development paradigm is a systematic requirement for supply-side reform, supply-demand balance governance, and digital and technological upgrading. In this case, green finance no longer focuses on points and lines, but on areas and bodies.

Let’s look at the current particularly popular photovoltaic power generation. At the end of 2019, the average selling price of PV high-efficiency modules in China was less than 2 yuan/W, and the system cost was less than 4 yuan/W. The actual feed-in price level of most PV bidding projects was in the range of 0.3281-0.4549 yuan/kWh. What does this data mean? It means the arrival of the inflection point. According to the statistics from the China Coal Industry Association, the cost of coal-fired power generation per kilowatt-hour in 2020 is between 0.32 yuan and 0.76 yuan. Therefore, at present, photovoltaic has become the main direction of green energy supply. However, if we look back at the extraordinary growth path of photovoltaic power generation. In 2008, the price of PV modules in China was 25 yuan/W, the system cost was 50 yuan/W, and the average cost of PV per kilowatt-hour was 4 yuan/kWh. Therefore, from the early stage, photovoltaic power generation is not economical, and because its life cycle is also short, even the carbon emission reduction of power generation in the initial period of time is less than that of manufacturing its components, so it was not environmentally friendly at that time. The inspiration from this case is that green finance should not only focus on the present, but also on the development trend.

Let’s look at another event that is closely related to our daily life. Lead is the most widely used solder for electric welding in the electronic industry in the 20th century, but it is highly polluting and will cause serious damage to water and soil after being scrapping. At the same time, it also has a strong toxic effect on human nervous system. At the beginning of the 21st century, China, Japan, Europe, and America began to abandon lead as solder. Japan initially used antimony alloys to replace lead, but later found that the natural content of antimony in the earth’s crust was very small, and the pollution level was no less than that of lead. Therefore, after a detour, Japan, like other countries, also changed to use tin alloy to replace lead. In this case, we are warned that financial support for green development should also fully consider the risk of transformation failure.

Let’s return to the financial perspective. The finance supporting the development of clean energy, energy conservation and environmental protection, carbon emission reduction and carbon sequestration technology is green finance in a narrow sense. This part of credit accounts for a small proportion of the current total loans of commercial banks, while some of the industries with large loan lines of commercial banks are precisely high-emission industries. So, the real question is, should commercial banks continue to lend to thermal power plants? If commercial banks don’t continue to lend, will the previous loans become bad debts sooner or later? If commercial banks continue to lend, will they fail to meet the national requirements of carbon peak and carbon neutrality? Therefore, last year, the CPC Central Committee and the State Council issued the Opinions on Completely, Accurately and Comprehensively Implementing the New Development Concept and Doing a Good Job of Carbon Peak and Carbon Neutralization. How to achieve the goal completely, accurately, and comprehensively? The new development concept has brought unprecedented opportunities and challenges to financial institutions.

A friend in the financial industry jokingly said, “Gold is not different from green, green is not different from gold, gold is green, and green is gold.” It is necessary to be familiar with the development laws of the industry in order to understand the policies; It is necessary to be familiar with the present and speculate on the future; It is necessary to read the financial statements and understand the business in depth. Finance and the real economy are increasingly integrated under the new development concept.

How to deal with it effectively? The central bank mentioned a very forward-looking term in its FinTech Plan for the next three years: Digital Green Finance, which provides a practical implementation path for financial institutions to implement the new result-oriented development concept. I disassembled this concept and believed that we should work hard in the high-quality development of green finance from the following five aspects.

 The first is to digitalize policy. We have seen that the CPC Central Committee and the State Council put forward guiding opinions for new development, and various Ministries and Commissions have also put forward systematic requirements for joint efforts with other Ministries and Commissions. On the premise of quantitative results, various policies should also be digitalized. The digitalization of policies should not only propose results assessment indicators, but also put forward process constraint indicators; Should reflect both incentive measures and disciplinary measures; Should propose both macro goals and decomposition measures and can also have a correction mechanism. The digitalization of policy should be integrated with the digitalization of business to achieve the unity of knowledge and action.

Secondly, standard automatic translation should be realized. We know that there are currently 24 national standards for calculating carbon emissions and more than 200 standards for calculating CCER, and the number of standards is increasing and revising with development. To realize the digitalization of standards, we need to update the supplement and revision of standards at the system level in a timely manner. Standards are calculation rules. Using AI technology to automatically translate standards can greatly save system construction costs and improve the efficiency of continuous system service.

Third, in the current business system of commercial banks, costs, benefits, user stickiness, risk control and compliance are considered, while the Carbon Factor is not considered. In the future, the Carbon Factor will be introduced from the levels of terminology, data elements, and messages in the commercial banks various systems, including all levels of businesses such as deposit, loan, customer acquisition, risk control, anti-money laundering, and anti-greenwashing. Taking the bank card system as an example, we can expect that in the future, whether it is a POS terminal or a POSP, whether it is an acquirer, a transfer terminal, or a card issuer, relevant data elements and reports on carbon accounts will be introduced and reserved. Document interface, so as to lay the foundation for the construction of a unified standard of personal carbon accounts.

Fourth, the carbon-related big data system also needs to be established. Using other data to calculate carbon data can make carbon emissions, carbon emissions reduction, carbon sinks and other related data more accurate, more accurately depict the carbon behavior of enterprises, and more accurately judge the “Dual Carbon” related risks in the development of enterprises. For example, regarding the carbon reduction of photovoltaic power generation in green buildings, the data in the power grid, the data in the photovoltaic panel control software, and the data in the lighting market of the meteorological department can be interactively verified, so that the verified data can be used as the objective basis for carbon trading or green financial credit.

Fifth, the green development stress test will be a good digital means to verify the overall strategy of green finance of commercial banks. According to meteorological data, supply and demand data and various indicators in market development, the response parameters will be adjusted to test whether the green finance strategy of commercial banks under the existing system is reasonable, and to preview whether commercial banks can effectively respond to sudden changes under the existing system. For example, the computing power will increase by a thousand times in the metaverse. Whether commercial banks are ready for green finance will be reflected in the test.

Therefore, we believe that for financial institutions, green finance is no longer a new type of business that distinguishes it from traditional businesses, nor is it an addition of “green" to traditional businesses, but as health for people, it is the basic factor to be considered in future development. Therefore, I hope that more commercial banks can understand and be familiar with the significance of green finance for future development earlier, and hope that more commercial banks can build a green digital foundation for green finance as soon as possible.

That’s all, thank you!