(Yicai Global) March 22 -- Financial institutions need to help provide funding for China to reach its climate change targets, which will cost hundreds of trillions of yuan, according to the country’s central bank governor.

“Government funds can only cover a small part of such a huge demand for capital, and the gap has to be filled by market funds,” Yi Gang told the China Development Forum over the weekend.

“This calls for establishing and improving the green financial policy system, and guiding and encouraging the financial system to support green investment and financing activities in a market-oriented manner,” Yi said.

The head of the People’s Bank of China also called for a timely assessment and handling of the impact of climate change on China’s financial stability and monetary policy are also needed, according to his comments the bank published on its website yesterday.

China has previously announced that it will strive to hit peak carbon emissions by 2030 and achieve carbon neutrality by 2060.

Climate change will affect financial stability and monetary policy, and there is a need to assess and cope with it in a timely manner. International studies generally agree that climate change is likely to lead to increased extreme weather and economic losses. Green transformation could also reduce the value of assets with high carbon emissions, affecting the asset quality of businesses and financial institutions.

Greater Risks

That will increase the credit, market and liquidity risks of financial institutions, which in turn will affect the stability of the financial system as a whole, according to Yi.

On the other, it may affect the monetary policy space and transmission channels, disrupt economic growth and productivity, and complicate the assessment of monetary policy stance. This is a new issue in maintaining financial stability and implementing monetary policy, Yi said.

The central bank has already identified green finance as a priority for this year and the 14th five-year plan period, Yi added.

To this end, the PBOC will take two steps. The first is to improve the green financial standards system.

“We’re working with the European Union to promote international convergence of green classification standards and aim to introduce a common set of classification standards this year,” Yi said. “We’ll also be discussing this with the G20.”

The second step is to strengthen information reporting and disclosure. Interbank green financial bonds are now required to disclose the use of funds raised on a quarterly basis, while financial institutions need to report the use and whereabouts of green credit funds.

Editors: Xu Wei, Peter Thomas