(April 15th-16th, Beijing). The Workshop on Environmental Risk Analysis was held on April 15th-16th in Beijing. Nearly a hundred senior professionals from financial regulatory authorities, industry associations, commercial banks, insurance companies and multilateral financial institutions participated the workshop and discussed intensively on how the financial system can be better prepared to assess and manage environment and climate-related risks as well as supporting carbon neutrality goals.

The workshop was co-hosted by Research Centre for Green Finance Development (RCGFD) of Tsinghua University, Beijing Institute of Finance and Sustainability (IFS), Central Banks and Supervisors Network for Greening the Financial System (NGFS), Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ), Insurance Asset Management Association of China and Energy Foundation.

At the opening ceremony on April 15th, Professor JU Jiandong, Director of RCGFD and Unigroup Chair Professor at PBC School of Finance of Tsinghua University, Dr. MA Jun, President of IFS and Chairman of the China Green Finance Committee, delivered opening speeches and extended warm welcome to the guests.

Professor JU Jiandong, Director of RCGFD and Unigroup Chair Professor at PBC School of Finance of Tsinghua University

Frank Elderson, Chair of NGFS and member of the Executive Committee of the European Central Bank, CAO Deyun, Executive Vice President and Secretary-general of the Insurance Asset Management Association of China, Thorsten Giehler, Chief Representative of GIZ in China, and DU Xuan, Program Officer of the Low Carbon Economic Growth Program, also delivered opening speeches on behalf of their organizations respectively.

In the keynote speech session, Dr. MA Jun explained what China’s carbon neutrality goal implies and emphasized the necessity for financial institutions to identify risks and opportunities derived from the low-carbon transition as early as possible. He suggested that financial regulators should prompt the financial sector to address climate-related risks through improving green financial standards, enhancing climate information disclosure, developing climate risk analysis tools and strengthening incentive mechanisms. Financial institutions should improve their capacities in corporate governance, strategic objectives, policies, procedures, carbon emission accounting and information disclosure of their operations and assets, to duly cope with such risks.

Dr. MA Jun, President of IFS and Chairman of the China Green Finance Committee

LEI Yao, Deputy Director of the Financial Research Institute of the People’s Bank of China, introduced the debate around and international practices of how central banks are incorporating climate change related risks into their policy frameworks. He pointed out that given the long-term and increasingly intensifying nature of climate change, it has become one of the major challenges for the central bank to maintain financial stability. Five aspects were identified on how climate change-related financial risks closely connect to central bank policy framework: 

• First, physical risks can transmit to and self-reinforce in insurance, investment and credit loan through collaterals; 

• Second, factors such as economic transformation capabilities and policy transparency will directly affect the capacity of financial system to manage climate transition risks; 

• Third, attention should be paid to the impact of climate risks on the liquidity of financial system; 

• Fourth, the profound changes on both supply and demand sides of the real economy will significantly impact the pricing mechanism and hinder the realization of the central bank’s price target; 

• Fifth, it is necessary to factor in climate issues more comprehensively in areas of financial management, monetary policy and macro prudential policy and also actively strengthen international exchange and cooperation in related fields.

LEI Yao, Deputy Director of the Financial Research Institute of the People’s Bank of China

YE Yanfei, the First-level Inspector of the Policy Research Bureau of China Banking and Insurance Regulatory Commission (CBIRC) introduced the necessity and path for the banking and insurance industry to incorporate environment and climate-related risks into decision-making. To avoid significant loss induced from climate-related risks in the future, banks and insurance companies should pay close attention to national climate policy and study its far-reaching impact on future economic structure change and industrial development. Furthermore, they should carry out carbon emission accounting of assets as soon as possible, as well as the capacity building of climate transition risk analysis and management.

YE Yanfei, the First-level Inspector of the Policy Research Bureau of China Banking and Insurance Regulatory Commission (CBIRC)

JIANG Kejun, Professor of the Energy Research Institute of the National Development and Reform Commission, covered the future trend of relevant industries under the development pathway of carbon neutrality. He pointed out that carbon neutrality goals will embed technological and economic competition among countries, which will profoundly affect our country’s economic structure and industrial development pathway. He also presented how Chinese energy, electric vehicles, steel and chemical industries need to act under the carbon neutrality pledge.

JIANG Kejun, Professor of the Energy Research Institute of the National Development and Reform Commission

YIN Hong, Vice President of the Modern Finance Research Institute of Industrial and Commercial Bank of China (ICBC), shared ICBC’s experience in stress-testing climate-related risk. She suggested that an ESG information disclosure system needs to be established by regulators with mandatory requirements in order to further improve the environment and climate risk analysis and management capabilities of the financial industry. Regulatory authorities should also strengthen the requirement for environment and climate-related risk stress-test of financial institutes. Meanwhile, financial institutions should actively carry out environment and climate-related risk analysis and management, including climate risk scenario analysis and stress test of high-carbon industries, and adopt differentiated investment and financing policies for green and brown companies or projects.

YIN Hong, Vice President of the Modern Finance Research Institute of Industrial and Commercial Bank of China (ICBC)

SUN Tianyin, Environment and Climate-related Risk Analysis Lead in RCGFD, shared the latest developments of relevant theories and methods of climate-related physical and transition risk analysis models and tools. A brief demonstration was given on analyzing how climate-related factors can affect the default probabilities of loans to high-carbon industry and mortgage in coastal cities of China. He also highlighted some emerging discussions and topics in green finance including transformational finance, the relevance of biodiversity loss and financial stability, emphasized the practical significance and importance of these topics, and called on research institutions and financial industry to look closely at these emerging topics.

SUN Tianyin, Environment and Climate-related Risk Analysis Lead in RCGFD

Senior experts from the World Bank, Oxford University, Transcendent Group, IFS, Bank of Jiangsu etc., shared their expertise on environment and climate-related risks from perspectives of multilateral financial institutes, research institutions and commercial banks. Some also highlighted huge market opportunities for the financial sector brought by carbon neutrality goals.

In the future, RCGFD will continue to build the capacity-building and knowledge-sharing platform for green finance, with ERA workshops for professionals from financial regulatory authorities and institutes, third-party institutions and entities. RCGFD will continue to promote green finance to support China’s carbon neutrality goal and sustainable development agenda.