Financial and Monetary Systems

How the commercial banking sector can fuel a nature-positive future

Sheep grazing under the solar photovoltaic panels in Tala Shoal in northwestern China: The banking sector plays a crucial role in creating a nature-positive future.

The banking sector plays a crucial role in creating a nature-positive future. Image: Agricultural Bank of China

Gu Shu
Chairman, Agricultural Bank of China
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This article is part of: Annual Meeting of the New Champions
  • The banking sector plays a crucial role in creating a nature-positive future but faces challenges of inadequate global consensus and insufficient funding.
  • China is among the largest markets of green financial assets, making it essential for the Chinese banking sector to promote green finance under the guidance of the “green development concept.”
  • The Chinese banking sector is advancing green and sustainable development by prioritizing green finance, allocating more resources, improving transparency and strengthening international collaboration.

Creating a nature-positive future is an urgent call and a common goal of humanity. According to the World Meteorological Organization, 2014-2023 was the warmest 10-year period, while 2023 was the warmest year observed in the past 174 years. Climate change is a “crisis multiplier” closely related to more extreme weather events like droughts, floods and fires, which will have devastating effects on human society and add to the vulnerability of the global economy.

To tackle these challenges, all stakeholders should take action to pursue a green, low-carbon, and sustainable development path. The banking sector is indispensable in this transition process, tasked with mobilizing financial resources to advance climate and nature agendas. However, two significant challenges persist.

  • Greater consensus and alignment are required. Political attitudes towards sustainability and environmental, social and governance (ESG) goals have not yet reached a common ground, resulting in further divergence among key jurisdictions. Promoting transition finance will be much more challenging under an uncertain policy framework. Greater consensus and alignment are needed among the international community to achieve the UN Sustainable Development Goals (SDGs).
  • Funding for a sustainable transition is insufficient. According to the Institute of International Finance, the global community should invest $8 trillion every year to achieve net-zero emissions but last year’s figure was only $2 trillion. The public sector should take the lead to bridge the gap and better catalyze private sector investment, while the financial industry should contribute more resources.
Global climate finance flows surpassed an estimated $2 trillion in 2023, remaining short of the needed $8 trillion per year to achieve net-zero emissions.
Image: IIF

China’s ‘green development concept’

The Chinese government put forward the “green development concept” in 2015.

This concept emphasizes harmonious coexistence between humans and nature, including industry restructuring, pollution prevention, ecological protection, low-carbon development and resource conservation. It provides systemic guidance for promoting green transition of economic and social development.

The financial sector is the engine that drives economic growth. Commercial banks play a significant role in supporting green development. By the end of 2023, the balance of China’s green loans reached $4.24 trillion, an increase of 36.5%, lent mostly by commercial banks.

Green finance as top priority

Climate change and environmental issues profoundly impact the economic landscape. If a bank’s management framework and business structure cannot adapt to the challenges, its safety and soundness will be at risk. Therefore, green finance is not only a must for ESG management but also a requirement for risk management.

The Agricultural Bank of China (ABC) regards green finance as one of its three priorities and integrates the green development concept into its governing principles. A dedicated green finance and carbon neutrality committee has been established at the senior management level to set development goals and track the bank’s ESG performance.

The bank also keeps enriching its green product portfolio to cover green loans, bonds, funds and investment banking products and making great efforts to minimize its own carbon footprint.

Allocating more financial resources to green transition

In March this year, Chinese authorities issued Guidelines on Financial Supporting for Green and Low-carbon Development, elaborating on the medium and long-term goals and measures to facilitate the green transition. Financial institutions are called on to increase credit support for transition efforts in energy, industry, transportation, construction and other sectors.

As one of the largest commercial banks in China, ABC incorporates green and low-carbon requirements in its annual credit business guidelines and decision-making process. The bank has set up a green finance project pool with more than 2,000 projects, increasing support for key areas such as green transportation, clean energy and low-carbon transition of high-carbon industries.

By the end of 2023, its green credit balance reached $570 billion, up by over 50%, which helped to reduce standard coal usage by 54.88 million tonnes or cut emissions by 128.95 million tonnes of carbon dioxide (CO2) equivalent on an annual basis.

Supporting the sustainable development of agriculture

Agriculture is an important source of carbon emissions. The Climate Change 2023 Synthesis Report by the Intergovernmental Panel on Climate Change shows that about 22% of net global greenhouse gas emissions came from agriculture, forestry and other land use.

Born to support agriculture, ABC keeps enhancing support for sustainable agriculture through eco-friendly farming, water-saving irrigation, modern seed industry, rural industries and rural infrastructure.

The Tala Shoal area of Qinghai Province in northwestern China is one example, which used to be the Gobi Desert. ABC allocated financial resources to support the solar photovoltaic (PV) power generation and animal husbandry, transforming the area into a healthy ecosystem.

Now, Tala Shoal is commonly pictured as a mass of solar panels with sheep grazing on the grass underneath them – a picture of green power generation, sustainable herding and ecological restoration.

Aligning with global standards to enhance transparency

At present, the international community is forming a broad consensus on the importance of consistent, sustainable disclosure standards. ABC is a signatory to the UN Principles for Responsible Banking and continues to explore more accurate methods for climate risk stress testing and carbon accounting to keep up with international disclosure recommendations like the ISSB standards.

In addition to disclosing its own ESG information based on global standards, ABC encourages its peers and clients to adopt the same approach to foster a more transparent disclosure environment.

The 17 SDGs are an urgent call to action. All stakeholders, including government, public sector, banks and other private sector players, must step up dialogues, take more coordinated measures and jointly work for global green growth.

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