This newspaper interviewed GF60 Zhang Junjie: Strengthen carbon accounting of financial institutions and guide more financial resources to invest in green and low-carbon fields

The 2023 Green Finance North Bund Forum was held in Shanghai recently. At the forum, the Research Report on Climate Information Disclosure and Carbon Accounting in the Banking Industry (2023) was officially released, which constructs an evaluation index system from multiple dimensions, and uses a combination of "AI model + artificial" to evaluate the quality of banks' climate information disclosure and carbon accounting, aiming to provide a reference for the banking industry to better manage climate risks and grasp climate change opportunities. What important role can commercial banks play in the process of responding to climate change and promoting the realization of China's "dual carbon" goals? What exactly is the carbon accounting of commercial banks? How can we better carry out carbon accounting in the future? Focusing on these issues, our reporter interviewed Zhang Junjie, chief economist of the Green Finance 60 Forum (GF60) and director of the sustainable investment research program at Duke Kunshan University.

Junjie Zhang is chief economist of the Green Finance 60 Forum and director of the Sustainable Investment Research Program at Duke Kunshan University. Professor at Duke University's Nicholas School of the Environment, and founding director of the Master of Environmental Policy program at Duke Kunshan University. His main research interests are environmental economics, climate investment and financing, green finance and other fields.

China Environment News: In the process of China's response to climate change and the realization of the "double carbon" goal, what is the role of commercial banks, and what important roles can they play?

Zhang Junjie:Achieving the "dual carbon" goal requires a lot of money. In the past, people usually pinned their hopes on the public sector, but it was not enough to rely on government finances alone, and market forces were needed. On the one hand, commercial banks can provide the necessary funds to achieve the "dual carbon" goal, guide social funds to the field of climate change mitigation and adaptation, and promote the low-carbon transformation of the whole society, and on the other hand, commercial banks can also find new business opportunities from the low-carbon transformation of the whole society.

China Environment News: Why should commercial banks carry out climate information disclosure?

Zhang Junjie:There are five practical implications for commercial banks to carry out climate information disclosure.

First, it helps financial institutions manage risks. Climate disclosures can help financial institutions assess the physical and transition risks associated with climate change, and financial institutions can better assess the risk of asset depreciation in their portfolios, such as those associated with high-carbon assets.

Second, it helps investors make decisions. Climate disclosures can help investors assess the sustainability of financial institutions more holistically, making them more inclined to support those who are actively addressing the challenges of climate change.

Third, it helps to meet regulatory compliance. Regulators in some countries and regions have begun to require financial institutions to disclose their climate-related information, which can ensure that financial institutions are better equipped to adapt to the challenges of climate change.

Fourth, it helps to enhance the corporate image. Climate disclosures can demonstrate a financial institution's commitment to sustainability and social responsibility, help build a more positive brand image, and attract more sustainability-focused customers and partners.

Fifth, it will help improve market transparency, and climate information disclosure can build investors' trust in financial institutions, improve market transparency, and reduce uncertainty.

China Environment News: What policies or standards have been issued in China to promote the disclosure of climate information by commercial banks?

Zhang Junjie:In 2021, the People's Bank of China (PBoC) took the lead in issuing the Guidelines for Environmental Information Disclosure by Financial Institutions and the Technical Guidelines for Carbon Accounting for Financial Institutions (Trial) to promote climate information disclosure by financial institutions. In July this year, the General Office of the State-owned Assets Supervision and Administration Commission of the State Council issued the Notice on Forwarding the Research on the Preparation of ESG Special Reports of Listed Companies Controlled by Central Enterprises, aiming to promote ESG (environmental, social and corporate governance) information disclosure of listed companies controlled by central enterprises. However, in general, there is no systematic and clear information disclosure standard for commercial banks in China, and there is no mandatory disclosure requirement for financial institutions.

China Environment News: What exactly is carbon accounting for commercial banks, and what is the relationship between climate information disclosure?

Zhang Junjie:The carbon accounting of commercial banks includes not only the carbon emissions of the bank's own business activities, but also the carbon emissions of its investment and financing business. Carbon accounting indicators are an important part of climate information disclosure, which can help enterprises set quantitative carbon emission reduction targets and track the progress of carbon emission reduction work. At the same time, carbon accounting indicators can help commercial banks assess climate-related risks in line with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and report to stakeholders such as the Carbon Disclosure Project (CDP). In addition, carbon accounting indicators inform commercial banks' climate strategies and actions to develop innovative financial products that support the transition to a net-zero economy.

China Environment News: As far as you know, are there any commercial banks in China that have carried out climate information disclosure and carbon accounting, what is the progress, and what results have been achieved?

Zhang Junjie:At present, China's large state-owned banks, national joint-stock banks, local rural commercial banks and urban commercial banks have carried out climate information disclosure and carbon accounting to varying degrees. These forms of bank information disclosure include the release of TCFD reports, environmental disclosure reports and social responsibility reports (including ESG reports), and the most important forms of disclosure are social responsibility reports and ESG reports. The quality of climate information disclosure by Chinese banks is improving year by year, and is now at the global average. Through climate information disclosure and carbon accounting, commercial banks have strengthened their awareness of social responsibility to actively respond to climate change to a certain extent, and improved their ability to manage climate risks and seize climate change opportunities.

China Environment News: What is the situation of climate information disclosure and carbon accounting of foreign commercial banks, and what are the successful practices that we can learn from?

Zhang Junjie:At a time when the number of financial institutions joining the Climate Initiative is on the rise, climate information disclosure is receiving increasing attention. When preparing ESG reports, financial institutions mainly refer to the Task Force on Climate-related Financial Disclosures (TCFD), Sustainability Reporting Standards (GRI), and Sustainability Accounting Standards (SASB). Among them, the TCFD standard is currently the most widely used climate information framework in the world. More than 4,800 institutions around the world support the TCFD Climate Disclosure Framework, including 33 Chinese financial institutions. In terms of carbon accounting, there are 3,961 companies globally that have science-based targets (SBTi) and 2,590 companies with net-zero commitments. In addition, 444 financial institutions have joined the Financial Alliance for Carbon Accounting (PCAF), involving more than $90 trillion in financial assets.

At present, the accounting methods of international commercial banks are relatively systematic, covering a variety of assets, and at the same time conducting scenario analysis and setting medium-term goals, which can effectively guide the innovation of sustainable financial products and services. Domestic commercial banks are lacking in this regard, and financial institutions should strengthen sustainable information disclosure policies including investment and financing carbon emissions in the future.

China Environment News: What are the current challenges faced by commercial banks in climate information disclosure and carbon accounting, and what problems should we focus on?

Zhang Junjie:First, the relevant policy system is not perfect. The standards guiding banks to carry out climate information disclosure and carbon accounting are not systematic and detailed, the information disclosure standards are not clear, and there is a lack of incentive and restraint mechanisms.

Second, banks lack endogenous motivation. At present, it is not a regulatory requirement for banks to carry out climate information disclosure and carbon accounting, which will increase the cost of banks in the short term, and the benefits will not be obvious in the short term, and can only be reflected in the long run. At the same time, the lack of application scenarios such as carbon accounting also leads to the low enthusiasm of banks to carry out climate information disclosure and carbon accounting.

The third is the data challenge. At present, it is difficult to obtain high-quality carbon emission data from other enterprises, especially small and medium-sized enterprises, except for carbon market emission control enterprises. At the same time, there is a temporary lack of policies for the quality control of bank carbon accounting data in China, and banks often carry out carbon accounting roughly.

Fourth, the capacity of banks is insufficient. At present, banks lack talents who understand both business and carbon accounting standards, and lack the ability to digitize carbon accounting for massive business data. In addition, banks need to fully coordinate internal departments to carry out carbon accounting, and also use the strength of external third-party institutions, which is more difficult to coordinate.

China Environment News: What suggestions do you have for how to better carry out climate information disclosure and carbon accounting for commercial banks in the future?

Zhang Junjie:It is recommended that the regulatory authorities strengthen policy and regulatory constraints, improve relevant regulations and standards, refine operational guidelines, and optimize policy measures to encourage banks to actively carry out climate information disclosure and carbon accounting.

Banks should increase the participation of the board of directors, establish an incentive compatibility mechanism, strengthen professional capacity building, and reduce communication costs.

It is also necessary to quantitatively analyze climate transition and physical risks, incorporate analysis into the evaluation of enterprise customers, try first, first easy and then difficult, and gradually improve the quality of carbon accounting and other indicators.