Economic Hotspot 18 What does green finance do?

Green finance refers to the behavior of guiding social funds to support green industries such as environmental protection, energy conservation and clean energy through financial services such as loans, private equity funds, bond issuance, stock issuance and insurance. This is just one of the meanings. Generally speaking, it is finance that supports green development.

Why should we formulate a green financial policy?

If there is externality, the market will often fail! Positive externalities and pollution of green investment under market economy

Negative externalities cannot be internalized, because sometimes property rights cannot be clearly defined, and the merger of enterprises is often not so easy. But carbon neutrality is the future development direction, so this problem must be solved. We must improve production efficiency through some interventions! Another point is that carbon tariffs and carbon neutrality will make it difficult for some enterprises to transform or operate, which requires the support of green finance.

How to implement it?

1. Increase the pricing of green products, such as subsidies, so as to improve the return on investment of green products. Reduce the price subsidies for pollutants, thus reducing their return on investment.

2. The output of socially responsible enterprises should be equal to profit plus social responsibility, and tax incentives should be given to enterprises with great social responsibility.

3. Study the green degree of industries, products and financial assets in a more complete chain. The green we see is often the final product. For example, solar power generation is green, but producing silicon plates may consume a lot of energy. Although the new energy vehicle uses electricity, its electricity may be thermal power generation.

4. Solving externalities is actually similar to the first one! It is suggested to reduce the risk weight of green financing. As mentioned above, the loan interest rate of commercial banks consists of risk-free interest rate plus risk premium and profit. Because green investment has positive external effects, its profitability is definitely relatively low. If the company's operating conditions are measured by indicators such as the return on net assets, the investment in green investment will definitely be less. But there is no way to determine that green projects are risk-free in the short term, but they are worthwhile in the long run, so commercial banks can reduce the risk weight.

We should also suggest giving priority to green bonds. Because green development benefits everyone, it is reasonable for ordinary creditors to bear the contingent risks of non-green financing themselves. Specific financial measures include issuing green bonds, setting up green funds and establishing green insurance for green banks.

This article only introduces some views of green finance unilaterally, for reference only! Some opinions come from Ma Jun, chief economist of Research Bureau of China People's Bank, and Lu Zhengwei, chief economist of Industrial Bank.