The People’s Bank of China (PBoC) will grade financial institutions according to their green bond holdings as the bank expands its evaluation system for reviewing business performance in green finance.
The new Green Finance Evaluation Plan will cover 24 major Chinese banks, including the largest state-owned banks, and will come into effect on 1 July. It will assess the share of financial institution’s total assets made up by green bonds and the year-on-year change in the total value of green bonds held.
The PBoC has been evaluating the green finance performance of major financial institutions since 2018, but until now the evaluation has only covered green loans. The inclusion of green bonds in the annual assessment reflects the rapid growth of the Chinese green bond market, now the world’s second largest after the US. However, green bonds still account for less than 1% of China’s entire bond market.
The PBoC will assess the quality of banks’ green investments by how they implement national and local green financing policies, and support green development. It will also measure the ratio of non-performing green loans and overdue green bonds to overall green assets. The new assessments will be carried out on a quarterly basis, and indicators will be 80% quantitative and 20% qualitative.
Announcing the move last week, the PBoC said that it would “actively explore and expand the application of evaluation results” to improve the green financial performance of banking and financial institutions. The evaluation is the first to introduce quantitative indicators into the environmental assessment of Chinese banks and is intended to provide incentives to hold higher ratios of green loans and green bonds.
Following a comprehensive overview of its green finance strategy, the PBoC recently included green bonds and green credit as eligible collateral for its own lending facilities, and has added green bonds to China’s foreign exchange reserves.
This page was last updated June 15, 2021
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