PBoC launches targeted green lending

November 10, 2021|Written by Graham Caswell|European Central Bank, People's Bank of China

The People’s Bank of China (PBoC) has launched a carbon emission reduction facility (CERF) to offer low interest loans to financial institutions that help firms cut carbon emissions. The targeted green lending programme will provide 60% of loan principals made by financial institutions for carbon emission cuts at a one-year lending rate of 1.75%.

“This is a structural monetary policy instrument that aims to mobilise more social capital to promote carbon reduction,” the Chinese central bank said in a press release announcing the new facility.

“The launch of the facility sends a clear policy signal. It is designed to enhance financial institutions’ awareness of the importance of green transition, encourage more social capital to support the green and low-carbon industries, and to advocate the philosophy of green living, green production and a circular economy, which will help achieve the carbon peaking and carbon neutrality goals.”

Banks drawing on the facility will be required to publicly disclose information on the loans and the emission cuts they finance. The funding will be available retroactively, after the loans are made, and can be rolled over twice.

The launch of the new green lending facility comes just days after governor Yi Gang told the Cop26 conference that the central bank was working in this direction. This action contrasts starkly with many commitments made by other central banks to do more research and gather more data.

European Central Bank (ECB) researchers have suggested that the bank consider extending the greening approach to its own refinancing operations, such as the ECB’s targeted longer-term refinancing operations. However the ECB’s climate commitments made at Cop26 had no mention of such a programme, promising only to introduce climate disclosure requirements “as a basis for differentiated treatment” by the end of 2022. However, the ECB did not specify what that differentiated treatment might be.

According to a Q&A on the PBoC website, the new targeted green lending will “support the development of clean energy, energy conservation, environmental protection, carbon reduction technology and other relevant key areas in a steady and direct manner”. “The CERF primarily supports projects with huge [potential] in carbon emission cuts, including clean energy, energy conservation and environmental protection, as well as carbon reduction technology.”

However, the programme will also be developed on an ongoing basis to support environmental policy goals.

This page was last updated November 10, 2021

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