(Yicai Global) June 5 -- To support the low-carbon transition of high carbon-emitting businesses, Shanghai is studying and formulating a transition catalog for the financial sector based on the Group of 20 framework for transition finance released last year, according to city officials.

The Shanghai Municipal Financial Regulatory Bureau will guide financial institutions to support the low-carbon transition of key industries and companies by improving the evaluation criteria and management rules, Tao Changsheng, its chief economist, said at a seminar on June 3.

Transition finance is a concept proposed by the Organization for Economic Co-operation and Development in March 2019 that refers to financial services provided to high carbon-emitting industries, such as coal-fired power generation, steel, cement, and chemicals, to fund their decarbonization. Last November, the G20 approved the Framework for Transition Finance, the first international guidance on the concept.

Shanghai will implement green finance policies, including support for financial market and product innovation, Tao added, noting that financial institutions will also be encouraged to carry out environmental information disclosure and quantitative analysis of environmental risks.

Ninety percent of China’s green financing comes from bank loans, with only 7 percent from bonds and 3 percent from equity investment, Zhu Min, vice chairman of the China Center for International Economic Exchanges, said at the seminar

This structure is unsuitable for green financing because it has long-term, high-risk and large-scale characteristics, Zhu pointed out. Therefore, the market still needs to expand its scale and adjust its structure, he noted

Green finance is based on a macro-management framework. As low-carbon transition features high costs, returns fluctuations, and long-term unpredictability, the government should provide incentives, including fiscal and monetary measures, to encourage financial institutions to support carbon neutrality goals, Zhu added.

Editors: Dou Shicong, Futura Costaglione