In recent years, China has made ambitious commitments to tackling climate change, including targets to reach peak carbon emissions by 2030, as part of the Paris accord agreed in 2015. China will require US$6.4 – 19.4 trillion of green investment to reach these targets.

Green bond issuances have played an important part in raising capital for these investment needs. However, data on the use of proceeds is not yet sufficiently comprehensive to establish whether green bonds provide finance that is more effective or additional to traditional sources of finance. In Economic impacts of green finance, we examine the data gaps in determining the effectiveness and additionality of green bonds and set out how green bonds can become more robust sources of capital for China’s low-carbon transition.

In this paper, we explore whether and how green finance can go beyond financing assets that are consistent with sustainability goals to finance the assets and fulfill investment needs required to transform sectors or the economy to a more sustainable model.

In this respect, the context in which an investment is made, and in particular its role in building assets and activities critical to accelerating the development of a sustainable sector or industry model, determines whether the investment is green at a transformational level. Thus, to explore this deeper version of green finance we have assessed the possible transformation needs of multiple sectors, including power, chemicals, steel and coking coal in the context of two provinces – Sichuan and Shanxi – which have very different industrial bases and power supply profiles.

With a new approach, we ask whether “deep green” finance can enable and accelerate these transformations and how. We have not found a single formula or process for deep green finance in China or elsewhere. Since the transformations that are needed will vary widely by industry, geography, resources, starting point, and competitive environment, we strongly suspect that there is no single formula, suggesting that a menu of approaches might be needed.

This project is supported by the UK PACT Programme.

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