Greening Financial Governance: Lessons from China


China’s turn towards green financial governance has causes and consequences that are instructive for policymakers elsewhere. This paper traces the evolution of rules and regulations designed to guide China’s financial system towards supporting green firms and projects since the 1990s. It outlines four domestic reasons for China’s new and ambitious plan to reach carbon peak by 2030 and neutrality no later than 2060, and it identifies a shift towards climate-aware financial governance in recent years. The paper then looks at the current toolkit for the greening of finance, including green loans, bonds, the carbon emissions market, environmental liability insurance, prudential regulation and monetary policy measures. From a political economy perspective, the paper subsequently turns to the tension between center and provinces in governing finance and how the shift towards green financial governance may exacerbate existing inequalities between provinces. The final section distills policy lessons which may be useful for policymakers outside of China that are concerned with steering their financial systems towards supporting a green economy.