Guided by the dual carbon goals, green and low-carbon transformation has become the core direction for development across all industries. As a vital supporting force, green finance continues to exert its influence, providing crucial impetus for national and regional green development, while its policy framework gradually matures in this process.

In fact, China's emphasis on green finance predates the “dual carbon” goals. In 2016, during its G20 presidency, China first placed green finance on the G20 agenda. Since then, through China's proactive efforts, green finance has consistently been a key topic at G20 summits, contributing Chinese strength to advancing green finance into the international mainstream and refining the global green finance governance system.

Today, China has established a policy framework for green finance development centered on “three major functions” and “five pillars.” This framework has delivered significant results in guiding green investment flows, promoting industrial green upgrading, optimizing energy structures, supporting pollution control, protecting ecosystems, and addressing climate change, thereby effectively deepening the integration of finance and green development.

The “Five Pillars” Continue to Improve, and the Green Finance Market Scale Expands Steadily

To bridge the funding gap in China's green development, green finance fully leverages its “three major functions”: resource allocation, risk management, and market pricing. For these functions to be effectively implemented, the “five pillars” must be firmly established. These pillars specifically include: a green finance standards system; regulatory requirements and information disclosure obligations for financial institutions; incentive and constraint mechanisms; green financial products and market systems; and international cooperation in green finance.

Following the introduction of the dual carbon goals, the development of these five pillars has achieved new breakthroughs. Wang Yao, Dean of the International Institute of Green Finance at the Central University of Finance and Economics, noted that under the People's Bank of China's overarching framework for green finance development—centered on the “three functions” and “five pillars”—China's green finance sector achieved substantial progress in standard-setting, institutional development, and product innovation during the first half of 2021. These advancements provided robust support for the green and low-carbon transformation of the real economy and the advancement of the “dual carbon” goals.

Since 2021, multiple green finance standards have been successively introduced and achieved key progress. In March, the National Association of Financial Market Institutional Investors (NAFMII) issued the “Notice on Clarifying Mechanisms Related to Carbon Neutral Bonds,” making China the first country globally to launch and successfully issue “carbon neutral” labeled green bonds. In April, the “Green Bond Support Project Catalog (2021 Edition)” was officially released, unifying for the first time the definition standards for green projects across various green bond regulatory bodies. In June, the People's Bank of China issued the “Green Finance Evaluation Scheme for Banking Financial Institutions,” incorporating green loans and green bonds into its business evaluation system. The evaluation results are linked to policy tools such as the central bank's financial institution ratings and prudential management measures, laying the foundation for establishing a more comprehensive incentive and constraint mechanism.

Wang Yao stated that with the refinement of the green finance standards system and the implementation of incentive-constraint policies, China's green finance institutional framework is continuously improving. Driven by these developments, the scale of China's green finance market has achieved rapid growth. By the end of the second quarter of 2021, the balance of green loans in both domestic and foreign currencies reached 14 trillion yuan, representing a year-on-year increase of 26.5%. In the first eight months of 2021, the issuance scale of green bonds exceeded 350 billion yuan, a year-on-year increase of 152%, surpassing the total issuance for the whole of 2020. Among these, carbon-neutral bonds reached a cumulative issuance of 180.1 billion yuan.

In the realm of international cooperation, Chen Yulu, Deputy Governor of the People's Bank of China, stated at the 2021 Annual Meeting of the Green Finance Committee of the China Society for Finance and Banking that Italy, as the 2021 G20 Chair, reinstated the Sustainable Finance Study Group and elevated it to a working group. This working group is currently advancing the development of the G20 Sustainable Finance Roadmap while striving to enhance the comparability, compatibility, and consistency of sustainable finance classification standards and disclosure standards.

China is actively advancing efforts to align sustainable finance standards. According to Financial Times reporters, China and Europe are leading the development of a common sustainable finance classification standard, with the first version expected to be released by the end of 2021. Chen Yulu emphasized that financial institutions in certain pilot regions could explore labeling products based on the China-EU common classification standard to launch Chinese green finance products for global markets. Concurrently, efforts should continue to deepen international cooperation in green finance and actively explore financial support pathways in new areas such as biodiversity conservation.

Balancing Short- and Long-Term Goals to Advance Transition Finance Institutional Development

The “Green Bond Support Project Catalog (2021 Edition)” has drawn significant attention for its “do no significant harm” principle. Wang Yao noted that the new catalog focuses on addressing climate change and implementing the “dual carbon” goals. It no longer includes high-carbon emission projects such as the clean utilization of fossil fuels like coal within its support scope. Furthermore, by adopting the internationally recognized “do no significant harm” principle, it has further tightened carbon reduction requirements.

The “do no significant harm” principle stipulates that projects eligible for sustainable finance support must not cause harm to any sustainable development goal, including environmental, climate, or biodiversity objectives. Ma Jun, Director of the Green Finance Committee of the China Society of Finance and Director of the Beijing Institute of Green Finance and Sustainable Development, stated that the new green bond catalog draws from the EU's “do no significant harm” principle, excluding high-carbon projects like clean coal technologies. He explained that previous green catalogs included projects detrimental to climate goals, such as various clean coal initiatives. At the time, to combat smog, projects that reduced sulfur dioxide, nitrogen oxides, and particulate matter emissions but failed to lower carbon dioxide emissions were included in the support scope. With the introduction of the “dual carbon” goals, China now possesses the conditions to implement the “no significant harm” principle.

However, the low-carbon transition is a long-term process that cannot be achieved overnight. Chen Yulu pointed out that short-, medium-, and long-term carbon reduction targets and business development strategies must be formulated based on scientific analysis. He particularly emphasized the need for in-depth research on how finance can support the economy's low-carbon transition. The low-carbon transition of high-carbon industries and enterprises requires substantial funding, yet the current green finance system struggles to fully meet transition finance demands. Therefore, further exploration is needed into defining transition finance standards, disclosure requirements, incentive mechanisms, and supporting measures. Simultaneously, expanding the scope of local green finance pilot programs and enhancing innovation capabilities are essential.

Ma Jun also stated that in China's current economic structure, the majority of GDP comes from high-carbon emission industries. Financing for these sectors cannot be halted immediately. Instead, green conditions can be attached to new loans to support their low-carbon transition. He proposed exploring transition finance pilots, such as leveraging low-cost funding from international development institutions like the Asian Development Bank to support China's coal-fired power projects in gradually transitioning to new energy enterprises within 5 to 7 years. This approach would ensure enterprises avoid bank defaults and large-scale layoffs while maintaining stable power supply. Such a model safeguards production and economic stability, preserves social stability, and mitigates financial risks. Furthermore, advancing transition finance requires integrating complementary policies from local governments—such as land resources, talent recruitment incentives, and feed-in tariffs for renewable energy—to enhance project success rates.