Considering the significant roles of the policies in developing environmental finance, an overview is conducted on the environmental finance policies (EFPs) in China. This paper analyzed the definition, scope, evolution and main instruments of EFPs. The implementation progress of financial activities on each instrument are investigated respectively. Then the experiences learned from and failures discovered in the development of the EFPs are discussed well recommendations for further improvement of the EFPs and their implementation are provided. Our study found that the EFPs have been established in China after a four-phase evolution since the early 1980s. The policies have played a critical role in leading to a rapid development in environmental finance by involving more financial instruments to accomplish the objective-led environmental plans. Driven by the policies, the new green credit (GC), green security (GS), and green insurance (GI) instruments have been phased in as supplements to the conventional command and control approaches to improve the environmental governance of financial activities and pollution sources. However, the market mechanism of financial institution is limited due to their defensive and incapable performance on implementation some of EFP instruments. To further strengthen the effectiveness of EFPs in facilitating environmental management, recommendations are made mainly on the aspects including developing more specific policy guidelines, enhancing information sharing and disclosure, providing sufficient economic incentives, establishing environmental liabilities with financial activities, and involving issues related to climate change, and biodiversity and ecosystem service.
decision on enhancing environmental protection works during the economic adjustment period
State Council (SC)
newly initiated large-and medium-sized building projects would not be listed in the official development plans and would not be given grants or loans from financial institutions unless the environmental impact assessment (EIA) reports were completed and approved by the environmental department
PBOC [1995]24
circular on implementing bank credit policies and strengthening environmental protection works
The People’s Bank of China (PBOC)
during the process of loan approval and appropriation, banks shall conduct an environmental compliance review. For newly initiated construction, alteration or expansion projects, bank loans would be released only after acquisition of EIA approval, and liquidity loans would be disbursed only after meeting the requirements of the “three simultaneities”. For enterprise liquidity loans, banks shall adopt the “differentiated principle” in accordance with environmental regulations and industrial policies. For enterprises or projects engaged in environmental protection and treatment, banks shall provide supporting loans based on performance evaluation
SEPA [1995]105
circular on promoting environmental protection works through credit policies
State Environmental Protection Administration (SEPA)
environmental authorities at all levels shall strictly conduct environmental supervision and administration and actively cooperate with financial departments to implement GC policies
SEPA [2001]156
circular on improving environmental examination and approval (EEA) on listed companies
SEPA
the EEA system was officially established for IPOs and refinancing activities via the securities market, especially for those enterprises in pollution-intensive industries
SEPA [2003]101
rules on EEA of Initial Public Offerings (IPO) and refinancing applications
PBOC [2006]450
circular on sharing enterprises’ environmental information
PBOC SEPA
the policy asks for the input of environmental information into the PBOC’s Basic Database of Enterprise Credit Information
PBOC [2007]215
guiding opinions on improving and strengthening financial services for energy saving and environmental protection (ESEP)
PBOC
banks are encouraged to adapt to the needs of ESEP works by providing syndicated loans or soft loans and innovating their financing management and products, including direct financing
SEPA [2007]108
opinions on implementing environmental policies and regulations and preventing credit risks
SEPA PBOC China Banking Regulatory Commission (CBRC)
the requirement of environmental review for the loan approval and appropriation process, which first appeared in the policy issued in 1995, is reiterated with an additional request for close collaboration with and the supply of environmental information from environmental departments. In addition, the financial authority shall improve its supervision and examination of the policy’s implementation
CBRC [2007]161
circular on the prevention and control of credit risks of “high pollutant emission and high energy consumption (dual-high)” industries
CBRC
banks are required to strictly control and continuously supervise loan volume and use of “dual-high” industries and enterprises, improve the credit structure, and compress or withdraw approved loans from enterprises with obsolete productivity. It is recommended that banks integrate environmental risk management into the credit management process
CBRC [2007]83
guiding opinions on the credit line for ESER works
SEPA [2007]105
circular on further standardising the EEA of IPO and refinancing applications involved in pollution-intensive industries
SEPA
the EEA system, which was first implemented in 2001, is further improved in terms of its scale, scope, procedure and specifications for IPOs and the refinancing applications of listed companies
guidelines on the EEA of IPO and refinancing applications
SEPA [2007]189
guiding opinions on environmental pollution liability insurance (EPLI)
SEPA China Insurance Regulatory Commission (CIRC)
EPLI system was intended to establish the insurant catalog of industrial installations and the compensation criteria for pollution damage based on the classifications of environmental risks by developing pilot and demonstration projects in key economic industries and regions
CSRC [2008]6
circular on IPO application of companies in pollution-intensive industries
China Securities Regulatory Commission (CSRC)
the CSRC accepted the EEA as precondition of IPO application of companies in pollution-intensive industries
SEPA [2008]24
guiding opinions on strengthening the environmental supervision of listed companies
SEPA
in addition to the EEA system, two more instruments, including environmental information disclosure (EID) and environmental performance evaluation (EPE), were established for the environmental supervision of listed companies and became integral parts of GS policy
SEPA [2009]77
circular on further improvement of information sharing for GC implementation
PBOC SEPA
the policy presents specific guidance on the delivery procedure and specifications for environmental information, bank feedback procedure, dynamic information management, and dispute resolution
PBOC [2010]170
opinions on further improving financial services for energy saving and emission reduction (ESER) and the elimination of backward productivity
PBOC CBRC
for projects in the national catalog of key energy-saving technologies and the ten-state key ESER engineering and key pollution source treatment plan as well as enterprises with strong independent innovation capacity and satisfactory market efficiency in the field of ESER, financial support is encouraged by providing bank loans or issuing short-term bonds or medium-term notes (MTNs). Banks are also urged to accelerate innovations of financial products and services to broaden the financing sources for ESER and eliminate backward productivity by pledging accounts receivable, or the expected clean development mechanism (CDM) incomes or stock rights, and factoring. In addition, the development of energy management contracting (EMC) and the energy saving service industry shall be boosted
Tab.1
Fig.1
Fig.2
Fig.3
areas
main supportive measures
Jiangsu Province
a joint meeting mechanism is set up mainly by the Environmental Protection Department, Financial Administration Office and Insurance Regulatory Bureau at the provincial level to coordinate and promote the EPLI pilot study
the enterprise’s participation in EPLI is employed by Wuxi City of this province as an indicator of the environmental performance assessment, the result of which will be reported to the PBOC as important information in the process of reviewing the company’s loan application
under the governmental guidance of Suzhou City of this province, a joint underwriter composed of four insurance companies insured 66 local companies with higher environmental risks
Hunan Province
the policyholders of EPLI may be rendered with a 5% or 10% discount on its premium if there is no report of an environmental accident during the past one or two years
Zhuzhou City of this province allows 50% insurance coverage to be offset by an equivalent pollution charge paid by the policyholder of EPLI
Changsha City of this province graded local companies into A, B, and C by the levels of environmental risk. EPLI would be compulsory for the companies graded as A and B
Ningbo City
the company’s participation of EPLI was regarded as a prerequisite for acquiring a pollution treatment subsidy, environmental honor, and environmental compliance certificate
the company insured by EPLI may acquire a governmental subsidy equivalent to a 30% to 50% premium from a special fiscal fund
Shenyang City
the companies engaged in the collection, storage, and disposal of hazardous wastes are required to buy EPLI in the local Regulation on Environmental Pollution Prevention and Control of Hazardous Wastes
Tab.2
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