Several provisions on the development of green finance in Shanghai pudong new area, the first regulations on green finance in Shanghai, were adopted on June 22, 2022, and officially take effect on July 1, 2022. The regulations regulate the standards, innovation, supervision, and other aspects of green finance, with a view to further improving the institutional system for Shanghai's green finance market. The regulations are the eighth regulations formulated by Shanghai for Pudong New Area.



In terms of content, the new regulations establish a comprehensive system for green financial products and services, including deepening international cooperation in green finance and promoting the implementation of international cooperation projects for green finance in Pudong New Area; vigorously developing green credit, green bills, green bonds, green investment, green funds, pooling advantageous financial resources, and serving the high-quality development of Pudong New Area. 



In an interview with China Business Network (CBN), Zhao Xiaoju, Honorary Dean of Shanghai Institute of International Finance Center of Shanghai University of Finance and Economics, said that the promulgation and implementation of the new regulations mark a significant and successful exploration of the formulation of local regulations. The new regulations provide a legal basis and safeguard for the robust development of green finance, as well as for the construction and consolidation of the three basic conditions for the development of green finance. At the same time, these regulations also provide a legal safeguard for Shanghai to accelerate the implementation of an overall plan to build itself into an international hub of green finance.



Making up for the institutional shortboard of green finance development



According to Zhao Xiaoju, Pudong has natural advantages in developing green finance. On the one hand, Shanghai has the most complete financial factor market in China and even in the world. At the same time, New Development Bank, as well as the Asia/Pacific or China headquarters of the world's largest asset management institutions, commercial banks, investment banks and insurance companies are also mostly concentrated in Pudong.



On the other hand, Pudong New Area is the core carrier for Shanghai to build itself into an international financial center and an international hub of green finance. Currently, Shanghai is applying for approval for building a national green finance reform and innovation pilot zone, and Pudong New Area is applying to become a pilot zone for climate investment and financing. In both tasks, Pudong New Area shoulders the important mission of carrying out pilot work on supporting economic transformation and development through green finance and carbon finance.



"The above conditions are unique advantages to support Pudong New Area in taking the lead in green finance innovation, applying for the establishment of a national green finance reform and innovation pilot zone, and carrying out pilot climate investment and financing," said Zhao Xiaoju.

The introduction of the new regulations will help Shanghai to go one step further in the development of green finance. The regulations specifically call for strengthening cooperation with the Shanghai office of the national financial regulatory authorities, the competent municipal department for industry, and the relevant department of Pudong New Area to carry out effective work together to promote and safeguard the development of green finance in Pudong New Area. This will lay a foundation for Shanghai’s application for building a national pilot zone of green finance reform and innovation. 

Specific work includes: 1. promoting the study and formulation of green evaluation standards at the industrial end, coordinating the establishment of a green project database, and providing “accurate targets” for industry-and-finance connectivity; 2. taking the lead in formulating a national green finance standards supporting system or supplementary local green finance standards in Pudong New Area so as to create conditions for unifying the evaluation, certification and classification standards for green financial products and projects; and 3. supporting the Shanghai office of the national financial regulatory authorities in acceleration of the establishment of a reform experimental mechanism in Pudong New Area, and promoting innovative regulatory interaction in green finance and other fields.



"Green evaluation standards for industries, supporting and local green standards for financial institutions, and innovative supervision of green finance are the three basic conditions for the robust and sustainable development of green finance," Zhao Xiaoju told the CBN reporter. For example, these standards address questions like which enterprises and projects meet the criteria for green finance support; what green financial standards financial institutions should adopt when they provide green financial services and innovate green financial products; in case that the national regulatory authorities have not yet released unified standards, what standards enterprises and financial institutions in Shanghai should use to make measurement, classification and assessment; and how to supervise the risks of green finance innovation. The formulation and implementation of the new regulations no doubt provide a legal basis and safeguard for the construction and consolidation of these three basic conditions. 



For financial institutions, the introduction of the regulations will have an impact on them in various aspects. Zhao Xiaoju said that this will help guide more financial resources to enter the field of green development, while making financial institutions pay more attention to various categories of green financial standards, and proactively apply them to the screening of customers and the innovation of green financial products. It will also help to guide financial institutions to pay more attention to emission reduction paths in the transformation of different types of enterprises, timely follow up and provide green financial services. It is conducive to promoting financial institutions to carry out carbon finance businesses such as environmental equity financing and participate more actively in international and domestic biodiversity finance demonstration projects.



More model practices of green finance are expected



While perfecting the market system, the latest regulations will also provide more demonstrative models for Shanghai to build a high-standard green financial product and service system by leveraging its advantages in financial factor market agglomeration and close international exchanges. 



For example, the new regulations mentioned the need to give full play to the headquarters effect of New Development Bank and other financial institutions and deepen international cooperation in green finance; and to leverage the advantages of the China (Shanghai) Pilot Free Trade Zone and the Lin-gang Special Area in piloting cross-border capital flows, and provide more convenient cross-border investment and financing services for enterprises to achieve green transformation and development. The regulations also encourage financial institutions to innovate green credit, green bills, green bonds, green insurance, green financial leasing, green trust, green investment, green fund, and other businesses.  



In the view of Zhao Xiaoju, the new regulations will capitalize on the current trend to guide financial institutions to innovate. In the process, more demonstrative models are expected to emerge in the green finance field in the future. At the same time, the regulations also identify the right breakthrough points of reform, and promote all parties to focus on transformation. These include supporting the Shanghai office of the national financial regulatory authorities in formulating complementary transformation financial standards, as well as classification and management rules; and calling on the National Green Development Fund and other institutions to increase green investment in relevant industries in the green transformation and development of Pudong.



In addition, Zhao Xiaoju also pointed out that unlike general government policies which are broad in scope, regulations are specific with policy measures to strengthen public supply. This is also one of the characteristics of regulations that attracts special attention. The new regulations specifically call upon governments at municipal and district levels to enhance support, while putting forward various supporting policies, such as promoting and strengthening relevant regulatory incentive and restraint mechanisms, establishing a thematic database of green financial data services, as well as green debt reserves, supporting green projects through special local government bonds, giving more space for green finance in the evaluation and selection of winners for the Shanghai Financial Innovation Award, and improving financial and talent services. 



Overall, Zhao Xiaoju believes that the requirements and support put forward by the new regulations for Pudong New Area in respect of standards formulation and business innovation in multiple innovation fields such as transformation finance, green bills, green supply chain finance, biodiversity finance, climate investment and financing are all topics still under exploration in China. Internationally, no unified standards and institutional framework have been established either. As such, the new regulations will guide and support Pudong New Area in taking the lead in innovative explorations, effectively deepen Shanghai’s efforts to build itself into an international hub of green finance, and produce a positive and far-reaching impact on China's lead in the development of green finance in the world. 



Source: Yicai