China will set up a green stock index and develop futures trading for carbon emission rights – both of which will be the first such instruments, according to a new guideline. China will also research and develop financing tools based on multiple environmental resources rights, including pollution emission rights, water rights and carbon emission rights, according to the guideline jointly issued by Communist Party and the government. The guideline aims to deepen the reform of the compensation mechanism for environmental protection.
In August, global stock markets index provider MSCI unveiled two climate change indexes for China to gauge the country's transition to a low-carbon economy. The official set-up of the stock index allows investors to measure listed companies' environmental, social and governance (ESG) stewardship, which will serve as a reminder for companies to make plans for green investment and constrain their carbon emissions, industry observers said. It will also affect companies' re-financing and convertible bond issuance. China's national carbon market, the largest emissions trading system (ETS) in the world, was officially launched in July. The futures trading market would be a supplement to the national carbon market, signaling the complete securitization of carbon trading.
According to the guideline, projects involving voluntary reductions of greenhouse gas emissions such as renewable energy resources and methane utilization will also be included in the national carbon emission trading market. China's carbon market is the world's largest, with emissions of 6 billion tons, compared with the EU's 3 billion tons. China's pledge to be carbon neutral by 2060 would entail investments totaling CNY136 trillion, according to industry estimates revealed during the China International Fair for Trade in Services last week.
Dong Shaopeng, Senior Research Fellow of the Chongyang Institute for Financial Studies at Renmin University of China, told the Global Times that new instruments, such as the green stock index, are meant to provide a reference for investors increasingly interested in in green industries. The green index features blocks under qualified companies from access to more funds from investors, Dong said. “A green stock index can be regarded as the answer from the China Securities Regulatory Commission (CSRC) to green bonds from China's central bank and both are tools to foster green development,” Dong noted. The financial tools will also push up the price of water, which will help foster water conservation and protection.