2022IFCII | Jizhe Ning: Implementing new development philosophy with new investment concept(Part II)

Dear experts and distinguished guests, as a Chinese saying goes: "one can only realize his aspiration upon a thorough analysis of the situation." The world today faces a pandemic unseen in a century and combined impact of major changes, including climate change, the Russia-Ukraine conflict, and rising inflation. China has various advantages as well as many old and new challenges in socialist modernization. To implement new development philosophy in the new era, we need to take a thorough analysis of the development opportunities and potential risks, strike a balance between the government and the market, and achieve both economic and social benefits from investment so as to promote high-quality development with high-quality investment.

First, establishing a sound, quality, efficient, sustainable, and responsible investment philosophy that features good governance. 

Quality and efficient investment means the investment should aim to improve the quality and efficiency of projects and assets, generate good output and returns, and we should prevent irrational, duplicate, and ineffective investment. Sustainable investment means the investment should pursue sustainable development and ecological benefits, for example, to invest in sectors like clean energy, environmental governance, and sustainable agriculture. Responsible investment means investors should fulfill corporate social responsibilities, abide by laws and regulations, create more jobs, reduce poverty, increase personal income, improve public services, and achieve social benefits for the recipients. Good governance means investors should pay attention to corporate governance, including corporate culture, participation of employees and shareholders, and integrity in business. Let's work together and innovate on the basis of what has worked in the past, making concerted efforts to achieve quality operation and sustainable development, responsible operation, and good governance.

Second, guiding enterprises to invest in basic and public projects. 

It is not difficult to encourage companies to invest in commercial and profitable projects, but it is difficult for the public projects. Promoting quality investment requires reasonably categorizing investment. Yet, the categorization varies from institution to institution. For example, Bridges Fund Management published Spectrum of Capital in 2013, classifying investment into six categories in terms of the nature and extent of the investment impact: (1) impact-only philanthropy, (2) impact-first, which focuses on one or a cluster of issue areas where social or environmental need requires some financial trade-off, (3) thematic, which focuses on one or a cluster of issue areas where social or environmental need creates a commercial growth opportunity for market-rate or market-beating returns, (4) sustainable, which focuses on ESG opportunities, through investment selection, portfolio management, (5) responsible, which focuses on ESG risks ranging from a wide consideration of ESG factors to negative screening of harmful products, and (6) financial-only traditional, which has limited or no focus on ESG factors. Category 2-5 fall into the category of ESG investment.

In China, according to the type of goods (public, quasi-public, or private), investment can be defined as public, basic, or commercial; guidance for investment is category-specific. Public projects are not suitable for market-oriented operation but can absorb corporate investment under the non-profit principle. The earnings of the basic industry are usually long-term, which means they can absorb corporate investment with micro or small profits. At present, corporate investment has accounted for more than 90% of the total private investment in fixed assets in China. Therefore, it is crucial to guide companies to invest reasonably in the public sector. While the government increases public and basic investment, it should also encourage companies and private capital to invest in infrastructure, environmental protection, farmland irrigation, rural revitalization, municipal construction, and social programs via investment subsidies, fund injection, loan subsidies and business classification, differential assessment, etc. so that limited government investment can leverage more capital and all types of corporate investment can play an active and constructive role.

Third, providing more information to support green and social investment.

In the next several decades, building on the moderately prosperous society, China will need several hundred trillion yuan of investment to reach the 30-60 goals, accelerate the transformation towards green and low-carbon development in economy and society, and provide a better-off and happy life for our people.


In terms of promoting green and low-carbon development and improving people's wellbeing, China has formulated and released a series of important documents, such as Working Guidance for Carbon Dioxide Peaking and Carbon Neutrality in Full and Faithful Implementation of the New Development Philosophy , Guiding Opinions on Accelerating the Establishment of a Sound Economic System with Green, Low-carbon and Circular Development, and 14th Five-Year Public Service Plan. In these documents, the government has proposed specific strategic planning and guidance for promoting green investment in all aspects and the whole process, supporting non-governmental actors to participate in public services, and expanding the supply of inclusive non-basic public services.

The United Nations has set 17 Sustainable Development Goals (SDGs) in the UN 2030 Agenda, calling for no poverty, zero hunger, good health and well-being, affordable and clean energy, climate action, etc. It has also put forward Principles for Responsible Investment (PRI) , all of which are important guidance to investment. Through multiple channels such as government departments, public institutions, international organizations, domestic associations, research institutions, and media platforms, we can facilitate sound capital development, green investment and ESG investment by disseminating investment-related information on strategies, plans, policies, and projects to enterprises and financial institutions at home and abroad via various methods, such as government-enterprise dialogues, seminars, personnel training, and news reports.


Fourth, establishing a sound green finance policy support system.

Firstly, actively promoting green finance. China has become the first country to unveil support policies for a green financial system. By the end of 2021, the green loan balance in China reached 15.9 trillion yuan with a 33% year-on-year increase; the green bond balance was 1.1 trillion yuan and the issuance of green bonds increased 1.8 times year-on-year. Meanwhile, we should know that green finance in China is still in the budding stage. Statistics show that the green bond balance is less than 10% of the total balance of all loans and the green bond balance accounts for only 1% of the total balance of all bonds. We should develop green and low-carbon financial products and services in an orderly manner and vigorously promote financial instruments and monetary policy tools such as green loan, green equity, green bond, green fund, and the Carbon Emission Reduction Facility (CERF) .

Secondly, improving the fiscal and pricing system. We should establish a sound system concerning green and low-carbon taxation policy, improve the green power pricing policy, and speed up efforts to build a binding carbon pricing mechanism.

Thirdly, optimizing investment policies. We should build an investment and financing system aligned with the 30-60 goals, strictly control investment in energy-intensive projects, and better support investment in energy saving and low carbon projects.

Fourthly, improving industrial policies. Policy documents such as Green Industry Guidance Catalogue and Green Bond Endorsed Project Catalogue require further implementation, refinement, and timely upgrading. Furthermore, policy tools, such as re-lending for agricultural and small enterprises, should play a more important role in inclusive finance.

Fifth, improving the groundwork, such as standardization, certification, measuring, counting, assessment and consultation of green investment and ESG investment.

Firstly, standardization and certification. This is the priority as now we have so many similar concepts such as green production, green transportation, green buildings, green industrial parks, low-carbon cities, green financing, inclusive projects, etc. We should set technical, economic, and management standards for green and low-carbon products and services, improve the standardization and certification system for green and low-carbon development, and improve public service and benchmark service standards for public projects and inclusive finance so as to provide a scientific decision-making basis for customers and investors and screen out the unqualified ones.

Secondly, measuring and counting. A carbon emission measuring and counting system should be established: at the macro level, national, regional, and industry-wide carbon emissions should be measured; at the micro level, entity carbon emissions should be measured. An ESG taxonomy, measurement and counting methodology should be established to measure, monitor, and access new investments, and provide counting ranking and rating services for enterprises, so that ESG investment like other investments can be monitored, reported and verified. We should advocate state-owned, private, and foreign-funded enterprises and financial institutions to strengthen the groundwork and regularly publish ESG and other related investment reports.


Thirdly, assessment and consultation. It's essential to improve the preparation works of green and low-carbon development and public welfare projects. We should adopt a scientific and rigorous approach to feasibility studies of these projects, and conduct environmental assessment, land use assessment, energy conservation assessment, financial and non-financial assessment, and risk assessment. Furthermore, we need to strengthen approval, information disclosure, and market regulation to prevent the unregulated expansion of capital and speculation. Quality investment with good preparation will deliver benefits to the people and community; investors will also play a bigger and more significant role.


Finally, Mark Mobius, a key figure in developing international policy for emerging markets, points out in Invest for Good: "ESG investing is actually slightly more profitable than non-ESG investing. The evidence also suggests that active investing is more profitable than passive investing". The argument is yet to be proven. Nevertheless, we believe if companies and financial institutions put the greater good before economic benefits and abide by relevant rules regulating projects for public welfare, they will reap good economic benefits together with social and ecological benefits.

Thank you!