Deputy Secretary of the Party Committee and Vice Chairman of Shanxi Financial Holdings GroupHou WeiexistThe first“Tsinghua Wudaokou Carbon Neutral Economy ForumThe statement indicated that achieving the "dual carbon" target requires comprehensive consideration of regional economic development, energy security, and financial support.
He mentioned that Shanxi Province is a major coal-producing province, and since the announcement of the "dual carbon" target, both the government and enterprises in Shanxi have attached great importance to it. At the government level, Shanxi Province is basing its efforts on its provincial conditions, adhering to the bottom line, and resolutely completing the emission reduction tasks. Although the pressure to achieve the target is significant, Shanxi Province has sufficient confidence and advantages to achieve the emission reduction target. At the enterprise level, the most pressing concerns are how to coordinate energy conservation and carbon reduction with economic development, how financial institutions will view energy companies and regional enterprises, and what changes will occur in the regional investment environment. Finally, he pointed out that achieving the "dual carbon" target requires comprehensive consideration of various aspects, including regional economic development, energy security, and financial support.
The following is a transcript of Hou Wei's speech:Since the "30·60" dual carbon target was proposed, its impact on Shanxi Province has been evident to the government, enterprises, and financial institutions, and indeed, in the first half of 2021.First, let's talk about the Shanxi government's attitude.。2021On September 14, the People's Daily published an article by Lin Wu, Secretary of the Shanxi Provincial Party Committee, entitled "Shanxi's Contribution to Achieving Carbon Peak and Carbon Neutrality."To put it simply, emissions reduction is scientific and systematic, but not a campaign-style approach. This is the goal.The interpretation of the "dual carbon" target by the former provincial party committee and government should be considered quite authoritative.Based on my own observations and practical experience, one key point is to consider the specific circumstances of Shanxi Province. This morning, many guests mentioned that achieving the "dual carbon" target is a comprehensive process, requiring integration with regional economic development, energy security, and the necessary financial support. This is particularly relevant for Shanxi, and therefore, I believe the first priority is to consider the province's specific conditions.The second is to safeguard the bottom line, or in other words, to protect the bottom line.I believe Shanxi will resolutely avoid high-carbon emission projects, and will firmly achieve the targets set by the state. Simply put, I think these eight characters encapsulate the basic attitude or view of the provincial government or the central government regarding "carbon neutrality," as this is the official quote. In practice, Shanxi is indeed acting in this way; the pressure of "carbon neutrality" on Shanxi is evident.However, Shanxi also possesses significant resource advantages for achieving its "dual carbon" goals. For example, firstly, Shanxi is a region rich in coalbed methane resources. Secondly, Shanxi's wind power and solar energy resources are among the most advanced in the country. Thirdly, in recent years, Shanxi has demonstrated strong execution in energy conservation, carbon reduction, and eliminating outdated production capacity. As I recall, during the 13th Five-Year Plan period, Shanxi reduced or eliminated outdated coal production capacity by approximately 156 million tons annually. Simultaneously, during the 13th Five-Year Plan period, Shanxi's installed wind power capacity and photovoltaic power generation capacity ranked among the top in the country. I believe this reflects the overall impact on Shanxi.From the government's perspective, what we all hope to see is respecting the laws of nature, making overall arrangements, and grasping the right timing and key points for "dual carbon" (carbon emissions). I think this is the first question the host raised: "How does the government view this?"On the corporate side, Shanxi Financial Holdings is the authorized investor of Shanxi's state-owned financial capital. Most of Shanxi's local financial institutions are, or are the vast majority, under Shanxi Financial Holdings. Over the years, we have served the vast majority of enterprises in the province, especially state-owned enterprises.Actually, we still have a lot of observations. First, I think the enterprise side includes two perspectives.The first perspective is actually related to the overall planning mentioned earlier.Businesses are now thinking most about the relationship between energy conservation and carbon reduction and the economic development of their own businesses or regions.The second perspective is unavoidable for Shanxi's energy companies, and it is closely related to energy security.Secondly, businesses are now focusing on timing and pace.As everyone knows, commodity prices, including coal, have continued to rise in the first half of this year and even now. Many entrepreneurs are experiencing a sense of déjà vu, a feeling reminiscent of the golden decade. However, this period has also brought with it the accumulation of technology and capital for transformation. The timing and pace of this transformation are, I think, the second issue entrepreneurs are considering, something we discuss frequently with them.Third, the relationship between the whole country and Shanxi.This morning, an expert spoke about shutting down thermal power plants in Jiangsu and transmitting electricity from Shanxi to Jiangsu via ultra-high-voltage transmission lines. He argued that the relationship between carbon emissions and energy transmission should be considered a national strategy, something Shanxi enterprises are particularly concerned about. In fact, since the first half of this year, what Shanxi enterprises have been most concerned about, or rather felt most acutely, is how financial institutions view energy companies or regional enterprises under the "dual carbon" (carbon emissions and carbon emissions) environment. The situation in the first half of this year was, of course, due to many combined factors, but I think "dual carbon" was a significant one. For nearly half a year, many state-owned enterprises or key enterprises in Shanxi found it very difficult to obtain debt issuance support in the market; compared to the same period last year, the decline was quite considerable. Recently, with the continuous clarification of national policies and a gradually clearer stance, I think this market should change.We usually have two types of exchanges with enterprises: First, with enterprises within the province, we usually discuss the relationship between finance and the global economy, emphasizing that the focus of national economic transformation must be aligned. Initially, our financial system primarily supported economic development; subsequently, it shifted towards supporting what should be called "inclusive growth," such as poverty alleviation. Later, we focused more on environmental pollution, and now everyone is discussing climate change. Furthermore, what we emphasize to enterprises is that this is a "two-way street," a cumulative relationship that cannot be reversed. This is something that enterprises within the province need to consider.However, I think financial institutions, especially local financial institutions, need to understand that, as is already clear, a one-size-fits-all approach, labeling, and focusing solely on existing resources are inappropriate. For example, there are very specific issues, such as whether to support the upgrading and transformation of thermal power, hydropower, and nuclear power plants. For instance, whether to continue supporting natural gas power generation, and many other such detailed questions.For a considerable period in the first half of this year, many people adopted a "let's take a look" approach. However, the government's stance has become increasingly clear: a one-size-fits-all approach is not feasible. Even the phasing out of outdated production capacity raises the question of whether there is financial support to reduce carbon emissions. Therefore, this is a systemic issue. This problem is particularly prominent in Shanxi, which I want to address from the perspective of businesses.From a financial perspective, I think the media has discussed this extensively, and many guests are also discussing it today. Currently, the "dual carbon" target certainly presents investment opportunities for the financial sector, but it may also pose challenges to its business and profit models. More importantly, it may also pose significant challenges to its own risk management—this is a macro-level issue.From the perspective of serving the regional economy and finance, I believe that we should take action regarding "dual carbon" from the following angles:The first aspect,Financial institutions incorporate ESG development principles into their top-level governance design; this is a fundamental principle.For example, the "14th Five-Year Plan" for green development, jointly developed by Shanxi Financial Holdings and Dr. Sun, clearly proposes an investment of 100 billion yuan in green funds over the next five years. Secondly, all subsidiaries are required to incorporate ESG governance into their overall development plans, and the entire group is also required to develop implementable governance solutions. This is the first point I wanted to make.Secondly,In fact, achieving "carbon neutrality" still presents significant challenges for the financial sector.I think that the changes in terms of mobilizing social resources, providing comprehensive services, and allocating resources are quite significant compared to previous developments. Shanxi Financial Holdings is a comprehensive financial holding platform, encompassing all licensed financial institutions and related quasi-financial institutions. Therefore, in terms of comprehensiveness, innovation, and integration, digital finance may be the main direction for financial institutions in the future.Specifically regarding Shanxi Financial Holdings, we have conducted comprehensive research on our entire portfolio and have also established a good working relationship with Dr. Sun from Tsinghua University. Simultaneously, we have also explored various traditional green financing methods, including green bonds, other green products, and green ABS, as Shanxi indeed represents the largest market for such initiatives.Secondly, there is green investment. For example, we have invested in the largest biomass power generation company in the province, as well as the manager of the largest coalbed methane development fund in the province, etc. I won't go into details.However, what I really want to emphasize is that, as Governor Guo just mentioned, development finance is at the national level. A significant phenomenon we've observed in the current financial system is the regionalization of financing and investment. Local finance supporting local economic transformation has become a prominent and obvious characteristic. Therefore, local financial institutions may need to expend more effort in this area. This is the second point I want to make regarding capacity building.Third, for financial holding companies or local financial institutions, one direction they are currently striving for is to...In the future "dual-carbon" environment, they will have better asset pricing capabilities.Currently, we have a key asset: our property rights trading center, which is the only environmental and energy trading center in Shanxi Province and the only comprehensive platform in Shanxi with carbon trading qualifications. We've been working diligently on this recently, for example, transferring approximately 1 million tons of emission allowances and developing about 120,000 tons of CCERs. Last month, we also mobilized many commercial banks to complete the first carbon emission rights pledge financing deal in Shanxi, hoping to gain control over pricing during the trading process.The last one isRisk ManagementFrom the perspective of our financial institutions, risk management requires us to take stock of our assets from a different angle. Whether it's asset reduction, equity asset reduction, or bond asset default, we may need to reassess these issues.Because we serve over 90% of the state-owned enterprises in Shanxi Province, and because we are involved in the vast majority of the province's recent professional restructuring and sectoral integration, we are particularly focused on providing investors with comprehensive information and highlighting the risks involved. For example, we need to address issues such as "greenwashing" and whether there are assets that do not align with the province's industrial development direction. This is crucial for investors.From the perspective of our company's transformation process, in terms of security and accessibility, we need traditional financial institutions, and even the capital market, as Guo Xing specifically mentioned, such as securities companies like ours, to provide services. The forms of service that financial institutions provide to help companies adapt to this round of transformation, including the timing of their intervention and their profit models, may undergo significant changes. Moreover, I think the greater focus is on risk management during the transformation process. That's about it. Thank you.
