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Yue Zhigang, President of China Chengxin International, stated at the "China Chengxin International 2024 Mid-Year Credit Risk Outlook & Investor Service Summit" on May 28 that rating agencies have gradually incorporated ESG factors into the credit rating system at this stage. It is necessary and important to establish a localized ESG rating system with international influence in the next step.   Yue Zhigang introduced that the bond market, as an important part of the financial market, plays an important role in guiding funds to key areas such as science and technology innovation and green development, and in helping to cultivate new quality productivity. At the same time, new products continue to emerge to help direct financing of the real economy. The issuance of innovative products continues to rise this year, providing strong support for key areas such as scientific and technological innovation and green finance. It is worth noting that since the beginning of this year, regulatory authorities have strengthened the top-level design and standardized system construction of green finance market policies, and have successively introduced institutional measures to improve the green finance standard system, standardize ESG information disclosure of listed companies, strengthen financial support for green and low-carbon development, and strengthen green insurance protection in key areas.   Yue Zhigang believes that with the strengthening of policy support, the improvement of market mechanisms and the deepening of international cooperation, the future prospects for the development of green finance will be even broader. As an important tool to promote the development of green finance, ESG rating will also usher in greater development space. "At this stage, rating agencies have gradually incorporated ESG factors into the credit rating system, but my country's ESG rating business is still in its early stages of development. It is necessary and important to establish a localized ESG rating system with international influence in the next step," he said.   Yue Zhigang said that since the beginning of this year, my country's macroeconomic situation has started smoothly, with GDP growth exceeding market expectations, major production and demand indicators rising steadily, and employment and prices generally stable. In terms of bond market risks, default risks are generally controllable, and risk prevention and proper handling in key areas remain the focus of current attention.   Looking ahead, Yue Zhigang believes that considering the impact of favorable factors and dragging factors on economic growth, favorable factors supporting the stable operation of the economy will continue to play a role in the following quarters. The favorable factors mainly involve the continued improvement of external demand under the recovery of global manufacturing, the support brought by the accelerated issuance of special bonds and special treasury bonds to infrastructure investment, the service consumption may still have a certain resilience, and the monetary policy and fiscal policy still have room for improvement.   In Yue Zhigang's view, in order to better adapt to the new situation, implement new requirements, and develop new products, the rating industry needs to focus on "new credit", strive to change the traditional rating concept, optimize the rating method system, and innovate business products and services. At the same time, the rating industry should follow the general trend of digital financial development, use artificial intelligence and big data, continue to deepen the research and development of credit risk warning and rating system, strengthen the application of financial technology in credit risk assessment and rating warning, and improve rating warning capabilities. China Chengxin International launched the Qe rating system based on "default probability measurement", providing the market with a stable, reliable, unified and good default prediction effect of credit rating and default probability mapping standard, effectively improving rating warning capabilities, and better serving the credit risk management needs of investors and other market participants.

China's ESG bond market will develop steadily in 2023. As one of the leading green assessment institutions in China, CCX Green Finance strictly abides by domestic and international sustainable development standards, and as always actively cooperates with regulatory authorities to promote innovation and standardized development of the ESG bond market, which has been highly recognized by investors and issuers.   In 2023, a total of 529 ESG bonds were issued in China, of which 464 were evaluated and certified by a third party. CCX Green Finance has been deeply involved in the field of ESG bond evaluation, and has maintained a leading position in the market share of various bond types , especially in innovative ESG bonds such as transition bonds and sustainable development-linked bonds .   China Chengxin Green Finance continues to support the stable and high-quality development of my country's ESG bonds. The 2023 ESG bond assessment and certification performance is as follows: ESG bond categories issued Number Number of evaluation and certification China Credit Green Gold Proportion Green Bonds (Carbon neutral) 475 413 157 38.01% Sustainability-linked bonds (including low-carbon transition-linked bonds) 51 49 27 55.10% Transition Bonds (including low-carbon transformation) 3 2 2 100.00% total 529 464 186 40.09% Note: In 2023, a total of 7 bonds were evaluated and certified as ESG dual-label products, of which 1 was a green/sustainable development linked bond, 3 were sustainable development linked/carbon neutrality bonds, and 3 were green/low-carbon transformation linked bonds; of which 5 were dual-label products undertaken by China Chengxin Green Finance.     In 2023, China Chengxin Green Finance has set a precedent for multiple domestic ESG product evaluation and certification, and completed a number of innovative products with market first significance across the market , including the country's first green science and technology innovation panda bond , the country's first green yen bond, and the country's first carbon asset transformation bond. At the same time, it continues to expand innovation in ESG loan certification, and implements certification services such as green deposits and green business repurchases to achieve value benchmarking for companies with excellent ESG performance. In addition, China Chengxin Green Finance has deepened its international business layout, and its market business has extended to Macau, Hong Kong, Russia and other places.   In 2024, China Chengxin Green Finance will continue to be committed to providing professional and independent third-party assessment and certification services, upholding a rigorous and innovative spirit, creating green value for the ESG development of issuers and financial institutions, and contributing to the development of my country's ESG bond market.   CCXGF 2023 The first ESG bond assessment and certification results (partial) The first "ESG" themed corporate bond in the national securities industry (sustainability linked) Huafu Securities Co., Ltd. 2023 Public Offering of Corporate Bonds (Second Phase) for Professional Investors (Sustainability Linked)  The first green and small and micro inclusive sustainable corporate bond in China Far Eastern International Financial Leasing Co., Ltd. 2023 Public Offering of Corporate Bonds (First Phase) to Professional Investors (Sustainability Linked)  China's first green technology innovation panda bond China Power International Development Limited will publicly issue green technology innovation corporate bonds to professional investors in 2023 (first phase) The first carbon asset transformation bond in China Wuxi Huaguang Environmental Energy Group Co., Ltd. 2023 Fourth Ultra-Short-Term Financing Bond (Transformation/Carbon Assets)  The first green yen bond in China ( issued by the Australian Stock Exchange ) Lianyungang Ganyu Urban Construction Development Group Co., Ltd. 2023 guaranteed issuance of Japanese yen bonds  The country's first private enterprise blue science and technology innovation bond China Tianying Co., Ltd. will issue green technology innovation bonds (blue bonds) privately to professional investors in 2023 The first "Cross-Strait Integration and Sustainable Linkage" bond in China Fujian Investment and Development Group Co., Ltd. 2023 Public Offering of Corporate Bonds to Professional Investors (Second Phase) (Sustainable Linkage for Cross-Strait Integration) The first "green + low-carbon transformation linked" asset securitization product in China Haitong Hengxin No. 26 Green Asset-backed Special Plan (Low-carbon Transformation Linked)  Anhui's first clean air bond 2023 Ningguo State-owned Capital Holding Group Co., Ltd. County New Urbanization Construction Special Corporate Bond (Type 1) First onshore green bond issued by a Russian company   CCXGF 2023 Innovation Assessment and Certification First Order Performance (Part) China's first green special and sustainable development-linked RMB syndicated loan first ESG index-linked syndicated loan in the national shipping industry The first "green + sustainable development linked" dual-label loan independently undertaken by a city commercial bank in China The first green deposit business for offshore accounts of overseas institutions in China The first batch of green business repurchases in China   The first "blue + sustainable development linked" dual-label loan in the country  The first blue-green dual-label linked syndicated loan in the market   The first syndicated loan in China linked to sustainable development in the petrochemical industry  Guangdong Province's first sustainable development -linked loan Henan Province's first sustainable development -linked loan Shandong Province's first sustainable development -linked loan Jiangxi Province's first manufacturing sustainable development linked loan The first ESG green syndicated loan from a non-bank financial institution in Southwest China Sichuan Province's first sustainable development -linked loan

  Recently, the authoritative overseas financial media "Finance Asia" announced the winners of the "Finance Asia Awards 2024". With its in-depth insights and research on China's capital market, leading credit rating technology and market leadership, China Chengxin International has retained the title of "China's Best Rating Agency".   Founded in 1996 and headquartered in Hong Kong, Asia Finance is the most authoritative and representative monthly professional magazine on the capital market in Asia. The annual awards of Asia Finance have been held for 28 consecutive years and are one of the authoritative awards with credibility and significant influence in the financial market of the Asia-Pacific region. The awards are judged based on the overall service quality, professional strength and market position of the participating institutions. This award fully affirms the market position of China Chengxin International as a leader in the domestic credit rating industry.   China Chengxin International is the largest and most technologically advanced credit rating and risk assessment service provider in China, engaged in credit rating business and investor services in the inter-bank market, exchange market and overseas market. Since its establishment, China Chengxin International has attached great importance to the research and development of rating technology and the innovation of rating methods, developed a mature credit rating system, completed dozens of pioneering rating businesses and technologies, and undertook the first order of rating for almost all bonds and financing instruments in China's capital market. The company has always adhered to the professional ethics of integrity, rigor and responsibility, and is committed to providing independent, objective and professional credit rating products and services for the capital market. China Chengxin International's professional and standardized operation has been widely recognized by market participants such as regulatory authorities, issuers, investors, and intermediaries, and has a good market reputation. It has been ranked first in the market-oriented evaluation of the National Development and Reform Commission, the National Association of Financial Market Institutional Investors, and the Insurance Asset Management Association for many times, and has repeatedly won the title of "Best Rating Agency" in various domestic and foreign media evaluations. Recently, China Chengxin International has also won the following honors and awards: "Best Credit Rating Agency of the Year" in 2022 and 2023 by the Financial Times Golden Dragon Award under the supervision of the People's Bank of China, "Best Rating Agency of the Year" at the 2023 Real Estate Securitization Frontier Award, and "Outstanding Rating Agency of the Year" at the 7th China Real Estate Asset Securitization and REITs Summit and Golden Awards.     Looking ahead, China Chengxin International will continue to adapt to market changes, grasp new situations, new requirements and new opportunities, constantly improve the company's development strategy, give full play to its core advantages, and strive to improve the quality of ratings and comprehensive service capabilities. We will consolidate our leading position in the industry, continue to expand the company's voice and influence in the international market, comprehensively promote the high-quality and sustainable development of the rating business, and continue to contribute to the rating industry.

On April 8, 2024, Mo Lingshui, Chief Advisor of China Chengxin Carbon Industry , joined the ISO Sustainable Finance Technical Committee of the International Organization for Standardization. As a member of the Sustainable Finance Information Technology Terminology Working Group, she will work with other members to jointly develop the global standard for sustainable finance information technology. The standard aims to regulate and support the application of information technology in the field of global sustainable finance.     Introduction to ISO Standards The International Organization for Standardization (ISO) is a global non-governmental organization and the world's largest internationally recognized standards organization. Its standards cover everything from product manufacturing and technology to food safety, agriculture and health care. ISO's mission is to promote global standardization and related activities to facilitate the exchange of international products and services, as well as to develop international cooperation in knowledge, science, technology and economic activities.   In 2018, ISO approved the establishment of the Technical Committee on Sustainable Finance (ISO/TC 322), which is responsible for developing ISO standards related to sustainable finance. Sustainable finance, as defined by ISO/TC 322, refers to financing, institutional and market arrangements that support the achievement of the United Nations Sustainable Development Goals and address climate change. The committee also focuses on incorporating environmental, social and governance (ESG) factors that are closely related to sustainable development into all aspects of financing economic activities.   Interviews   Q1 What value do you think the ISO global standards system has in promoting global sustainable development?   Mo Lingshui: The value of the ISO standard system lies in the following three aspects:   First, the impact of globalization ISO has a history of 78 years and is composed of national standard organizations of 170 member countries. It is a standardization organization covering 98% of the world's gross national income and 97% of the world's population. It is known as the "United Nations of Technology". ISO is the current major international standard setter and provider. It has issued 25,309 global standards so far, covering almost all industries in all aspects from commodity manufacturing, services to process management. Sustainable standards based on the consensus of each member country can be promoted and applied globally and affect the formulation of national policies. By promoting the formulation and use of international standards, ISO has helped break down technical barriers, promoted global exchanges, and enabled organizations in different countries and regions to more easily share best practices and technical solutions to jointly address the challenges facing global sustainable development.   Second, ISO standards play a key role in promoting the achievement of global sustainable development goals and addressing climate change. ISO signed the London Declaration in 2021, which means that all ISO standards (both existing and newly developed) must be aligned with the United Nations Sustainable Development Goals (SDGs), the Paris Agreement, and the United Nations Adaptation and Resilience Initiative, and accelerate the achievement of these goals as much as possible. ISO standards provide clear and practical ways for organizations or institutions to comply with regulations and operate efficiently, meet the demands of stakeholders , and ensure that their operations and products have a positive impact on the environment, the economy, and society. In addition to standard setting, ISO also develops tools, benchmarks and guidelines to support the application of standards, which helps to turn standards into action.   Third, ISO standards reflect the trend of international sustainable development ISO standards are discussed and developed by the world's top experts, reflecting the latest international knowledge and best practices. At the same time, the ISO standard-making process is very transparent and neutral, taking into full consideration the opinions of stakeholders and user groups from various countries. The standards are inclusive and reliable, making them more likely to be recognized and accepted by different stakeholders in various countries.   Q2 What is China's position in participating in the introduction of the ISO global standards system?   Mo Lingshui: China National Standardization Administration (managed by the State Administration for Market Regulation) joined ISO in 1978, and China officially became a permanent member of ISO in 2008. China is transforming from a follower and participant to a leader in international standards.   International standards are the "entry permit" to the world market, the common language of global economic and trade cooperation and technological exchanges, and an important battlefield for the international discourse power game. As the "passport" for international trade, standards affect 80% of global trade and investment, and play an important role in promoting scientific and technological innovation, eliminating trade barriers, and enhancing international cooperation. As the world's second largest economy and the largest goods trading country, China plays an increasingly important role in promoting world economic cooperation and trade connectivity. Participating in the formulation of ISO international standards and exporting Chinese standards are important ways for China to participate in the formulation of international trade rules. As more and more "Chinese standards" become "world standards", the international market has been opened up for the export of Chinese products.   Q3 What do you think about the application and future development of information technology in the field of sustainable finance, and the significance of issuing global standards for sustainable finance information technology?   Mo Lingshui: The large-scale development of sustainable finance requires the empowerment of information technology such as blockchain, AI, and digital technology. Sustainable finance is the main application scenario of information technology in the financial field and is also the future direction, because sustainable finance is the future of financial development, and the two are interdependent. The sustainable finance information technology terminology standard that is being formulated will combine sustainable finance standards with information technology. The standard will provide common terminology, international best practices and guidelines for the application of information technology in the field of sustainable finance, and provide a platform for technical organizations involved in the development of sustainable finance to support their continuous development of standardized, efficient, and sustainable financial technology products to support the development of sustainable finance. At the same time, the formulation of standards will also promote the development of sustainable finance enabled by information technology to achieve unified standards, reliable data, data comparability, and data sharing, which will help promote the large-scale application of information technology in the field of sustainable finance and promote the large-scale development of sustainable finance.   Q4 This is the first time that experts from CCX Group have joined the ISO Technical Committee on Sustainable Finance. How do you evaluate the significance of this opportunity for the company’s development?   Mo Lingshui: It has two meanings.   First, it will help CCX Group develop internationally and become bigger and stronger. Standards are the "reassurance" for people to confirm the quality and safety performance of products. "Whoever has the standards will win the world", and having standards means winning the market. Leading the formulation of standards is the unchanging creed for enterprises to become bigger and stronger. CCX Group has entered a new development stage of embarking on a new journey and embracing globalization. Participating in the formulation of international standards is the stepping stone for CCX Group's products to enter the international market.   Second, enhance the international influence of CCX Group "Third-rate companies make products, second-rate companies make brands, and first-rate companies make standards." China Chengxin Group has played an important role in the formulation of China's credit industry and green finance standards. It has become a leader in China's credit industry and green finance and is a first-rate company in China. Joining the ISO Sustainable Finance Technical Committee is an opportunity for China Chengxin Group to participate in the formulation of international standards. This will help China Chengxin Group export Chinese standards in the process of internationalization, enhance international competitiveness, and lay a solid foundation for creating a world-class company.   Group Vision As a world-leading professional credit industry group, China Chengxin Group has always been committed to providing independent, objective and fair credit rating services to the market and promoting the healthy and stable development of the financial market. This time, our members have the honor to join the ISO Sustainable Finance Technical Committee and participate in the formulation of sustainable finance information technology standards. We are deeply honored and aware of the great responsibility.   In the future, China Chengxin Group will continue to focus on and devote itself to the field of sustainable finance, give full play to the important role of credit rating in the financial market, promote the innovation and popularization of green financial products, and contribute to building a greener, more harmonious and sustainable future.

Summary   ESG Development Trends:   IFRS Foundation issues guidelines on regulatory digital taxonomy Central Committee of the Communist Party of China and the State Council issue opinions for the first time to accelerate comprehensive green transformation of economic and social development European Commission releases FAQs on CSRD to assist companies in implementing new sustainable development reporting rules UK to introduce legal regulation of ESG rating providers SEC defends its climate disclosure rules in court   ESG Risk Events: During this reporting period (August 1st to August 15th), a total of 412 ESG risk events occurred in 224 A-share listed companies. Among them, there were 8 environmental dimension risk events, 53 social dimension risk events, and 351 corporate governance dimension risk events. As of August 15th, 2024, a total of 12,002 ESG risk events have occurred in 1,772 A-share listed companies for the year. This includes 140 environmental dimension risk events, 3,359 social dimension risk events, and 8,503 corporate governance dimension risk events.   The information contained in the document is obtained by Zhongchengxin Green Gold from sources it deems reliable and accurate. However, due to potential human or mechanical errors and other factors, the above information is provided as is at the time of publication. Zhongchengxin Green Gold makes no express or implied representations or warranties regarding its accuracy, timeliness, completeness, feasibility, or suitability for any commercial purpose.   1. ESG Development Trends   1) International Organizations   IFRS Foundation Releases Regulatory Digital Taxonomy Guide   The International Financial Reporting Standards Foundation (IFRS Foundation) has issued a guide to support regulatory authorities in implementing the International Financial Reporting Standards digital taxonomy.   The International Financial Reporting Standards digital taxonomy is intended for use in digital filing systems that require the submission of general financial reports in a computer-readable, structured data format such as eXtensible Business Reporting Language (XBRL) or Inline XBRL (iXBRL).   The taxonomy can be implemented in various ways within digital filing systems. To fully leverage the benefits of digital financial reporting, regulatory authorities should implement the International Financial Reporting Standards digital taxonomy in a manner that supports cross-border digital comparability and facilitates the analysis of reported information.   Information that meets the requirements of the International Financial Reporting Standards (IFRS) but is not properly tagged, lacks granularity in tagging, uses elements from local classification systems for tagging, or uses elements from the IFRS digital taxonomy no longer associated with the applicable IFRS namespace can complicate digital comparisons, be time-consuming, and hinder cross-border digital comparability. This could potentially reduce foreign investment and increase capital costs for companies.   This guide aims to assist regulatory authorities and digital filing system owners in implementing the IFRS digital taxonomy to support cross-border digital comparability and facilitate the analysis of information prepared in accordance with the International Financial Reporting Standards (IFRS) standards.   (Source: Corporate Disclosures)   Commentary: Digital financial reporting enables investors and other users to efficiently search, extract, and compare companies' financial disclosures related to accounting and sustainability. This guide can enhance transparency and efficiency in capital markets, helping companies raise funds at lower costs.   2) Asia-Pacific Region   Central Committee of the Communist Party of China and the State Council issue opinions for the first time to systematically deploy and accelerate comprehensive green transformation of economic and social development   On August 11, the "Opinions on Accelerating the Comprehensive Green Transformation of Economic and Social Development" issued by the Central Committee of the Communist Party of China and the State Council were released. This marks the first systematic deployment at the central level to accelerate the comprehensive green transformation of economic and social development.   The opinions set forth a series of goals: by 2030, the scale of energy conservation and environmental protection industry will reach around 15 trillion yuan; the proportion of non-fossil energy consumption will increase to about 25%; the carbon emission intensity of turnover of operational transport units will decrease by approximately 9.5% compared to 2020; and the annual utilization of bulk solid waste will reach around 45 billion tons, among others.    The opinions focus on five major areas including building a spatial pattern for green, low-carbon, and high-quality development, accelerating the green and low-carbon transformation of industrial structure, steadily promoting the green and low-carbon transformation of energy, advancing the green transformation of transportation, and promoting the green transformation of urban and rural development. They also cover three key aspects such as implementing a comprehensive resource-saving strategy, promoting the green transformation of consumption patterns, and leveraging technological innovation support, deploying to accelerate the formation of a spatial pattern, industrial structure, production methods, and lifestyles that save resources and protect the environment.   (Source: Xinhua News)   Commentary: Accelerating the green and low-carbon transformation of economic and social development, especially targeting traditional high-pollution and high-energy-consuming industries. This signifies that future economic development will place more emphasis on environmental protection and the application of low-carbon technologies, prompting companies to reduce their negative impact on the environment while improving economic efficiency.     3) European Region   European Commission releases CSRD FAQ to help companies implement new sustainable development reporting rules   On August 7, the European Commission released a new set of Frequently Asked Questions (FAQ) aimed at supporting companies and other stakeholders (such as auditors) in implementing the reporting requirements of the European Union's Corporate Sustainability Reporting Directive (CSRD).   According to the Commission, the new FAQ manual reflects feedback from companies and aims to help reduce the administrative burden on companies, provide greater clarity and certainty. Its goal is to "promote stakeholder compliance with regulatory requirements in a cost-effective manner and ensure the availability and comparability of sustainability information in reporting."   The main topics covered in the FAQ manual include the scope of the rules, confirmation of company size categories for compliance dates, exemptions, which ESRS to use, factors to consider when using estimates when companies are unable to obtain value chain information, and sustainable development information requests that small and medium-sized enterprises should receive as part of sustainable development strategy research. The FAQ manual also addresses audit and certification-related issues, such as auditor approval and training requirements, and certification requirements for independent assurance providers.   (Source: ESGToday)    Commentary: Based on the new European Sustainability Reporting Standard (ESRS), the CSRD introduces more detailed reporting requirements on companies regarding the impact of environmental, human rights, and social standards as well as sustainable development-related risks. The FAQ document released by the European Commission provides valuable guidance for companies, helping to facilitate the smooth implementation of CSRD across the entire European Union.   The UK to introduce legislation to regulate ESG rating providers   According to a speech by UK Chancellor Rachel Reeves on August 7, the UK government will introduce legislation in 2025 aimed at regulating ESG rating providers. This was also confirmed by a statement from the UK Treasury. The statement said, "The Chancellor sees an opportunity to work with the industry to drive more investment and strengthen the UK's leading position in sustainable finance, starting with addressing the lack of transparency behind ESG ratings."   According to media reports, the new legislation will place ESG rating providers under the oversight of the Financial Conduct Authority (FCA).   This move comes as pressure increases to regulate ESG rating providers, as investors have increasingly integrated ESG considerations into their investment processes in recent years, and market and securities regulators typically do not cover the activities and operations of providers, leading to rapidly growing demand.   In November 2021, the International Organization of Securities Commissions (IOSCO) urged regulators to focus on increasing transparency in the ESG rating and data space and began implementing regulatory oversight. IOSCO also provided a series of recommendations for regulators, such as requiring providers to identify and disclose potential conflicts of interest and consider the data and methods used by providers.   Since IOSCO introduced its recommendations, multiple jurisdictions have taken actions to strengthen supervision in this area, including the EU, where EU legislators recently agreed to include ESG rating providers under the oversight of the European Securities and Markets Authority (ESMA) and introduce rules to enhance the reliability and comparability of ESG ratings and prevent conflicts of interest among providers.   In the UK, earlier this year, the FCA introduced a voluntary code of conduct for ESG rating and data providers. The previous government announced consultations on regulating ESG rating providers as part of last year's updated Green Finance Strategy, aiming to establish the UK as an international green finance center.   The UK Treasury stated, "Rachel Reeves has called on the Treasury to respond quickly to industry consultations on the new regulatory regime for ESG rating providers and to introduce legislation next year."   The statement added that the regulation will aim to "promote growth, help achieve a cleaner economy, and ensure companies in critical sectors such as defense are not penalized by opaque ratings," aligning with IOSCO's recommendations.   (Source: ESGToday)   Commentary: By enhancing regulation, the government aims to enhance the credibility of ESG ratings, ensuring investors can make decisions based on more accurate and transparent information. This measure will help prevent conflicts of interest and strengthen market trust in ESG ratings.     4) North America   SEC defends its climate disclosure rules in court   The U.S. Securities and Exchange Commission (SEC) has defended its new climate disclosure rules in court, arguing that the proposed disclosures in the rules provide "information directly relevant to investment value" and that the commission has the authority to require climate risk disclosure.   In a brief filed this week with the U.S. Court of Appeals for the Eighth Circuit, the commission reiterated its position that "climate-related risks—and how public companies respond to those risks—can significantly impact a company's financial performance and condition," but current reporting on these risks is "inconsistent" and "difficult to compare," limiting investors' decision-making abilities.   In its filing, the SEC outlined its decision to adopt the new climate disclosure rules, emphasizing the need for "more detailed, consistent, and comparable information," driven by "significant investor demand," citing feedback from investors to provide climate-related information for investment and voting decisions.   SEC also addressed the argument that compliance with the new rules imposes excessive costs on companies, detailing its considerations of the economic impact of the rules, including costs and expected impacts on efficiency, competition, and capital formation. The SEC pointed out that it even revised the rules from the initial proposal in 2022 "to make the required disclosures more useful to investors and less costly."   The brief also discussed the argument that the SEC lacks the authority to require climate-related disclosures, stating that "Congress authorized the Commission to require disclosures of important information for investors' investment and voting decisions" and that "each disclosure requirement in the rules is aimed at obtaining information critical to informed investment and voting decisions."   (Source: ESGToday)   Commentary: In March 2024, the U.S. Securities and Exchange Commission (SEC) passed the final rule on climate disclosure. The SEC's requirements for companies to report greenhouse gas emissions and climate risk information have been controversial, and in April, the SEC agreed to suspend the enforcement of the new rules. The SEC is currently making efforts to establish the legality of the new rules.     2. ESG Risk Events   1) Overview of Risk Events   During the reporting period (August 1st to August 15th), a total of 412 ESG risk events occurred among 224 A-share listed companies. Among them, there were 8 environmental dimension risk events, 53 social dimension risk events, and 351 corporate governance dimension risk events.   As of August 15, 2024, a total of 12,002 ESG risk events occurred among 1,772 A-share listed companies for the year. This includes 140 environmental dimension risk events, 3,359 social dimension risk events, and 8,503 corporate governance dimension risk events.       2) Industry Distribution of Risk Events   The risk events in this period involved 30 industries, including construction and decoration, environmental protection, machinery and equipment, real estate, computers, communication, pharmaceuticals and biotechnology, power equipment, electronics, retail and trade, basic chemicals, non-bank financials, non-ferrous metals, and media. Among them, the construction and decoration industry had the highest number of risk events, with 117 incidents occurring during the period.       3) Fine Amounts   During the reporting period, a total of 27 companies, including *ST Shentian (000023.SZ, building materials), Weiming Pharmaceutical (002581.SZ, pharmaceuticals and biotechnology), and ST Shengtun (600711.SH, non-ferrous metals), were fined a total of 19.78 million yuan. Among them, *ST Shentian (000023.SZ, building materials) had the highest fine amount of 4 million yuan.     4) ESG Risk Event Cases   Environmental Dimension Risk Event Case On August 1, 2024, the People's Government of Jinze Town, Qingpu District, Shanghai, issued an "Administrative Penalty Decision" to Shanghai Construction Group (600170.SH, construction and decoration) for failing to prepare a construction waste disposal plan report. The Ecological Environment Bureau of Qujing City imposed a fine of 150,000 yuan on Shanghai Construction Group (600170.SH, construction and decoration) in accordance with Article 111(1) and (2) of the Law of the People's Republic of China on the Prevention and Control of Environmental Pollution by Solid Waste.   Social Dimension Risk Event Case On August 12, 2024, the Human Resources and Social Security Bureau of Xihu District, Hangzhou City, issued an "Administrative Penalty Decision" to Hangxiao Steel Structure (600477.SH, construction and decoration) for failing to pay wages on time or withholding wages. The Human Resources and Social Security Bureau of Xihu District, Hangzhou City, imposed a fine of 18,750 yuan on Hangxiao Steel Structure (600477.SH, construction and decoration) in accordance with Article 35 of the Zhejiang Province Enterprise Wage Payment Management Measures.   Governance Dimension Risk Event Case On August 5, 2024, the China Securities Regulatory Commission (CSRC) issued a "Pre-Administrative Penalty Notice" to *ST Shentian (000023.SZ, building materials). It was found that *ST Shentian (000023.SZ, building materials) failed to disclose guarantee matters as required and failed to disclose related party transactions of non-operating funds as required. The above actions of *ST Shentian (000023.SZ, building materials) were suspected of violating Article 78(1) and (2), Article 79, and Article 80(1), (2), (3) of the Securities Law, constituting illegal acts as stipulated in Article 197(1) and (2) of the Securities Law. In accordance with Article 197(1) and (2) of the Securities Law, the CSRC ordered *ST Shentian (000023.SZ, building materials) to make corrections, issued a warning, and imposed a fine of 4 million yuan.    

In November 2023, the International Organization for Standardization (ISO) released the first international standard on carbon neutrality, ISO 14068-1:2023 "Climate Change Management - Transition to Net Zero - Part 1: Carbon Neutrality". The standard specifies the principles, requirements and guidelines for achieving and declaring carbon neutrality by quantifying, reducing and offsetting carbon footprints, and provides a path and standardized approach for all types of organizations to transition to net zero. The standard has received great attention from all parties in the world during its formulation, and it is expected to provide an effective general management tool for all types of organizations to support the United Nations Sustainable Development Goals, improve environmental, social responsibility and corporate governance (ESG) information disclosure, and formulate scientific carbon neutrality plans commensurate with their own business development.   The standard was drafted and compiled by the Greenhouse Gas Management Technical Committee of the International Organization for Standardization's Environmental Management Technical Committee (ISO/TC207/SC7). Since its launch in February 2020, more than 90 experts from 21 countries including China, Canada, and the United Kingdom have participated in the formulation of the standard. As the domestic technical counterpart of ISO/TC207/SC7, the Resources and Environment Branch of the China National Institute of Standardization selected Chinese experts to actively participate in the drafting of the ISO 14068 standard, incorporating Chinese wisdom into this important international standard, and making a positive contribution to the standard's eventual victory of more than 2/3 of member votes to become a high-level international standard.   In 2020, President Xi Jinping pointed out at the general debate of the 75th United Nations General Assembly that China will increase its national voluntary contributions and adopt more powerful policies and measures to strive to peak carbon dioxide emissions before 2030 and strive to achieve carbon neutrality before 2060. Countries around the world have also launched their own carbon neutrality goals. However, as a new concept, "carbon neutrality" does not yet have a precise connotation that is universally recognized internationally, and there are also a large number of technical issues that have not reached a consensus. The Green Claim Directive, a regulation passed by the European Parliament recently to prevent greenwashing, is the latest example. The regulation prohibits general environmental claims that are not recognized, such as product carbon neutrality, natural, and biodegradable. In the future, the EU will only allow the use of sustainability labels based on official certification programs or developed by public institutions.   As an international standard agreed upon by all parties, the launch of ISO 14068 will help provide various organizations, including enterprises, with a unified approach and principles for achieving carbon neutrality, and support countries in better using carbon neutrality-related goals and descriptions when formulating their own climate change plans, strategies and programs.   Compared with the expectations and evaluations of domestic and foreign stakeholders, the formulation and release of the ISO 14068-1:2023 standard has gathered consensus from multiple parties and resolved most of the previous disputes and problems. However, there are also some complex and prominent issues that need to be resolved in future version upgrades with new good practices.   ISO 14068-1 is a framework standard for the quantification of greenhouse gas emissions and removals, which can be used for validation and verification to support organizations' carbon neutrality commitments and declarations. How to effectively conduct carbon neutrality validation and verification based on standards such as ISO 17029 and ISO 14065 is also a new topic. By tracking the evolution of PAS 2060 to ISO standards and comparing the initial expectations and controversies of all parties, this article briefly analyzes the main features of ISO 14068-1:2023 and the expected role of validation and verification as follows:   The release of ISO 14068 finally completes the ISO carbon emissions management standard family, thus providing a complete greenhouse gas management standard system for various organizations and governments.   The Bali Agreement proposed the "four wheels" to address climate change, namely: mitigation, adaptation, finance and technology. Standards are an indispensable technical foundation for achieving carbon peak and carbon neutrality. ISO established the Greenhouse Gas Management Standardization Subcommittee (TC207/SC7) in 2007, which is responsible for leading the research on the carbon management standard system and the formulation of related series of standards, including the climate change adaptation standard series, the climate change mitigation standard series, and the framework standard series, as shown in the figure below.   To date, ISO/TC207/SC7 has developed and released a series of standards for adaptation to climate change (ISO 14090 family of standards), a series of standards for mitigation of climate change (greenhouse gas quantification and reporting series of standards ISO 14064, 14067 family of standards), and a series of standards to support review and verification (ISO 14064-3, ISO 14065, ISO 14066 and other international standards), which have initially formed an internationally accepted greenhouse gas accounting standard system.   ISO positioned the ISO 14068 carbon neutrality standard released this time as a framework standard, completing an important part of the standard system for addressing climate change. The formulation of this standard took more than three years, and its final release marks a high-level consensus reached by the international community towards building a community with a shared future for mankind, jointly addressing climate change, and moving towards the goal of net zero emissions. According to the explanation of the State Administration for Market Regulation, only standards issued by ISO, IEC and ITU international organizations for standardization have the effect of international standards. It can be foreseen that after the release of ISO 14068, it will replace other local standards such as PAS 2060 issued by the United Kingdom and become an international standard for carbon neutrality declarations that can be used for third-party review and verification.   ISO 14068 marks the consensus and agreement reached by the international standards community on how to carry out greenhouse gas emissions and emission reduction accounting   The accounting of greenhouse gas emissions and reductions is the core activity of carbon neutrality. Carbon peak and carbon neutrality require all kinds of entities to implement quantitative management of greenhouse gas emissions or removals according to prevailing standards and rules, and fully realize the measurability, reportability and verifiability of various green energy-saving and low-carbon actions and their emission reduction results.   In the past, experts from some countries believed that ISO 14064-1, ISO 14064-2 and other standards should be used for quantitative calculations to strengthen the coordination and cooperation of ISO standards. However, some other experts believed that the standards and specifications of other international organizations or national standards should be allowed to be used for the calculation of greenhouse gas emissions and emission reductions to improve flexibility and applicability.   The development and release of ISO 14068 explicitly adopts the already published ISO standards for greenhouse gas quantification, reporting, validation and verification, including ISO 14064-1 and ISO 14067. ISO 14068-1 requires that carbon neutrality claims should be verified according to ISO 14064-3 or equivalent verification standards to avoid inconsistencies in the validation and verification of carbon neutrality claims.     Therefore, the release of this new standard provides a basis for promoting Chinese companies to carry out carbon neutrality declarations based on international standards, obtaining third-party review and verification opinions from recognized review and verification agencies, and then achieving international multilateral mutual recognition under the IAF MLA framework, and ultimately adopting carbon neutrality declarations.   ISO 14068 clarifies the principle and specific requirements of "emission reduction and carbon sink enhancement take precedence over offset" in the carbon neutrality process   That is, first of all, greenhouse gas emissions should be reduced as much as possible, and then the removal volume should be increased, rather than achieving carbon neutrality mainly through offset activities. This avoids the "greenwashing" behavior of some wealthy capital enterprises who claim to have achieved carbon neutrality by simply spending a lot of money to purchase carbon sinks to offset carbon emissions when there is no actual emission reduction or carbon sink increase action.     The standard also provides unified principles and requirements for measuring the standards or criteria for controlling and reducing greenhouse gas emissions as much as possible:   In terms of organizing carbon emission reduction and carbon sink enhancement, it is required to fully reflect the hierarchical approach of carbon neutrality, that is, emission reduction is given priority, followed by carbon sink enhancement. Emission reduction can be total or intensity. However, even if intensity emission reduction is used, it is necessary to consider how to achieve total emission reduction in the long term and ensure that emission reduction achieves the specified target. The standard also stipulates that the carbon sink enhancement target should be achieved, and when there is a reversal of carbon sink enhancement, it should be recalculated as carbon emissions.   In terms of product carbon footprint offset, it is emphasized that offset must be a carbon neutrality measure that can only be taken after emission reduction and carbon sink increase. It stipulates the standards that carbon credits that can be used for offset should meet, and clearly stipulates that "residual carbon footprint" can only be offset by carbon credits based on carbon removal. It clearly stipulates that emission reduction and carbon sink increase that can only be achieved in the future cannot be used for offset. It also clearly stipulates the standards for carbon credit schemes that meet the requirements, and stipulates that carbon credits can only come from carbon credit schemes that meet these standards.   ISO 14068 clarifies the differences between carbon neutrality and net zero emissions and their application scenarios   For some time, there has been confusion between the concepts of "carbon neutrality" and "net zero", even among some professionals. The ISO 14068 standard clarifies that in a global context, such as the Intergovernmental Panel on Climate Change (IPCC), these terms are defined as equivalent, referring to the situation where anthropogenic greenhouse gas emissions and anthropogenic greenhouse gas removals are balanced over a specific period of time.   The standard clarifies that there is a distinction between the use of “carbon neutral” and “net zero emissions” when the context is sub-global, such as when referring to an organization, product, or geographic region. Carbon neutrality is generally aimed at organizations or products, which means that they have quantified their carbon footprint, taken measures to reduce their carbon footprint by reducing greenhouse gas emissions and increasing removals, and then offset the remaining footprint. The process of achieving carbon neutrality includes the offsetting part. In the standard, carbon neutrality is considered a path for continuous improvement, reducing the subject's carbon footprint by implementing emission reduction and removal enhancement activities, so the demand for offsetting decreases over time. The objects of net zero emissions are mostly countries, government authorities or organizations, and are not applicable to products. For organizations, net zero emissions are generally considered to be the condition of reducing emissions, only using carbon credits to offset the remaining emissions. The point is that carbon neutrality is generally used for organizations and products.   Net zero emissions, on the other hand, usually applies to regions and organizations, but not to products. For organizations, when companies talk about "net zero", they are more referring to a future target according to which they plan to reduce GHG emissions as much as possible, increase CO2 removals, and use carbon credits from carbon sink projects to offset their remaining footprint. Net zero GHG emissions are defined and assessed differently in different situations. For organizations, net zero GHG emissions are usually considered to be a situation where emissions have been reduced and only residual emissions remain, and offsets are limited to removal credits. In terms of geographical regions, net zero GHG emissions assessments take into account emissions and removals under the direct control or jurisdiction of that territory, and sometimes do not include offsets.   According to ISO's new definition, many current claims of "carbon neutral cities", "zero carbon parks" and "zero carbon products" may face huge controversy over "greenwashing". For certification and verification agencies, when determining the boundaries of carbon neutrality and the suitability of carbon neutrality declarations, they need to consider avoiding possible disputes.   ISO 14068 provides further agreements on how to reduce and avoid the "greenwashing" behavior of unscrupulous companies   In the past, experts from various countries had great controversy over the fairness of carbon neutrality declarations. The questions focused on: Is it allowed to declare partial carbon neutrality? Is it allowed to promise carbon neutrality? How to ensure the reliability of carbon neutrality declarations? Can carbon neutrality be self-declared, or must some form of review and verification be carried out? These issues have attracted widespread attention because some companies have exaggerated their carbon neutrality for a small part of their carbon emissions, or even just made promises on paper, only promised carbon neutrality (which is actually just a target), or simply talked to themselves, suspected of "greenwashing".   The ISO 14068 standard is consistent with the new versions of ISO 14064 and ISO14067 in terms of the selection of subject matter and its boundaries, and requires the publication of a carbon neutrality report in each reporting period, and specifies the detailed information that the report should include. The standard requires that carbon neutrality statements should be reviewed and verified in accordance with ISO 14064-3 or equivalent verification standards, and does not allow for declarations of carbon neutrality "commitments", only declarations after carbon neutrality is achieved; the standard also requires that when implementing carbon neutrality, attention should be paid to and negative impacts on the environment and society should be avoided, which is a major improvement compared to the PAS 2060 standard issued by the UK.   ISO 14068 is not just about carbon neutrality, but a big step towards providing a “carbon management system” standard   To promote the realization of carbon peak and carbon neutrality goals, it is necessary for all levels, especially various organizations such as enterprises and institutions, to establish a systematic implementation framework and structured path. Is it necessary to establish a new "carbon management system"? This topic was also a hotly discussed issue in the International Organization for Standardization's Management Technical Committee (ISO/TC 207). In the end, the vast majority of international experts believe that the ISO 14000 family of environmental management systems can fully guide and support various organizations in carrying out greenhouse gas emission management. The top priority is to promote enterprises to effectively implement environmental management systems, rather than rushing to develop another "carbon management system." We are delighted to see that the ISO 14068 standard is not only about the terminology, principles and methods of carbon neutrality, but also embeds classic management system elements such as "leadership", "PDCA-based process approach in management plans", "resource and capability assurance" and "documented information", so that the standard can be used alone or integrated with the general environmental management system standard ISO 14001, providing a good tool for organizations to more easily use ISO standards to establish and operate carbon management systems.   For our audit and verification agency, our audit and verification process not only focuses on carbon emissions quantification, energy conservation and carbon reduction, and offsetting, but also needs to pay attention to the carbon management system elements and process methods required by the standards.   It should be pointed out that the ISO 14068-1 standard also has its regrets. We see that as a new concept, "carbon neutrality" still has many important but unconsensus issues internationally. For example, a major controversy is whether the type of emission reduction considered for carbon neutrality should include "avoided emissions"? According to the ISO Net Zero Guidelines, "avoided greenhouse gas emissions" refer to "potential impacts on greenhouse gas emissions that occur outside the boundaries of the organization, but are generated through the use of its products or services, and emissions avoided outside of scope 1 emissions, scope 2 emissions, and scope 3 emissions." A typical example is the data shown in the "2022 Tesla Impact Report" released by Tesla: Through its globally delivered electric vehicles, solar panels, and energy storage products, Tesla has helped customers reduce greenhouse gas emissions by 13.4 million metric tons of carbon dioxide equivalent, equivalent to avoiding emissions from 4.43 million fuel vehicles for a whole year. Tesla attributes this achievement to its significant contribution to climate change response, especially carbon emission reduction. What is often criticized by electric vehicle industry entrepreneurs such as Musk is that the existing greenhouse gas (GHG) emission quantification standards do not take into account "avoided carbon emissions".   In the formulation of carbon neutrality standards, some experts believe that avoided emissions should not be considered due to the difficulty in measuring them and the high uncertainty. However, some experts believe that the concept of "avoided carbon emissions" will become a way for companies to show that their products or services have a real positive impact on the world, reflecting that companies not only focus on reducing their own and supply chain emissions, but also drive the emission reduction of institutions that use their products or services, which is not shown in traditional greenhouse gas emission inventories. Therefore, avoided emissions should be included in product carbon neutrality or organizational carbon neutrality. For investors, focusing on avoided carbon emissions can encourage investors to better identify investment risks and opportunities, as well as pay attention to more comprehensive ESG disclosures, which will also bring new dimensions of thinking to long-term portfolio strategies in the context of low-carbon transformation. Unfortunately, the ISO 14068-1:2023 standard does not discuss greenhouse gas emissions avoided through the use of goods or services, which may be a setback for global energy-saving and emission-reduction companies and new energy industries. We believe that experts in the international standards community have the wisdom to gradually solve these problems in the development of new international standards in the future.   “Avoided emissions” is a concept proposed by the World Resources Institute (WRI) in 2013, sometimes referred to as Scope 4, which refers to greenhouse gas emissions avoided due to the use of more efficient goods and services outside the product life cycle or value chain itself.     The sources of avoided carbon emissions fall into two main categories: One is that a product replaces another carbon-intensive product, such as a company using high-speed rail to replace airplanes for business travel, or the manufacture of solar panels helps replace fossil fuel power generation and reduce emissions for the entire society. According to the definition of avoided emissions, this part of the emission reduction can be calculated as an indirect emission reduction of the user enterprise (scope 2), and should also be calculated as the avoided emission reduction contributed by high-speed rail and solar panel manufacturers (scope 4).   The second is to help other processes reduce emissions through product use. For example, shared cloud service providers support the country's "East Data West Computing" strategy, build data centers in the west where renewable energy is developed, provide more cloud services to enterprises in eastern coastal cities, and replace local high-energy-consuming data storage and computing, thereby reducing carbon emissions from eastern enterprises and the entire region. This part of the emission reduction is the "avoided emissions" of cloud service providers. Another example is that China announced on September 21, 2021 that it would no longer build new overseas coal-fired power projects. This move is of benchmark significance for the world's energy conservation and emission reduction. Chinese companies have rich experience and market share in the construction of coal-fired power plants. Making this decision is undoubtedly a huge sacrifice made by Chinese companies and a major contribution to global climate change action. When quantifying China's overall carbon emissions, "avoided carbon emissions" should be fairly considered.   Although we cannot include “avoided carbon emissions” when conducting carbon neutrality declaration review and verification in accordance with ISO 14068-1, we encourage Chinese companies to proactively publish their achievements in this regard when preparing and publishing corporate sustainability reports and disclosing ESG information. This will be of great benefit to improving ESG performance and promoting comprehensive and comprehensive evaluation of Chinese companies’ contributions to sustainable development by all sectors of society.

Wei Wenlong: The Climate Risk Business Director of Zhongchengxin Green Finance Technology (Beijing) Co., Ltd., a certified FRM holder, with dual Master's degrees in Financial Mathematics from the University of Minnesota and Environmental Science and Engineering from Tsinghua University. He specializes in the field of quantitative analysis of financial risks and has published over ten articles in core academic journals.   Abstract         The lack of historical data accumulation for managing and addressing climate risks, coupled with their long-term nature, makes it difficult for traditional risk measurement tools to be effective. As a result, stress testing has become an effective method for evaluating the impact of climate change and economic transformation. This article compares two methodological approaches to climate physical risk stress testing that have emerged in practice, and integrates physical risk into existing climate stress testing methodologies. The article analyzes the current domestic and international applications and development trends of the climate physical risk stress testing method. Key Word: Physical Risk; Stress Testing; Commercial Banks Chinese Library Classification Number: F832.2           Document ID: A         Article Number: 1009-1246(2024)01-0037-05   1. Background Conducting climate risk stress testing is a powerful tool for financial institutions to actively respond to climate change, proactively manage climate risks, fulfill social responsibilities, and assist in transformation and upgrading. Climate risks are divided into transitional risks and physical risks. According to the definition given by the Central Banks and Supervisors Network for Greening the Financial System (NGFS), physical risks refer to risks related to climate patterns gradually changing due to climate change, specifically referring to chronic risks (such as gradually increasing temperatures) and acute risks associated with increased frequency and/or severity of weather events (such as tropical cyclones, storms, floods, and droughts).   In 2021, 23 major banks in China completed the first phase of climate risk stress testing, which focused on carbon transition risk stress testing with carbon emission trading prices as the main factor, targeting the three high-carbon industries of thermal power, steel, and cement. The test examined the impact of rising carbon emission costs on the repayment ability of enterprises with annual emissions of over 26,000 tons of carbon dioxide equivalent in the three industries, as well as the impact on the credit asset quality and capital adequacy level of participating banks.   Climate physical risk stress testing has strong spatial differences and involves many risk factors. Currently, it is in the exploration stage and has not yet formed a unified testing plan. Starting from the common processing ideas of climate physical risk stress testing in practice, this article summarizes two mainstream methodological approaches currently applied and selects one of them as a case study for practical application in a certain commercial bank.   2. Two methodological approaches for physical climate risk stress testing One method is a combination of top-down and bottom-up approaches. Starting from the spatial characteristics of climate risk factors, this method predicts the spatial and intensity distribution of climate risks under different stress scenarios in the future, based on the three elements of climate physical risks: hazard, exposure, and vulnerability. The method evaluates the impact of these risks on the devaluation, cash flow, and other losses of financial institutions' assets in different regions. The advantage of this method is that it is easy to understand, but the disadvantage is that it has strict requirements and generally requires the use of geographic information systems (GIS), which have high requirements for data quantity and data granularity. MSCI proposed a physical risk quantification management plan that classifies six extreme physical risks (heatwaves, coastal floods, river floods, cold waves, typhoons, and wildfires) based on hazard, exposure, and vulnerability. A certain bank analyzed seven physical risk factors, including water scarcity, heatwaves, extreme cold, drought, floods, ecological environment damage, and sea-level rise, in a semi-quantitative form, combining with the spatial distribution characteristics of its assets in its 2022 environmental information disclosure report.   The other method is a top-down approach. Based on traditional macro stress testing methodologies, this method quantifies the impact of climate change on macroeconomic and asset risk variables under different stress scenarios by introducing core climate variables (such as temperature and precipitation) and constructing a relationship between core climate variables, macroeconomic variables, and risk variables of different industries of financial institutions (such as banks) using econometric models. The advantage of this method is that it uses existing risk quantification management systems, and the methodology is relatively mature and easy to implement. The disadvantage is that the explanatory power of core climate variables for macroeconomic variables is insufficient, and further research is needed to explore intermediate variables or build intermediate models to transmit stress. For example, a certain bank used ARIMA forecasting, Monte Carlo simulation, and Wilson models, selected macro variables such as GDP, PPI, CPI, M2, as well as climate variables such as precipitation and temperature, and constructed a manufacturing default probability PD model using data processing methods such as differential, year-on-year, and chain ratios to test changes in credit asset quality of the manufacturing industry under mild, moderate, and severe stress scenarios.   3. Application of top-down approach for physical climate risk stress testing in a commercial bank: a case study of a certain commercial bank   01 Main objectives The main objective is to explore the impact of physical risks on different industry credit customers of the bank, identify physical risk factors, analyze stress transmission paths, construct stress transmission models, and calculate and analyze the impact of climate risks on risk control indicators such as the credit asset quality and capital adequacy ratio of the bank under different scenarios. Considering that the top-down approach uses the existing risk quantification management system, is mature in methodology, and easy to implement, the top-down approach is chosen to execute the physical climate risk stress testing.   02 Influencing factors Statistical data shows that heavy rain and drought are the main climate factors that have a significant impact on the bank's region. As climate change intensifies, temperatures continue to rise, and droughts occur, the temperature causes systematic interference to the atmospheric water cycle, resulting in an increase in extreme weather disasters such as frequency and intensity of heavy rain events. Since the data series for heavy rain and drought are not long enough, variables such as precipitation and average temperature are used as characteristic variables.   03 Stress transmission The main physical risk factors of climate change are determined to be precipitation and average temperature. Stress transmission paths from physical risks to economic variables and then to changes in credit asset quality are constructed. On the one hand, extreme heavy rain can cause floods or waterlogging disasters, increase precipitation, and to some extent cause a reduction in agricultural production, damage to industrial production, directly causing regional economic losses, affecting the production and operation activities of market entities, and leading to a decrease in operating efficiency and debt repayment ability, ultimately causing a decline in the credit asset quality of banks. On the other hand, extreme drought causes a reduction in agricultural production and supply, and the pressure of rising agricultural product prices is transmitted to industries and other fields, causing a rise in production costs and impacting the debt repayment ability of market entities, ultimately leading to a decline in the credit asset quality of banks.   04 Determining the physical climate risk stress model Based on the Credit Portfolio View (CPV) model, a physical climate risk stress testing model is constructed. Near non-performing loan rate data for a certain industry is selected, and variables such as local and provincial GDP, precipitation, average temperature, and national PPI, M2, Shibor, etc. are collected and transformed into pre-processing indicators such as year-on-year growth rate, cumulative value, difference, and Logit conversion. The autoregressive function (ACF), partial autocorrelation function (PACF), and white noise test (Ljung-Box) are used to eliminate sequence correlation and model the relationship between variables. A CPV panel model is constructed with relevant hypothesis testing. The length of the data used in the model is 8 years, with a quarterly frequency.   The main physical risk factors of climate change are determined to be precipitation and average temperature. Stress transmission paths from physical risks to economic variables and then to changes in credit asset quality are constructed. On the one hand, extreme heavy rain can cause floods or waterlogging disasters, increase precipitation, and to some extent cause a reduction in agricultural production, damage to industrial production, directly causing regional economic losses, affecting the production and operation activities of market entities, and leading to a decrease in operating efficiency and debt repayment ability, ultimately causing a decline in the credit asset quality of banks. On the other hand, extreme drought causes a reduction in agricultural production and supply, and the pressure of rising agricultural product prices is transmitted to industries and other fields, causing a rise in production costs and impacting the debt repayment ability of market entities, ultimately leading to a decline in the credit asset quality of banks.   05 Determining physical climate risk stress scenarios The three temperature rise scenarios corresponding to the six NGFS scenarios are adopted, namely 1.5℃, 2℃, and 3℃ scenarios, which correspond to mild, moderate, and severe stress scenarios respectively. It is assumed that the bank's credit asset exposure, non-performing loan rate, risk control indicators, and macroeconomic factors for the participating industries remain unchanged at the 2021 level, and 100% provision for new non-performing loans is adopted to analyze the impact of temperature rise on the credit asset quality and risk control indicators such as the capital adequacy ratio of the bank.   06 Analysis and discussion of test results Based on the model economics interpretation, it is found that under the background of climate change, assuming other factors remain unchanged, the higher the temperature, the greater the impact on the credit asset quality of the participating industries of the bank. The test found that after provision for impairment losses, the impact of the participating industries on the credit asset of the bank was limited under mild, moderate, and severe stress scenarios. In the test results, the non-performing loan rate increased, reaching 1.71% under the severe stress scenario; the provision coverage ratio decreased, reaching 117.14% under the severe stress scenario, still higher than 100%; the capital adequacy ratio decreased, reaching 15.10% under the severe stress scenario, which meets regulatory requirements and is higher than the minimum requirement of 5.1 percentage points; the Tier 1 capital adequacy ratio decreased, reaching 11.10% under the severe stress scenario, which meets regulatory requirements and is higher than the minimum requirement of 2.6 percentage points; the capital adequacy ratio decreased, reaching 11.10% under the severe stress scenario, which meets regulatory requirements and is higher than the minimum requirement of 3.6 percentage points.   07 Optimization direction This study explores physical climate risk stress testing starting from two macroeconomic variables, average temperature and precipitation, and the related methods have certain reference significance. However, there are also two shortcomings. First, static testing methods are used, assuming that the balances of relevant accounting items on the bank's balance sheet remain unchanged, which does not match the actual situation. Second, precipitation and average temperature variables do not directly affect macroeconomic variables, so it is necessary to study potential intermediate variables or intermediate models to transmit stress and improve the interpretability of the model.   4. Conclusion This article analyzes and compares two methodological approaches for physical climate risk stress testing, and uses a certain commercial bank as an example to elaborate on the practical case of integrating the top-down approach for physical climate risk stress testing into existing climate stress testing methodologies. Based on case analysis and application practice, the following conclusions are drawn.   Firstly, the top-down approach integrates physical climate risk stress testing into existing climate stress testing methodologies but needs to be improved. On the one hand, whether climate risk variables are used as exogenous variables to affect macroeconomic variables or to affect the asset quality of financial institutions together with macroeconomic variables, the specific logic of intermediaries needs to be improved. Intermediate variables or intermediate models should be sought to transmit stress and improve the interpretability of the model. On the other hand, NGFS predicts the macroeconomic variables under the global warming scenario and their interactions with various economic sectors based on the Integrated Assessment Model (IAM), the Global Change Analysis Model (GCAM), the MESSAGEix-GLOBIOM model, the REMIND-MAgPIE model, etc. Therefore, the SVAR model can be used to better connect climate variables with macroeconomic variables.    Secondly, with a certain data foundation, the top-down approach can integrate physical climate risk stress testing into existing climate stress testing methodologies and be used for localized physical climate risk stress testing. On the one hand, since climate variables have spatial differences, the top-down approach can be applied based on the idea of one model per region (province/city/county). On the other hand, constructing a macroeconomic forecasting framework that conforms to the actual climate change background is also a potential solution, and it is necessary to actively explore macroeconomic stress testing for climate risk scenarios.    Thirdly, physical climate risk stress testing will still be mainly based on the combination of top-down and bottom-up approaches in the future. Physical climate risk stress testing needs to analyze and manage the three elements of climate physical risk hazards, exposures, and vulnerabilities, and both academia and industry are exploring their application. As this type of method retains the quantification principles of catastrophe models in the insurance and financial industries, it has a good scientific basis and explanatory power for different types of climate physical risks and disasters, and its model mechanisms have been tested in practice. Therefore, this type of method may become the mainstream approach for physical climate risk stress testing in the future.    Fourthly, financial institutions should pay attention to physical climate risk stress testing. As an important component of climate risk, physical climate risk stress testing is gradually being understood and mastered by domestic financial institutions. According to the results of the climate risk stress testing conducted by the European Central Bank in 2022, the ECB is considering incorporating the testing results into the internal capital adequacy assessment process (ICAAP) of some financial institutions, which may have specific quantitative effects on the second pillar of the Basel Accord in the future. At the same time, some European financial institutions have already included climate risk stress testing in their ICAAP, prudently managing regulatory capital and actively responding to climate risk.      References:  [1] Sun, T., & Miao, M. (2023). Reflections on Financial Management and Coping with Climate Risk. China Finance, 16, 12-15. [2] Xie, L., Zhou, F., Chen, S., et al. (2022). Analysis of the Impact of Climate Change on Financial Stability Based on SVAR Model: A Case Study of China's Banking Industry. Fujian Finance, 12, 3-13. [3] Monetary Policy Analysis Group of the People's Bank of China. (2022). China Monetary Policy Execution Report (Q4 2021) [R]. Beijing: People's Bank of China. [4] Research Bureau of the People's Bank of China. (2023). Promoting Effective Connection between Green Finance and Transformational Finance [R]. Beijing: People's Bank of China. [5] IPCC. Climate Change 2022: Impacts, Adaptation, and Vulnerability. Contribution of Working Group II to the Sixth Assessment Report of the Intergovernmental Panel on Climate Change[R]. London: Cambridge University Press, 2022. [6] MSCI. MSCI Real Assets Climate Analysis: A TRANSPARENT APPROACH TO CALCULATING CLIMATE RISK[R]. New York: MSCI, 2022. [7] NGFS. NGFS Climate Scenarios Database Technical Documentation V3.1[R]. Paris: NGFS, 2022. [8] NGFS. Physical Climate Risk Assessment: Practical Lessons for the Development of Climate Scenarios with Extreme Weather Events from Emerging Markets and Developing Economies[R]. Paris: NGFS, 2022. [9] ECB Banking Supervision. 2022 climate risk stress test[R]. Frankfurt: European Central Bank, 2022.

On May 9, the China Association of Public Companies hosted a special training on sustainable development information disclosure for listed companies. The training aims to strengthen the understanding and recognition of listed companies by domestic and foreign institutions through experience sharing of outstanding listed companies and expert discussions and exchanges, guide listed companies to actively fulfill their corporate mission and social responsibility, jointly promote value creation, enhance value recognition, and enhance sustainable development capabilities. The conference invited 150 chairmen, general managers and relevant directors and senior executives of listed companies. Ma Xianfeng, member of the Sustainable Development (ESG) Professional Committee of the China Association of Public Companies, CEO of China Chengxin Investment Group, and Chairman of CCXGF, was invited to attend the special training on how listed companies should prepare the "Sustainable Development Report".     Ma Xianfeng, Chairman of CCXGF, focused on the significance of sustainable development report preparation, the overall preparation ideas of the report, and the report preparation process. As one of the earliest third-party institutions in mainland China to participate in the development of green and sustainable finance, CCXGF has worked hard to promote and guide the capital market to respond to climate change challenges and protect biodiversity. It has completed the certification of sustainable bonds for nearly 500 entities in mainland China, and has a complete green bond database, listed companies and bond issuers ESG database, and is in a leading position in the market in terms of regional green financial systems, green banking services, green bond assessments, and ESG rating services.     In the future, CCXGF will continue to assist the association in promoting the research and implementation of ESG information disclosure by listed companies, guide listed companies to fully, accurately and comprehensively implement the new development concept, build a new development pattern, and meet the needs of ESG work to better serve the high-quality development of listed companies.

  Mao Zhenhua is the founder of China Chengxin Group, the chief economist of China Chengxin International, a professor at the School of Business and Economics of the University of Hong Kong, a member of the expert group of the Chief Executive's Policy Unit of the Hong Kong Special Administrative Region Government, a co-director and professor of the Institute of Economics of Renmin University of China, the dean of the Dong Furong Institute of Economic and Social Development of Wuhan University, and the co-chairman of the China Macroeconomic Forum (CMF).   The following views are compiled from Mao Zhenhua’s speech at the CMF Macroeconomic Hot Issues Seminar (No. 88)   Since the beginning of this year, China's exports have maintained a good growth momentum against the backdrop of an increasingly severe international situation, frequent geopolitical conflicts, and the intensifying Sino-US game. This fully reflects China's strong production capacity, as well as the supply chain advantages, innovation advantages, and comparative cost advantages behind exports. However, from a medium- to long-term perspective, China's foreign trade and external environment will be increasingly affected by changes in the global geopolitical and economic landscape, especially the Sino-US game. I would like to discuss two aspects of this.   1. “De-risking” is not “de-cold war”, but rather a “new cold war”   The goal of the United States in instigating the current game with China is to achieve a "Cold War state". In recent years, the impact of geopolitical evolution has surpassed many conventional economic factors, especially the game between China and the United States has become the dominant force affecting global economic and political stability. In this context, we should first see the basic framework of the US strategy toward China. Looking back at the so-called "US-Soviet Cold War" that lasted for more than 40 years from 1945 to 1991, the United States adopted a long-term confrontation and competition strategy that was neither war nor peace against the former Soviet Union and its allies by establishing an alliance system including politics, military and diplomacy, and finally defeated the former Soviet Union. On the issue of China, trying to replicate past successes is also the basic idea of the current US strategy toward China, which is why I call it the "new Cold War". In 2017, Trump signed an executive memorandum authorizing the Office of the United States Trade Representative to conduct a "301 investigation" against China, taking the lead in initiating a trade conflict. But Trump is not a traditional American establishment. While launching a trade war against China, he also fought a trade war with his military and political allies, and did not form a situation of group confrontation. Biden made major adjustments to Trump's strategy after taking office. First, he continued the traditional American diplomatic thinking and re-established the core alliance pattern of NATO and the European Union, including a few developed countries in the Asia-Pacific region such as Japan and South Korea, trying to isolate China by winning over allies and forming alliances. Second, he expanded the Sino-US trade conflict to other levels such as science and technology, military, and personnel exchanges, trying to achieve decoupling from China. Looking back on this process, it fully reflects the characteristics of the new Cold War: first, do not fight a hot war, second, aim to divide or even isolate each other, and third, comprehensive competition and confrontation in economy, politics, diplomacy, and system. Judging from the current situation, the situation is also evolving towards the "trilogy" of Sino-US game that I predicted before.   From "decoupling" to "de-risking", the new Cold War pattern has basically taken shape. Biden, as an establishment politician, has tried to win over Europe and China to decouple, but China and Europe are each other's second largest trading partners, which means that Europe will bear huge economic costs. During the World Economic Forum Annual Meeting in early 2023, European Commission President von der Leyen first proposed the EU's "de-risking" of China. Biden made concessions to Europe and finally accepted this concept, thus reaching a consensus between the United States and Europe on the China issue. Since then, I have publicly stated many times that the adjustment of the US strategy toward China from "decoupling" to "de-risking" does not mean that the competition and game between China and the United States have eased, but that the new Cold War pattern has basically taken shape, which marks that the United States and its allies have reached a unified understanding and strategy toward China. The "de-risking" framework maintains the exchanges between Europe and the United States and China in general trade, energy, capital and other ordinary fields, but adjusts the content covered by "risks", not only involving the high-tech, military and other fields that we generally think of, but also some new fields. We should note that the content and degree of tightness of these new areas are dynamically adjusted - as long as they are considered not in the interests of Europe and the United States, they will be included in the scope of "risk". Among them, new energy vehicles are a very realistic example. New energy vehicles do not belong to the field of high technology and military, but because China has advantages in technology and cost, and threatens the relevant interests of Europe and the United States, they are included in the content of "risk". The United States and Europe have also reached a consensus on this strategic measure. Therefore, the change from "decoupling" to "de-risking" is a very important change in Sino-US relations, and it is also a new environment that China will face in the long term in the global geopolitical and economic evolution. This is also an important reason why I believe that the new Cold War pattern has been formed.   The prelude of the new Cold War has been opened, but the "iron curtain" has not yet formed, and China still has a certain window of adjustment. On the one hand, China's general goods trade with the United States and European countries and related personnel and capital exchanges can still continue. Although affected by "de-risking", from the foreign trade in the first half of the year, we can still feel China's advantages in the underlying goods and basic goods of the entire world trade, especially the supply chain advantages we have established in recent years. China's exports have remained resilient since the beginning of this year; and the exports of private enterprises are also recovering, which deserves our further attention and thinking in the process of formulating "stable foreign trade" policies in the future. Secondly, under the framework of "de-risking", various countries still have different interests, thus forming further game space. Although the current new Cold War pattern has been formed, it is not a monolithic block. For example, for the export restrictions on China's new energy vehicles, German companies and the German government have been expressing goodwill and opposing Europe's practices such as imposing tariffs. From this perspective, we have a lot to do in geopolitics , and it is necessary for foreign trade-related policies to be closely coordinated with national security and foreign policy. In recent years, China has made many policy adjustments and taken the initiative to ease the tense foreign relations that had formed in the past. In particular, in the first half of this year, China resumed talks with Europe, Australia, New Zealand, Japan, South Korea and other countries, and unilaterally opened visas to some countries, which caused a great response internationally. This demonstrated our flexibility in the field of opening up and foreign relations. At the same time, it will also help break the encirclement of China established by the United States.   From "decoupling" to "de-risking", "security" and "interests" are growing and declining, and are in dynamic balance. The impact of geopolitical evolution on the global economy and trade is fermenting, and companies, especially multinational companies, have to pay more attention to "security". In April this year, I attended the China-US Business Leaders Roundtable held in the United States. The theme of the meeting was "Balance between Security and Economic Interests". At the meeting, American entrepreneurs proposed that in the face of national security, the interests of enterprises, entrepreneurs and investors are not worth talking about, and there is no room for game at all. Therefore, it is very important to establish a national security concept in the economic field and to establish a balance between national security and economic interests. I think it is necessary to summarize the good work done in this regard in recent times and some good results achieved, and use it as a basis to provide a good guide for China's future foreign economic and trade work.   2. Eliminate misconceptions about foreign investment and combine the introduction of foreign investment with enterprises going overseas   The background of foreign direct investment has changed, but its positive significance for the Chinese economy has not changed. Under the background of deglobalization and anti-globalization, some foreign-invested enterprises are currently under geopolitical pressure, especially the "de-sinicization" led by the United States, and their own competitiveness has weakened. The momentum of direct investment in China has slowed down. At the same time, some enterprises have withdrawn and reduced their capital. Looking back, foreign-invested enterprises have played a vital role in China's reform and opening up, the improvement of China's total factor productivity, the improvement of China's product competitiveness, and China's modernization process. We need to correctly understand their historical role. Looking to the future, although history is advancing and the background of foreign investment in China has changed, the positive role played by foreign-invested enterprises has not changed. For example, from the perspective of technology spillover, the introduction and utilization of foreign cutting-edge technologies, whether in terms of time or efficiency, the foreign direct investment method is obviously better than the import or self-development method. Protecting the interests of foreign-invested enterprises in China and achieving a state of "you have me, I have you" is a necessary path to maximize China's interests. China's current policies clearly express this attitude and have done some solid work. Regardless of the final effect, this atmosphere of public opinion itself is a good solution and a defense of the basic principles of free trade.   We cannot associate foreign investment with being unpatriotic, and there is still room for further improvement in the business environment for foreign investment. At present, there are some noises in the society regarding the understanding and attitude towards foreign-funded enterprises, and many views and opinions are not very calm. Some views simply associate working in foreign companies or buying foreign goods with being unpatriotic. In addition, there are some views that mistakenly interpret exports as a favor to other countries, especially China's favor to the United States, and believe that without China's cheap and good products, other countries will have no choice. As a major trading country, China's exports are still an important support for driving economic growth. Exports themselves are based on reciprocity, and it is necessary to strengthen the public's correct understanding of exports. From the perspective of export companies, orders are the source of all competitiveness and the basis for the survival of enterprises. All customers who form demand for products and services should be treated with a friendly attitude. Recently, there have been some attacks on foreigners in some places. Although these are extreme cases, we need to guide public opinion and social trends to further establish and optimize the business environment for foreign-funded enterprises in China.   Correctly understand the background and reasons for enterprises to go overseas, and avoid being labeled as "capital flight". From the perspective of the types of enterprises going overseas, they can be divided into two categories: "passive going overseas" and "active going overseas". For passive going overseas, it is mainly affected by the current US-led decoupling and "de-risking". Under the pressure of the US government, many foreign-funded enterprises have gradually reduced their investment in China and even rebuilt their production capacity in other countries. Among them, some core foreign-funded enterprises that are in a dominant position in the industrial chain require Chinese upstream and downstream enterprises to transfer production capacity, mainly involving enterprises in related fields such as mobile phones and automobiles. In addition, there are many excellent manufacturing enterprises in China that take the initiative to go overseas. By investing and building factories overseas, they can get closer to overseas markets and bypass irrational and unfair trade barriers. At the same time, the destination countries for Chinese enterprises to go overseas are generally selected in countries with relatively low production factors and labor costs, which helps to reduce production and operating costs. Regardless of the type of enterprise going overseas, we need to correctly understand and view it, and we need to make it clear that enterprises going overseas does not mean capital flight. From the development trajectory of the international economy, enterprises going overseas is also an inevitable trend. If we do not correctly view companies going overseas, then we will not be able to correctly understand foreign direct investment, because foreign direct investment is essentially a manifestation of foreign companies investing in China.   It is of great significance for companies to go overseas, which will help consolidate my country's supply chain advantages and stabilize my country's economic growth. Although China's current trade volume with the United States has dropped to third place, behind ASEAN and the EU, our exports to ASEAN and Mexico through re-export trade have increased significantly. This shows that China still has advantages in the supply chain, but it also reflects that Chinese companies are also facing greater potential threats, that is, European and American countries are gradually reducing their dependence on China's supply chain and promoting the so-called "China+" strategy in other countries. , if Chinese companies do not follow up and go overseas in time, the original market share will be slowly filled by companies from other countries. In addition, only Chinese companies that have been active within the global supply chain system can share the dividends of the upgrading and development of the global industrial chain. Going overseas is also a move that can rise to the level of national interests. Take Japan as an example. In the 1980s, Japan experienced a long period of slow and low growth after the bubble economy burst. In the past three decades, Japan’s real per capita GDP growth rate was less than 1% per year. However, Japanese companies have accumulated a lot of wealth through overseas investment and operations. The scale of overseas assets continues to expand, GNP (gross national product) continues to rise, and Japan's global investment income plays an important role in stabilizing corporate development and stabilizing the Japanese economy. It can be said that the current significance of Chinese companies going overseas is greater than usual. I suggest that companies should be encouraged and supported in the field of macro policies to go overseas, and at the same time, correct guidance should be given in terms of public opinion. Relevant scholars should speak out to society objectively and rationally to avoid the spread of wrong thoughts and constantly strive for China's foreign trade and economy. Better external environment.

  Yan Yan , Chairman of China Chengxin International Credit Rating Co., Ltd. and Chairman of China Chengxin (Asia Pacific) Credit Rating Co., Ltd.   The internationalization path of Chinese credit rating agencies should not be limited to bond rating business in the capital market. It should help domestic market operators better understand and grasp various overseas financial risks, help overseas market operators better understand the essential connotation of China's new development pattern, and cultivate new advantages for my country to participate in international cooperation and competition under the new situation. It should accelerate research capacity building and enrich and innovate financial service models.   In recent years, my country's high-quality financial development and opening-up have been steadily advancing, fruitful results have been achieved, and its global influence has continued to increase. Credit rating is an important basic institutional arrangement in the financial market and one of the hubs of the international monetary and financial system. In the process of continuous high-level financial opening-up, my country's rating industry must also keep up with the pace of opening-up, accelerate the process of "going out", enhance international voice, and contribute to maintaining the stability and security of my country's economy and finance in an open environment and promoting the smooth development of cross-border investment, financing and economic and trade cooperation. In recent years, with the strong support of national policies and regulatory authorities, my country's rating industry has accumulated certain practical experience in the international development, laying a solid foundation for subsequent exploration of international business layout. In the future, based on the high-level opening-up of finance, China's rating industry needs to improve both internally and externally, strengthen its own "hard power", accelerate the process of internationalization, enhance international competitiveness and voice, and help the overall situation of the country's opening-up.   The high-level opening-up of finance has been steadily expanded.   It is time for the rating industry to “go global”   Promoting high-level financial opening-up is one of the core issues in building a financial power. In recent years, under the leadership of the CPC Central Committee, China's financial opening-up has continued to advance with remarkable achievements, which has also put forward higher requirements for the international development of credit ratings. Especially in the context of an increasingly complex external environment, it is even more necessary to take the initiative in ratings to maintain the stability of China's sovereign ratings and ensure China's continued high-level opening-up.   The high level of financial opening requires Chinese rating agencies to provide international credit rating services to match it   High-level financial opening up to the outside world is an important driving force for the reform and development of my country's financial industry and an inevitable requirement for building a financial power. Under the leadership of the Party Central Committee, China's high-level financial opening up to the outside world has made steady progress, forming a new pattern of comprehensive opening up with a larger scope, wider fields and deeper levels. In October 2023, the Central Financial Work Conference emphasized the need to "strive to promote high-level financial opening up and ensure national financial and economic security." my country's financial market has made remarkable achievements in opening up to the outside world, and its influence in the international financial market has increased significantly. So far, China's capital market has grown into the second largest capital market in the world. As of the end of 2023, the scale of domestic bonds held by overseas institutions and individuals accounted for about 2.4% of the bond market stock, and the cumulative issuance scale of panda bonds was close to 800 billion yuan. Deepening financial opening up to the outside world is the general trend, and credit rating, as an important infrastructure in the financial market, also needs to accelerate "going global" and provide matching international credit rating services. On the one hand, as China's financial market becomes more open, it is necessary for Chinese rating agencies to provide internationally recognized rating results to provide reference for pricing financial products and avoid turbulence in the financial market caused by the loss of pricing power. On the other hand, in the process of financial opening up, , Chinese-funded rating agencies are required to timely communicate changes in bond and entity credit qualifications to market participants through initial rating, regular tracking, irregular tracking and other rating actions, to help global investors correctly understand the domestic financial market, and to provide regulatory authorities with Cross-border risk management provides reference.   The reconstruction of the global financial governance structure requires taking the initiative in rating to safeguard national financial security As the core of the international credit rating system, sovereign ratings not only directly affect the debt-raising capacity of sovereign countries, but also affect the financing costs of a country's financial institutions and enterprises and the stability of the foreign exchange market through the "ceiling effect". Against the background of my country's continued financial opening-up, the reconstruction of the global financial governance structure, the intensification of the game between major powers, and the increasingly complex external environment, it is of great significance to take the initiative in ratings to maintain the country's financial stability and financial security. In December 2023 and April 2024, Moody's and Fitch successively downgraded my country's sovereign rating outlook, which had a certain impact on market confidence. However, from the actual performance of China's economy, foreign rating agencies obviously underestimated the strong resilience of China's economy, the effectiveness of policies and fiscal sustainability, and failed to fully objectively and scientifically evaluate my country's sovereign credit, which may have a negative impact on the international financing of Chinese companies and national financial security. Although from a historical perspective, the impact of the three major international rating agencies' downgrade of China's sovereign rating on China's economy is very limited, but international experience such as the European debt crisis and the Russia-Ukraine conflict shows that frequent downgrades of sovereign ratings during economic downturns can easily trigger debt crises or impact the stability and financial security of the rated countries' financial markets. Therefore, we need Chinese rating agencies to actively voice the "Chinese voice" and guide the international capital market to correctly, comprehensively and objectively view the Chinese economy. In the context of opening up, my country's rating industry needs to continue to promote internationalization and output rating opinions that are more in line with the country's interests, so as to seize the initiative in rating, get rid of the constraints of the three major international rating agencies and other Western rating agencies on my country in the financial field, and better maintain the country's financial stability and financial security.   The national level and regulatory authorities attach great importance to the international development of the rating industry   In recent years, the national level and regulatory authorities have attached great importance to the international development of the rating industry, and have repeatedly encouraged domestic rating agencies to expand their international business in important international conferences and documents. In June 2022, General Secretary Xi Jinping proposed at the 14th BRICS Leaders’ Meeting that “the BRICS countries should expand cross-border payment and credit rating cooperation and improve the level of trade, investment and financing facilitation”, which will help Developing countries represented by the BRICS countries have established credit rating cooperation and exported views that are more in line with the interests of emerging market countries; in the same month, the Business Management Department of the People's Bank of China issued the "Action Plan to Comprehensively Promote the High-Quality Development of Beijing's Credit Information System and Promote the Formation of a New Development Pattern" 》, encourage issuers to hire at least one local rating agency in the registration process of Chinese-funded US dollar bonds, and gradually increase the voice of local rating agencies in the international capital market. Under the guidance of regulatory authorities and relying on the unique advantages of credit rating agencies as capital market infrastructure, Chinese rating agencies have actively carried out international business practices and achieved remarkable results, laying a solid foundation for further international development. Since 2012, mainstream Chinese-funded rating agencies have successively set up subsidiaries or branches in Hong Kong as windows to the international market, actively speaking out in the global capital market. On March 31, 2023, CCXAP was recognized by the Hong Kong Mandatory Provident Fund Schemes Authority as the first Chinese-funded credit rating agency to carry out relevant business. The application scenarios of international bond ratings of Chinese-funded rating agencies have been further expanded, and the application scenarios of Chinese-funded rating agencies have been further expanded. The "going out" strategy of credit rating agencies is of far-reaching significance. At the same time, Chinese-funded rating agencies are actively improving the global rating series, carrying out sovereign rating business, and promoting the reshaping of my country's voice in global governance. On May 25, 2023, China Chengxin International downgraded the sovereign credit rating of the United States from AAA g to AA + g , and continued to be included in the watch list for possible downgrades, which had a huge impact on the international financial market and highlighted the sovereign ratings of Chinese-funded rating agencies. international influence. In addition, Chinese rating agencies have also extensively participated in global financial governance by publishing credit risk reports on countries along the “Belt and Road” and establishing international credit rating alliances with Russia, Pakistan and other countries, increasing the influence of my country’s financial institutions in the global capital market.   International development of the rating industry   Complementary to financial opening up   Under the general trend of open development, the international development of the rating industry and the opening up of finance complement each other. The continuous advancement of financial opening up creates opportunities for Chinese rating agencies to expand the international rating market, and the "going out" of the rating industry will also help further promote the opening up of finance to a higher level.   The accelerated opening-up of the financial sector provides opportunities for the international development of the rating industry   After more than thirty years, with the leap-forward development of China's capital market, China's rating industry has grown rapidly. Currently, there are 15 Chinese-funded rating agencies, which have entrusted more than 8,000 rated bond issuers, and some mainstream rating agencies have begun international business. Explore and have some experience in international rating. With the significant improvement in the level of internationalization of China's financial market, the global influence of RMB assets is increasing day by day. While a large number of overseas investment and financing institutions have entered the domestic capital market, more and more Chinese-funded enterprises have gone overseas for financing, which has contributed to the internationalization of Chinese-funded rating agencies. Development creates broad market space. First, the continued deepening of capital market cooperation and interconnection, encouraging domestic companies to actively utilize foreign capital, and the development of the panda bond market will help expand the market demand for ratings. For example, in March 2024, in order to support high-quality enterprises to utilize foreign debt efficiently and conveniently, the National Development and Reform Commission issued the "Notice on Supporting High-quality Enterprises to Borrow Medium and Long-term Foreign Debts to Promote the High-Quality Development of the Real Economy (Draft for Comment)", which set the international credit rating to Investment grade (BBB - and above) or domestic credit rating AAA is one of the criteria for defining high-quality companies. Secondly, with the widespread development of international investment and financing cooperation, the demand for risk assessment and management is increasing, which will help drive the increase in demand for rating services and the output of rating opinions of Chinese-funded rating agencies. In the future, the rating industry's "going out" will steadily advance along with my country's high-level financial opening-up process.   The internationalization of the rating industry is beneficial to enhancing the international voice of rating and better participation in global governance   Credit rating is an important indicator for measuring credit risk in current international trade and financial rules. Improving my country's international voice in rating will help to participate more deeply in international rule consultation and formulation, international economic and financial policy coordination and other practices, and exert influence in global financial governance that is equivalent to my country's economic strength. At the same time, credit rating is also the most commonly used pricing reference in the financial market, and the pricing power of financial products is an important indicator for measuring a country's voice in the international financial market. The three major international rating agencies have always occupied a dominant position in the overseas capital market and have the pricing power of the overseas capital market. In addition, since the credit ratings given to Chinese companies by the three major international rating agencies in the overseas capital market are generally low, Chinese companies often bear relatively high financing costs. Against the background of the continuous advancement of financial opening up, the international influence and recognition of the rating results of Chinese rating agencies will be enhanced, which will help Chinese companies obtain fair pricing in overseas financing, improve financing efficiency, and make more full use of international financial resources. In addition, improving the voice and influence of ratings will also help avoid the impact of international rating agency rating adjustments on cross-border capital flows and RMB exchange rate fluctuations in my country's capital market, and help achieve the RMB internationalization strategy of seeking progress while maintaining stability.   The internationalization of the rating industry will help improve the efficiency of cross-border investment and financing and promote high-level two-way opening of finance.   The decision-making and behavior of relevant entities in the capital market must be based on information. At present, my country's two-way opening of the capital market has achieved fruitful results, but the poor cross-border information flow has, to a certain extent, restricted the pace of opening up of the capital market. The "going out" of the rating industry will help break the barriers to cross-border credit information flow and promote the capital market to a higher level of opening up. On the one hand, Chinese rating agencies have a better understanding of China's national conditions and risk characteristics, and can more accurately reveal the credit status of Chinese companies, which will help foreign investors better understand domestic market entities, promote fair pricing for domestic issuers' overseas financing, and improve the ability of domestic companies to utilize international resources. At the same time, Chinese rating agencies convey more views to foreign investors, which can help global investors correctly understand the domestic capital market. On the other hand, by expanding overseas rating business, rating agencies actively communicate with foreign companies, investors and rating agencies, and strengthen the understanding and analysis of overseas credit risks, which can provide more channels for domestic investors to understand overseas market risks and subject credit characteristics, and help domestic investment institutions improve their overseas asset allocation capabilities.   Supervision and guidance and internal and external improvement of institutions, Continue to enhance my country's international rating influence and voice   Based on the goal of high-level financial opening-up, my country's credit rating industry still needs to accelerate its pace of international development. On the one hand, this requires the rating agencies themselves to continuously enhance their "hard power", actively plan international development paths, and enhance their international competitiveness; on the other hand, it also requires regulatory authorities to provide standardized guidance and accelerate the cultivation of Chinese credit rating agencies with international influence.   It is a national strategy to enhance the international voice of my country's rating agencies and cultivate influential Chinese rating agencies.   Credit ratings may affect the financial stability and financial security of a country or even the global financial market. Therefore, we should pay more attention to credit ratings at the national level and elevate the international voice of Chinese rating agencies to a national strategy, so as to master a powerful weapon to maintain domestic financial stability in the future when the financial market is more deeply open. At the same time, through policy support and guidance, we should focus on cultivating influential Chinese rating agencies and enhance their international voice. First, we should accelerate the cultivation of leading rating agencies with international competitiveness and strive to accumulate the good reputation of our rating agencies. We can rely on the large domestic market to cultivate effective market demand and encourage credit rating agencies to become bigger and stronger. At the same time, we should strengthen the supervision and management of the credit rating industry, and on this basis encourage internal integration of the industry, accelerate the cultivation of leading rating agencies with industry dominance and international competitiveness, and enhance the credibility of China's rating industry. Second, we should adapt to the needs of the international market, promote more competitive rating agencies to participate in international business, and enhance their international voice. We can further actively promote the rating services of Chinese rating agencies in the international market and promote Chinese rating agencies to "go global". It is recommended that the Chinese government or government-supported institutions, such as the National Development and Reform Commission, the Ministry of Finance, state-owned enterprises, policy banks, China Railway Corporation, etc., actively use the rating results of domestic rating agencies when raising funds in overseas markets, support the accumulation of market data by local institutions, and expand the international visibility of Chinese rating agencies.   Keep up with national strategies and accelerate the international development of the rating industry   The rating industry can "go global" by relying on the national strategy of opening up to the outside world and exploring feasible paths for international development. In the early stage of the development of my country's rating industry "going global", Chinese rating agencies can accumulate international rating experience and resources by deepening the Hong Kong offshore bond market, open up the international financial market, and gradually enhance the influence of rating results, laying the foundation for a wider layout of international business in the future. Relying on the deepening China-ASEAN economic and trade cooperation, the continuously expanding "circle of friends" of the "Belt and Road" initiative, and the increasingly sound BRICS cooperation mechanism, and taking into account the difficulty of business development and the basis for cooperation, the rating industry may expand its international business layout in steps according to the path of "ASEAN countries-'Belt and Road' countries-BRICS countries-European and American countries", and finally achieve a global business layout. In this process, the international cooperation model of rating agencies can be continuously innovated. First, give priority to promoting Chinese rating agencies with rich rating experience and certain market influence to carry out bilateral/multilateral cooperation, and promote Chinese rating agencies to "go global". Second, strengthen bilateral/multilateral rating mutual recognition under the promotion of government and supervision, and gradually cultivate the international influence and voice of Chinese rating agencies. The third is to explore the establishment of a credit rating alliance, strengthen the exchange of rating methods and systems among alliance countries, promote the establishment of a regional credit rating system, and rely on international cooperation to enhance the international influence and competitiveness of Chinese rating agencies.   Establish a rating system that is different from the three major international rating agencies and maintain my country's rating initiative   Considering the importance of sovereign rating stability to maintaining financial and economic stability, it is crucial for Chinese rating agencies to establish a rating system that can represent China and emerging market countries. Based on the existing sovereign rating practice experience, Chinese credit rating agencies can fully combine the systems and national conditions of different countries to establish a sovereign rating system that conforms to the new global financial market development and governance system, improve independence and credibility, and strengthen risk early warning capabilities. At the same time, promote the expansion of the sovereign rating scope of Chinese rating agencies and further improve the recognition and influence of sovereign rating results. In addition to sovereign ratings, Chinese credit rating agencies can also continuously improve the global rating sequence standards that are in line with the international market, provide subject credit ratings from an international perspective, cover more industries, securities, and currencies, and help the financing of partner countries and the realization of my country's major strategic goals.   Improve the "hard power" of rating agencies and enhance the international competitiveness of my country's rating agencies   The most important factor that determines the international development prospects of the rating industry is still the quality of rating services. In the future, rating agencies need to continue to strengthen their own capacity building and enhance their ability to serve domestic and foreign investors. On the one hand, rating agencies need to seize the policy window period, focus on changing rating concepts, optimize rating methods, technologies and systems, gradually increase the differentiation of rating results, and better play the risk disclosure and early warning functions of credit ratings. In addition, rating agencies can also increase technology investment, use digital technology as a means to integrate financial technology into credit risk assessment and rating early warning, and enhance rating early warning capabilities. On the other hand, Chinese credit rating agencies should also increase their efforts to promote business diversification, innovation and transformation development, and better serve the diversified risk assessment needs of domestic and foreign investors. The internationalization path of Chinese credit rating agencies should not be limited to bond rating business in the capital market. It should start from helping domestic market operators better understand and grasp various overseas financial risks, helping overseas market operators better understand the essential connotation of China's new development pattern, and cultivating new advantages for my country to participate in international cooperation and competition under the new situation. It should accelerate research capacity building, enrich and innovate financial service models, gradually form a diversified business structure, better play the basic role of credit in financial risk identification, monitoring, analysis, management, and disposal, and meet the needs of domestic and foreign investors for diversified comprehensive risk management services.