Recently, the global average temperature has repeatedly broken records, and many parts of the world have experienced extreme heat.

As the impact of the "El Niño" phenomenon gradually becomes apparent, global climate risks will further intensify. Meteorologists around the world generally predict that the forming "El Niño" phenomenon will not only affect this year's temperature, but also may cause the global average surface temperature next year to exceed the "1.5°C warming limit" set by the Paris Agreement.

Due to the increasingly severe situation of climate change, climate financing has once again become a topic of concern at home and abroad. National Business Daily had an interview with Fred Hu, chairman of Primavera Capital Group, to discuss the current and future situation of global climate financing, energy transformation, and multi-party participation in promoting the development of environmental protection.

Since its establishment in 2010,Primavera Capital Group has invested over 10 billion yuan in the carbon neutrality field, making it one of the largest private equity firms in terms of investment scale in this area.

Fred Hu Photo/provided to NBD

Carbon markets just transitional, energy transformation the core

NBD: We have noticed that over the past year, especially in the fields of carbon neutrality and cutting-edge technology, Primavera Capital Group has been constantly increasing its investments. Recently, Primavera Capital Group announced the establishment of a carbon neutrality fund with a total scale of 10 billion yuan. As an economist and chairman of Primavera Capital Group, why do you attach such importance to the field of energy transformation?

Fred Hu: Despite some geopolitical conflicts in the world today, a rare global consensus is that humanity is facing a serious climate crisis. To address this crisis, the world needs to achieve energy transformation.

Achieving energy transformation requires trillions of dollars in investment. Therefore, the financial system, including banks, insurance companies, asset management, private equity (PE) and venture capital (VC) firms, needs to pay attention to and focus on climate financing, mobilizing more private capital to sustainably invest in the development, production, storage, and use of renewable clean energy and related technologies, and achieve zero emissions on a large scale across all industries and society.

NBD: July 12 of this year marks the 11th "National Low-Carbon Day". China is currently vigorously promoting the construction of a national carbon market. What role does the development of a carbon market play in the increasingly severe climate problems? What suggestions do you have for its future development?

Fred Hu: The carbon market can price carbon emissions through market-based carbon trading, or determine the cost of carbon, thereby guiding resources from high-emission industries to low-emission industries, so it has some positive significance.

However, the carbon market should be viewed as a transitional arrangement. The ultimate goal of addressing climate change is to completely eliminate carbon emissions and achieve a comprehensive transformation to renewable clean energy.

Financial institutions and enterprises should attach great importance to climate financing

NBD: How is the climate financing situation in most emerging economies and middle-income countries around the world?

Fred Hu: After the Paris Agreement, a series of international agreements require developed countries to provide $100 billion in capital assistance to developing countries to assist with their energy transition, but this has not yet been fulfilled. 

NBD: How do you view the roles and responsibilities of enterprises, governments, and society in greenhouse gas emissions and climate financing? How should climate financing use different tools and channels to improve efficiency and impact?

Fred Hu: First, the government should provide a good and stable regulatory and policy framework for climate financing, and through a series of fiscal policies from infrastructure investment (such as renewable energy grid connection, charging piles, large-scale energy storage facilities, and other public investments) to tax policies, encourage capital inflows into the climate financing market.

Second, financial institutions and enterprises are the main body of climate financing and should attach great importance to climate financing in their strategic planning and specific operations.

Finally, the ecology and tools of climate financing should be diversified, such as green loans from banks, green bond financing, direct equity financing, climate action PE funds, early-stage venture capital, growth capital, new energy infrastructure funds, public market IPOs and additional issuances, PIPE, PPP, BOT, and REITs, etc. Design flexible and diverse financing plans based on the characteristics and duration of the project, the cash flow situation, and investors' risk preferences to ensure that climate project investments can generate attractive investment returns after risk adjustment, and allocate resources sustainably to zero-emission industries or projects, achieving rich commercial, social, and environmental returns.

NBD: How do you view China's international cooperation and competition in the field of carbon neutrality? In which areas do you think China has advantages and challenges?

Fred Hu: In terms of total amount, China is currently the world's largest energy consumer and the largest carbon emitter.

However, it is encouraging that China is also a leader in global carbon neutrality, with the largest and fastest investment in renewable energy, and has established the world's largest and relatively complete emerging industry with international market competitiveness, such as solar power generation, wind power, hydropower, nuclear power, smart grids, electric vehicles, battery development, and production, etc.

These are all significant advantages for China.