The Paulson Institute today signed a memorandum of cooperation on green building insurance with People’s Insurance Company (PICC) in Beijing. Paulson Institute Chairman Henry M. Paulson, Jr., and Wu Yan, Chairman of PICC, attended the signing ceremony. The memorandum reflects their commitment to work together to explore the use of insurance mechanisms to scale green buildings in China, and to jointly promote green development in China.
In the process of China’s urbanization and transition to a more sustainable economy, the construction industry will be one of the keys to its successful economic transformation and crucial to China’s commitment to peak its carbon emissions by 2030 or earlier. With the move of Chinese cities towards a low-carbon economic model, heavy industry, which once dominated the urban economy, is gradually being shut down or migrated. As a result, the share of buildings in urban carbon emissions will grow steadily. Therefore, greening the building industry is crucial to China’s transition to a sustainable economic growth model.
According to Wang Yuling, general manager of PICC’s property division, the lack of trust in green building certification has led to serious market consequences. Consumers are generally skeptical about the actual performance of green buildings. It is hard for developers to recoup the incremental investment in green features. The provision of green building insurance products will establish a guarantee of trust for all stakeholders in the green building market.
According to a report produced by the Paulson Institute, an estimated 1.65 trillion yuan (about 254 billion USD) will be needed for Chinese cities to build new greener buildings and retrofit existing buildings during the 13th Five-Year Plan period. The government can only fund less than 10 percent of the total. In the past eight years, China has renovated more than 800 million square meters of residential buildings in northern China, with over 80 percent of the funds coming from government. Given that tens of billions of inefficient buildings are waiting for renovation, this is not a sustainable model. New financial policies, innovative products, and mechanisms must be developed to break down the barriers for private capital to access green industry.
An insurance system for green buildings would help promote resource conservation and environmental protection. Insurance companies could purchase services from independent green building certifying firms to validate green performance. As the industry leader and a new entrant in the green building insurance market, PICC will leverage its strong innovation capabilities and cross-industry influence to scale green buildings in China.
“In recent years, China has leveraged administrative means and financial subsidies rather than market mechanisms to promote green buildings and energy-efficient buildings. If insurance as a risk management tool can be effectively applied to green buildings, it will make a real difference in scaling up green buildings,” Kevin Mo, Managing Director of the Paulson Institute Representative Office in Beijing, said.
The insurance-based credit enhancement mechanism for green buildings first proposed by the Paulson Institute is one of the solutions being discussed. The Paulson Institute will work with PICC P&C to identify appropriate cities and partners for implementation of pilot projects and further promote the green building market in the industry.
About the Paulson Institute
The Paulson Institute is a non-partisan, non-profit “think and do” tank grounded in the principle that today’s most pressing economic and environmental challenges can be solved only if the United States and China work in complementary ways. Our mission is to strengthen U.S.-China relations and to advance sustainable economic growth and environmental protection in both countries. Founded in 2011 by Henry M. Paulson, Jr., the 74th Secretary of the Treasury and former Chief Executive Officer of Goldman Sachs, the Institute is based in Chicago and has offices in Washington, San Francisco, and Beijing.