The Twin Anchors of Climate Governance: China and the European Union

As the world grapples with escalating climate risks, the call for robust and cooperative climate governance has become even more urgent. China and the European Union, with their complementary strengths in renewable development, technological innovation, and financial regulation, can act as twin anchors for the green transition.

• China has made significant strides in renewable energy, becoming the world’s largest installer of solar panels and wind turbines.
• The EU has set ambitious targets to reduce greenhouse gas emissions, with a goal of becoming carbon neutral by 2050.
• Both regions have a strong commitment to sustainable finance, with the EU’s Sustainable Finance Disclosure Regulation and China’s Green Financial System Initiative.

A supervisory approach, especially sustainable finance, is a vital tool in this transition. Central banks and financial regulators have emerged not just as risk managers, but also as enablers of industrial decarbonization. A deeper China-EU partnership, grounded in supervisory collaboration, offers a model of climate leadership marked by prudence, inclusiveness, and institutional foresight.

The Role of Central Banks in Climate Governance

Global climate governance demands deep-rooted stability and long-term foresight. These qualities are precisely what China’s ancient concept of tianxia (“all under heaven”) embodies as an inclusive worldview grounded in harmony, continuity, and responsible leadership.

“Tianxia” reflects China’s unparalleled state continuity, offering a model of resilient governance that spans millenniums. In an era of rising fragmentation and short-termism, China has sent a vital message to global climate governance: the importance of a civilization is steeped in continuity, stability, and an enduring commitment to long-term stewardship.

The EU and China have already laid a solid foundation for this partnership. Since the 1990s, the two sides have been working closely on environmental issues. Their cooperation gained momentum in 2020 with the creation of a high-level dialogue mechanism on climate and the environment, which has since held five annual meetings, consolidating their green partnership.

The Synergies and Challenges of China-EU Climate Governance

There are clear synergies as well as differences between the Chinese and European approaches to sustainable finance supervision. One of the most promising synergies is their shared goal in developing green taxonomies, conducting climate-related stress testing, and enhancing the quality and comparability of environmental, social, and governance (ESG) disclosures.

1. Developing green taxonomies: Both sides have recognized the need for a standardized approach to identify and classify environmentally friendly investments.
2. Conducting climate-related stress testing: The EU’s European Banking Authority (EBA) and China’s China Banking and Insurance Regulatory Commission (CBIRC) have both conducted stress tests to assess the resilience of financial institutions to climate-related risks.
3. Enhancing ESG disclosures: Both regions have increased their efforts to improve the transparency and quality of ESG reporting.

However, differences remain, especially on emissions intensity benchmarks and sector-specific thresholds.

The Role of the Magyar Nemzeti Bank in Climate Governance

The Magyar Nemzeti Bank (MNB), Hungary’s central bank, stands out as a trend-setter in the region. It has adopted a green mandate and, besides other innovations, launched green bond programs, conducted climate stress tests, and introduced green preferential capital requirements for the first time in the world.

The MNB’s commitment to sustainable finance and climate governance is a valuable reference point for building convergence between EU and Chinese supervisory regimes. It can serve as a bridge between the two regions, fostering dialogue and collaboration.

Fostering a “Common Language of Sustainability”

To foster a “common language of sustainability”, it is recommended that targeted dialogue mechanisms and a shared sustainable finance data hub be established. A notable best practice along this path is the MNB’s accession to the Capacity-building Alliance of Sustainable Investment.

The Capacity-building Alliance of Sustainable Investment is a Beijing- and Hong Kong-based international initiative aimed at ensuring the global availability of well-trained experts in sustainable investment. The MNB and CASI co-hosted a joint financial webinar focused on managing climate-related risks, marking the beginning of a promising partnership in international sustainable finance capacity-building.

The Future of Climate Governance

The role of central banks is undergoing a fundamental transformation — from focusing solely on monetary and financial stability to embracing environmental stewardship as a core mandate. As key facilitators of industrial decarbonization, regulators in both China and the EU should collaborate in designing and deploying effective supervisory tools.

By integrating green aspects into supervisory practice, the MNB has shown how central banks can both safeguard financial stability and redirect capital toward low-carbon sectors, thereby influencing the broader trajectory of industrial transformation.

This evolving process presents a valuable opportunity for China and the EU to deepen their collaboration by aligning their financial and regulatory instruments in support of climate-smart industrial growth. By co-developing innovative financial mechanisms, the two sides can help de-risk investments and accelerate the emergence of resilient, low-carbon industries.

This year marks the 50th anniversary of the establishment of China-EU diplomatic relations. With the shared goal and a growing legacy of cooperation, the two sides have the intellectual, institutional, and financial capital to shape global climate governance. Through supervisory leadership and sustainable financing, and institutional diplomacy, China and the EU can co-build a sustainable future that is green, inclusive, and resilient.

Sustainable financial diplomacy can foster regulatory trust and mutual understanding, and joint supervisory projects, shared training initiatives, and a commitment to data transparency can turn divergence into dialogue. The Hungarian central bank, with its CASI membership and commitment to knowledge exchange, can serve as a bridge between EU and Chinese regulatory systems.

The upcoming Asian Financial Cooperation Association Financial Summit Forum in Budapest, Hungary, in August will be a landmark event, which can strengthen this role.