Analysts warned that simply shutting down high-carbon enterprises or limiting production in a heedless way might lead to a sharp decline in the supply from some traditional energy sources and push up the prices of energy and raw materials, resulting in economic stagflation and unemployment risks.

The new monetary policy tool, however, aims to leverage more private funds and increase the total supply of clean energy instead of simply cutting financing for traditional energy suppliers such as the coal industry, the PBOC official said.

By the end of June, China's financial institutions and enterprises had issued about 1.6 trillion yuan in green bonds, and more than 270 funds are operating under environment, social and governance concepts, totaling about 300 billion yuan, according to GFC research.

In order to leverage more funds for use in the green economy transition process, China has established a national green fund. The co-founders are the Ministry of Finance, the Ministry of Ecology and Environment and the Shanghai municipal government.

The fund was launched in July 2020 with 88.5 billion yuan in funding for its first phase. Clean energy and digital and information technologies to support construction of low-carbon infrastructure will provide considerable investment opportunities, fund officials said.

Wang Yida, chairman of the fund's supervisory committee, said that green finance will play a significant role in reallocation of resources, pricing in the carbon trading market and managing risks to support the country's carbon neutrality goal.

It is important to balance the relationship between achieving carbon emission reduction targets and sustaining a certain economic growth pace, but not at the expense of economic growth, Wang said.

Policymakers and economists are working to ascertain the macroeconomic implications of carbon emission reduction policies and climate risks, including the impact on economic growth pace, inflation, employment and income distribution.

G20 finance ministers and central bank governors held their fourth official meeting under Italy's G20 presidency on Oct 13, and they endorsed the G20 Sustainable Finance Roadmap and Synthesis Report, which was prepared by the Sustainable Finance Working Group. This working group is co-chaired by the PBOC and the US Treasury Department.

G20 members have recognized the importance of gradually expanding the G20 Sustainable Finance Roadmap's coverage to include additional issues, such as biodiversity and nature as well as social matters, based on mutual agreement by G20 members in the coming years, according to a meeting communique.

The G20 document has listed "assessment and management of climate and sustainability risks" as one of the key actions needed between 2022 and 2024 to enhance understanding of climate policy impact on macroeconomic development.

This year, the working group highlighted priority areas such as improving the comparability and interoperability of approaches to align investments to sustainability goals. Another priority was overcoming information challenges by improving sustainability disclosure and reporting.

To reach green development targets and technological standards, policies may need to retain flexibility in economies with different structures and in various stages of development, said Hiroshi Nakaso, chairman of the Asia-Pacific Financial Forum.

It also was pointed out that policymakers need to pay attention to the significance of what is called transition finance. Enterprises, especially smaller ones, will need strong financial support for investment in innovative technologies and new energies to make a green transition, "but it doesn't happen overnight", Nakaso said.

Green finance standards and policy systems are not yet fully addressing transition finance in China and other countries, experts from China's Green Finance Committee said.

Due to the lack of definition and disclosure standards, many banks and capital market participants are considering the potential risk of "green washing", which happens when projects are falsely labeled as green to obtain cheaper financing without adhering to green standards, experts said.