ESG and Climate-related risk Management Policy

In 2025, the 5th meeting of the 11th session of the Board of Directors reviewed and approved the Comprehensive Risk Management Policy of Industrial Bank (2025 Revision), which explicitly incorporates climate risk into the overall risk management system. The Board of Directors regularly reviews significant ESG and climate-related risk matters submitted by management, provides guiding opinions, and issues formal letters, thereby continuously leveling up the Bank’s climate risk management.

With reference to the suggestions proposed by the TCFD, IB paid close attention to the relevant impacts of climate risks, proactively evaluated the risks and opportunities of climate change, and integrated them with the current framework of risk management to regularly analyze, evaluate and formulate corresponding countermeasures.

Since 2021, the Bank has carried out periodic climate risk stress tests to assess its resilience to transition risks under the goals of carbon peaking and carbon neutrality, voluntarily disclosed the results, and explored physical risk stress testing. In 2024, the Bank further expanded the industry coverage of the stress testing to include the upstream coal industry, in addition to the eight major carbon-intensive industries of power, steel, building materials, petrochemicals, chemicals, papermaking, aviation, and non-ferrous metal smelting. Meanwhile, by enriching stress scenarios and taking into account factors such as carbon emission pricing and energy consumption levels, the Bank assessed the impact on the repayment capacity of customers in carbon-intensive industries and analyzed subsequent effects on the quality of credit assets and capital adequacy. The stress testing was designed with three levels: mild, moderate, and severe, using the end of 2023 as the baseline, with the testing duration extending to 2030. Results indicate that if customers in the carbon-intensive industries fail to carry out low-carbon transition, their repayment capacities will decline to varying degrees under the stress scenarios, but the overall risk remains controllable. Under the severe scenario, by the end of 2030, the Bank’s capital adequacy ratio is projected to decline by approximately 0.44 percentage points, yet the capital adequacy indicators remain compliant with regulatory requirements across all scenarios.

Optimizing Control Requirements for carbon-intensive and high-risk industries

In 2024, the Bank developed the seventh edition of the Notice on Adjusting and Optimizing Control Requirements for Carbon-Intensive Industries. For nine key high-risk sectors, including coal, coal power, coal chemical, and petrochemical industries, the Bank continued to improve its control strategies and steadily advanced the approach of “reducing high risks and promoting green transition”, ensuring the optimization and stability of the carbon-intensive asset structure while strictly controlling new credit supplies to carbon-intensive and high-risk industries.

The Bank closely follows the relevant standards of the Network for Greening the Financial System (NGFS), the IPCC, and domestic climate characteristics to conduct localized climate scenario analysis. Based on scenarios developed by NGFS under China’s goals of realizing carbon peaking in 2030 and carbon neutrality in 2060, as well as 2°C and 1.5°C warming pathways, the Bank has designed carbon emission price stress scenarios. Furthermore, in combination with historical climate conditions and the SSP5‒8.5 scenario as defined by the IPCC, it has developed localized typhoon disaster stress scenarios for different return periods. These approaches provide scientific scenario support for climate risk management.

In independently conducted stress testing, based on the eight major high-carbon industries explicitly defined by regulators, including power, steel, building materials, petrochemicals, chemicals, papermaking, aviation, and non-ferrous metal smelting, the Bank added the railway transport industry and the upstream high-carbon coal industry, expanding the coverage to ten carbon-related sectors.

For regulatory stress testing, the focus was placed on the thermal power and steel industries. The results show that if clients do not undertake a low-carbon transition, their repayment capacity declines under stress scenarios, whereas the asset quality of power industry clients adopting emission-reduction technologies improves. As the proportion of related loans is relatively low, transition risk has a limited impact on the Bank’s overall asset quality and capital adequacy, and the overall risk remains controllable.

For the first time, the Bank participated in a regulatory pilot program on physical climate risk stress testing. Focusing on typhoon-related disasters in coastal areas of China, it developed multiple stress scenarios ranging from 10-year to 500-year return periods, based on historical climate conditions, the SSP5‒8.5 scenario as defined by the IPCC, and domestic climate characteristics.The testing covered five major sectors—agriculture, infrastructure, industry, public utilities, and real estate—and assessed the impact of typhoons on the value of real estate collateral. The Bank integrates climate change risk analysis in financing decisions.

For the first time, climate risk stress testing results were applied to the internal capital adequacy assessment procedures (ICAAP), providing a basis for capital planning. At the same time, the transition risk stress testing itself was included in the validation system for the first time, with a comprehensive assessment of governance, methodology, and processes. A self-correction mechanism was established to enhance the rigor and effectiveness of stress testing activities.

Optimizing credit strategies and credit structure

All industries were required to comply with relevant national environmental protection standards	Polluting enterprises must hold a Pollutant Discharge Permit or proof of environmental compliance. Emissions of all pollutants must meet relevant national and local standards, with no major environmental pollution incidents or ecological damage events in recent years. Enterprises must maintain sound workplace safety and occupational health management systems in compliance with national or industry standards, with no major safety liability accidents in recent years. Projects must align with national industrial policies, and all approval procedures must be lawful, complete, and valid. Core production equipment, primary products, capacity, and processes must not fall under the “eliminated” category in the Catalogue for Guiding Industry Restructuring. Energy efficiency indicators for major products in high energy-consuming industries must meet benchmark or advanced levels as defined by mandatory national and local standards, such as the Benchmark and Baseline Levels of Energy Efficiency in Key Industrial Fields.
The Bank strengthened credit risk management for high-energy-consuming and high-emission industries	The Bank strengthened credit risk management for high-energy-consuming and high-emission industries. It applied strict control to new credit in industries with severe overcapacity. In addition to general credit requirements, enterprises in such industries must meet green credit standards in production processes, energy consumption, pollutant emissions, and workplace safety. It also applied differentiated incentive policies for energy-saving and emission-reduction loans for customers in overcapacity industries that do not expand production. The Bank granted no loans to projects or enterprises explicitly prohibited by the country or non-compliant with environmental protection regulations, and withdrew all existing such loans.
The Bank improved credit policies for key industries	The Bank improved credit policies for key industries. It established specific ESG credit requirements for industries such as agriculture, biodiversity, power utilities, mining, and urban gas, clearly defining supported areas and prohibited entry scenarios. For example, priority was given to agricultural entities applying energy-saving technologies; an “environmental veto” policy was implemented in the thermal power industry; and engagement with mining enterprises facing significant environmental or climate risks was prohibited.
The Bank introduced differentiated authorization and credit policies for green finance	The Bank introduced differentiated authorization and credit policies for green finance. The Bank formulated 23 differentiated authorization and credit policies for green finance, covering 20 branches. As at the end of 2025, the total business outstanding exposure under these policies reached RMB22.3 billion, guiding business resources toward green and low-carbon sectors.

Embedded ESG in the whole process of Investment and financing credit business risk management

Relying on its rich practical experience as an Equator Bank, IB comprehensively applies the ESG-related risk assessment system to the process of investment, financing and credit in the three major business lines, namely, corporate finance, retail finance and interbank finance. According to the relevant risk assessment criteria, IB classifies its customers into four categories (Class A, Class B, Class C and Class D), adopts differentiated management strategies and integrates them into all links of the investment, financing and credit process, including due diligence, risk assessment, contract signing, financing issuance and duration management.
IB has formulated such systems as the Notice of the Industrial Bank on the Establishment of ESG Indicator System for Customers, the ESG-embedded Credit Process Scheme of the Industrial Bank for Corporate Finance Customers, the Notice of the Industrial Bank on Embedding ESG into the Credit Process for Small and Micro Enterprises, the ESG-embedded Credit Process Scheme of the Industrial Bank for Retail Credit Customers, the Notice of the Industrial Bank on the Issuance of ESG Indicator System for Interbank Customers, and the ESG-embedded Credit Process Scheme for Interbank Finance Customers.IB conducts targeted due diligence based on the ESG-related requirements to strengthen the collection and verification of basic information and data related to the ESG performance of customers, which covers 39 indicators such as energy consumption, water resource utilization, greenhouse gas emissions, corporate environmental credit evaluation, administrative penalties related to environmental protection, supplier management, customers’ complaints, employees’ social security data, debt repayment ability, information disclosure and negative news to ensure the authenticity, integrity and validity of the information. Meanwhile, IB formulates special measures and response plans for risk prevention and control, including but not limited to the following: Rectification of violations within a prescribed time limit, signing of special commitment letters, adjustment of credit plans, increase of capital ratios, enhancement of risk mitigation measures, suspension of newly added credit, and compression of stock businesses. In the process of examination and approval of credit, differential credit control shall be implemented.

The Bank has developed ESG and climate risk rating models for customers, with an indicator system covering dimensions such as environment, climate risk, social responsibility, corporate governance, financial indicators, and operating environment. Based on scores, customers are classified into four categories from high to low (A, B, C and D).

The rating models have been embedded into the risk management system and are operational, integrating data sources such as litigation records, electricity consumption data, regulatory penalties, and environmental ratings. Approximately 75% of the indicators are automatically collected by the system, significantly improving data collection efficiency.

As at the end of 2025, ESG and climate risk ratings for 9,565 clients were completed online through the system. The Bank will continue to enhance ESG and climate risk rating and its application by promoting online due diligence, improving institutional standards, and providing supporting evaluation mechanisms.

Class A customers	Priority should be given to reviewing and approving credit applications used to support green, low-carbon and circular economy in terms of time or process.
Class B customers	Focus on, analyze and evaluate the potential risk of ESG, countermeasures and impacts.
Class C customers	Focus on and carefully evaluate the potential risks of ESG, response measures and impact, and actively seek appropriate ways to slow down the credit risk, including the above-mentioned risk mitigation measures.
Class D customers	In principle, new customers are forbidden to intervene, and stock customers are compressed and withdrawn in time. In the loan review process, it is necessary to review the implementation of ESG-related examination and approval requirements and the signing of legal documents.

Based on the ESG classification result, IB implements control measures for Class C and Class D customers and verifies the implementation of the environmental, social and governance risk control requirements in accordance with the notice of review and approval opinion. During the duration management, IB focuses on ESG risk monitoring and tracking management work, and conducts regular ESG assessments for Class C and Class D customers. What’s more, IB follows up the relevant management requirements in the notice of review and approval opinion and changes in ESG matters of customers, and strengthens its management reports. Risk control measures such as early warning, increased risk mitigation procedures and quota control will be taken against those customers who have violated the law and regulations but failed to actively make rectifications.

Climate Risk Management

In 2024, the Bank included requirements related to climate risk management in its credit policy, calling for efforts to properly carry out climate risk management, earnestly implement the Bank’s green credit policy requirements, continuously improve the ability and level of climate risk management of loans, focus on key industries and key regions, and actively guide credit resources to business areas with low energy consumption, low emission, low pollution, high efficiency and good market prospects. Meanwhile, the Bank strengthened communication and coordination with enterprises and competent government departments, paid close attention to controlling the total energy consumption and energy consumption intensity in the region, continued to track the pilot projects of ecological environment source prevention and control of energy-intensive projects with high emissions and environmental impact assessment of carbon emissions in key industries, analyzed the impact of carbon trading prices on customer assets, liabilities, profits, losses, etc., timely assessed customer climate risk, made plans in advance, and adjusted the credit structure in a steady and orderly manner.