The essence of sustainable finance is to support customers’ sustainable development through financial instruments so as to promote social and environmental improvements. It has three properties. The first is sustainability, which covers customers’ sustainable development and the sustainable development of financial institutions, business and products. Such a business model is capable of continuously promoting social and environmental improvements. The second is financial character. Sustainable financial business should comply with financial logic and follow financial operation rules. The third is the positive feedback properties of finance on society and environment. This is demonstrated as the proactive actions of financial institutions. As financial institutions employ financial instruments to support customers’ sustainable development, they ameliorate and enhance social and environmental effects, rather than considering avoiding unfavorable social and environmental factors during financial transactions.
Climate change and the low-carbon economy have become global issues, and China’s commitment to reducing emissions has demonstrated its attitude. As a means of support to green economy, green finance upgrades from the passive social responsibility level to the active sustainable finance level at the same time.
While talking about green finance, the Industrial Bank must be mentioned. In 2005, IB started to explore ways of supporting energy conservation and emissions reduction through financial innovation. Subsequently, it cooperated with the International Finance Corporation (IFC) and initially launched financing for energy efficiency projects. In August 2008, as the first domestic bank to do so, IB publicly committed itself to the Equator Principles. Therefore the green practice of IB has been widely accepted by the society and IB won the “Asia's Sustainable Bank of the Year 2009” of “Sustainable Banking Awards”.
Besides IB, other banks have also taken action. On June 1, 2007, as the second domestic bank following IB, the Bank of Beijing signed a deal with the IFC for energy efficiency loans. In the wake of this, Shanghai Pudong Development Bank signed a deal with the IFC for energy efficiency loans and other banks’ negotiations with the IFC are under way. In addition, the China Minsheng Bank emphatically provides credit support to projects such as technical innovation, technical reform, sewage treatment, clean energy and product promotion on energy conservation and emissions reduction. Bank of China and Shenzhen Development Bank launch financial products on carbon emission deal. Industrial and Commercial Bank of China released opinions in September 2007, which put forward to establish the Environmental Protection One-Vote-Down of credit. The bank will not grant loans to projects that fail to comply with environmental policies. As for the enterprises and projects listed in Region-Based Limitative Ratification and Basin Limitative Ratification area, it suspends all forms of credit support before limit release. Environmental Protection Information Identification is made with corporate customers so that the customer environmental protection risk data is developed.
Social responsibility and unavoidable passiveness
However, this is only a start, and is still far from the extent and depth that green finance can reach.
Pan Yue, Deputy Minister of Environmental Protection of the People’s Republic of China, says that there are four technical difficulties in promoting green credit policies besides mechanisms. First, many small and medium pollution enterprises take private financing or self financing without borrowing from financial institutions, therefore green credit cannot bring into play its function of restricting those polluting enterprises. Second, information communication mechanisms and their efficiency need to be improved since data can not be shared. Commercial banks are short of professional personnel, organizations and systems in green credit, which restricts the development of green credit. Third, most standards of Green Credit are comprehensive and principled, and lack concrete green credit guidance catalogues and environmental risk evaluation standards. Therefore, it is hard for commercial banks to set down relevant management measures and interior rules for implementation. Accordingly, the operability of Green Credit measures is debased. Fourth, there is a lack of incentive mechanisms promoting green credit, so the banking industry lacks the motivation to support environmental protection projects.
Carbon finance refers to financing activities serving the restriction of greenhouse gas emission. It seems that energy conservation and emissions reduction, green credit and carbon finance are similar, because they all emphasize that finance support sustainable development and promote energy consumption reduction and environmental amelioration. It is easily neglected that sustainable development will bring business opportunities to financing business. There is a reason for which commercial banks regard green finance as a social responsibility rather than a potential earner.
Develop sustainable finance through professional organizations
In January 2009, IB established a special organization for domestic sustainable financial business, the Sustainable Financial Center. By setting up such a special organization, IB hopes to develop efficiently financing innovation, avoid project risks, gather resources and enlarge and strengthen sustainable financial business.
 “The Sustainable Financial Center of IB is committed to supporting the construction of Two-Oriented society and promoting the development of circular economy, energy conservation and emissions reduction, environmental protection and low-carbon economy by diversified financial instruments,” an officer from the Sustainable Financial Center of IB described the original intention of establishing the center during an interview.
It is known that the Sustainable Financial Center of IB currently attaches significance to marketing plan, market research, product development and market expansion. By continuously expanding and improving its products and services, the Sustainable Financial Center will cultivate a professional team with advanced techniques, excellent service and fine management; form five platforms, i.e. technical support, product design, asset management, business cooperation and trade service; cover six fields, such as energy efficiency, new energy sources, renewable energy source, and launch seven financing models aimed at different client groups and projects.
Sustainable finance brings business opportunities.
Although at present the Sustainable Financial Center of IB is the only special sustainable financial organization to be opened by a domestic commercial bank, it seems to be a symbol, which shows that the green finance concept of China’s commercial banks is transforming from passive social responsibility to active sustainable finance.
As for sustainable finance, despite the fact that a uniform concept has not emerged in China and overseas, IB gives the following explanation:
The essence of sustainable finance is to support customers’ sustainable development by financial instruments so as to promote social and environmental improvements. It has three properties. The first is the sustainability which covers customers’ sustainable development and the sustainable development of financial institutions, business and products. Such business model is capable of continuously promoting social and environmental improvements. The second is the financial character. Sustainable financial business should comply with financial logic and follow financial operation rules. The third is the positive feedback property of finance on society and environment. It is demonstrated as active actions of financial institutions. As financial institutions employ financial instruments to support customers’ sustainable development, they ameliorate and enhance social and environmental effects, rather than considering avoiding unfavorable social and environmental factors during financial transactions. Sustainable finance derives from green credit, but its intension transcends green credit.
On the level of organization framework, at present IB has established an inter-department work team including the chairman and president. IB is also improving its systems and establishing classification standards for project finance, industry implementing rules, risk evaluation standards and relevant management guidance. On the level of specific work, it has established a work linkage mechanism between headquarters and branches and has released Opinions on the Implementation of Equator Principles in the name of headquarters, which puts forward a series of implementing opinions on the Equator Principles from the aspects of business marketing, client communication and interior work system. In addition, IB maintains routine communications with supervision departments, financial institutions of Equator Principle, domestic banks and NGOs.
Meanwhile, IB has already developed a corresponding product line and special risk control methods. Data shows that by the end of November 2009, IB had launched loan business for energy conservation and emission reduction in all domestic branches, which has supported 187 energy-saving and emission-reduction projects in total, with the total amount of RMB 13.737 billion. These projects can save 8,517,800 tons of standard coal, reduce 26,853,400 tons of emissions of carbon dioxide, and reduce 3,428,200 tons of chemical oxygen demand (COD) every year. (Source: Financial Times)