IB Goes All Out in Green Finance to Achieve Sustainable Development
Date: 2010-09-11 Source: Financial Times
The Industrial Bank recently released the Industrial Bank Sustainable Development Report (2009). This is the first report on sustainable development in China's banking industry, and is also the first sociality responsibility report to be primarily based around sustainable development as a core indicator. The publishing of this report symbolizes that the domestic banking industry is placing a new level of emphasis and taking increased action in regard to social responsibility.
“The decision to name the company's social responsibility report as the Sustainable Development Report is a direct indicator of IB's strategic approach of tying the concept of sustainable development to its corporate social responsibility. It reflects the “sustainable development” centered mode of social responsibility that we have proposed and practiced consistently, which is to strike a balance between the development of the company, society and the environment.” This is how Gao Jianping, the Board Chairman of the Industrial Bank, explains the bank's philosophy.
Pioneer in Energy Efficiency Project Financing
Creating a Green Brand
The Industrial Bank has established an image as a pioneer of “green credit” in China after being the first in the industry to launch energy efficiency project financing. This successful attempt made the Industrial Bank even more resolute to probe deeper into green finance. After a process of deliberation, the bank declared itself an “Equator Bank” on October 31, 2008, thereby becoming China's first “Equator Bank” and the world's 63rd .
In May, 2006, the Industrial Bank signed a cooperative agreement with the IFC in Shanghai to launch the first energy efficiency financing project in China. The agreement integrated the strengths of the IB and the IFC in market-oriented financing, utility services and risk management. In response to financing demand for the application of energy conservation technology and circular economic development, the initiative creatively introduced a loan principal loss sharing mechanism. According to the agreement, the IFC is willing to share loan principal losses based on an agreed proportion in the event of bad loans. This has allowed for a loan portfolio as large as RMB 460 million Yuan. This was the first time that the IFC carried out energy efficiency financing in China on a market-oriented basis, and was also the first attempt by the Industrial Bank to develop a green finance product.
On February 25,2008, the Industrial Bank signed a phase II cooperation agreement in energy conservation and emission reduction finance with the IFC in Beijing. According to the agreement, IFC will provide risking-sharing loan principal of USD 100 million to support the IB in the issue of RMB 1.5 billion Yuan in loans to energy saving and emissions reducing projects.
By the end of July, the Industrial Bank had issued a total of 607 loans to support such projects, totaling at RMB 34.675 billion. The bank sustained its target of “granting RMB 10 billion in three years (2008-2010)” as publicly promised in advance.
It is worth noting that since this initiative was launched, none of the IB's energy saving and emission reducing projects loans have experienced asset quality issues, and the non-performing rate of the loans remains zero. The loan rates are slightly higher than the market benchmark rates for the corresponding period, meaning that it's the loan yield level there from represents a high standard among medium and long-term projects.
The significance of energy saving and emissions reducing project loans for IB was more than just simply that of a new product and profit source. More importantly, it ushered in the start of the bank's drive in sustainable finance and played a key role in enhancing its corporate governance and business philosophy. By sowing “green” seeds, the Industrial Bank has harvested “gold”.
Building the Bank-Bank Platform
Creating a Unique Service Mode
Recently, the modern payment system bank No. of the Zhejiang Yueqing United Township Bank was officially approved by People's Bank of China. With this, the number of township banks that have been connected to modern payment systems via the Industrial Bank amounts to 10. With another 5 township banks currently undergoing joint debugging and testing for agent connection to payment systems, the Industrial Bank has been working with 15 township banks in China for agent connection to payment systems.
The Bank-Bank Platform is one of the business modes that IB has focused on in its recent sustainable finance drive, and it already enjoys a big advantage in the industry. It is a brand name for the provision of comprehensive services by the IB to banks. The service emphasizes mutual benefit and resource sharing to form strategic alliances. The bank-to-bank platform mainly serves city commercial banks, urban credit cooperatives, rural credit cooperative, rural commercial banks, rural cooperative banks and township banks. The platform involved cooperation with banks in eight major areas, namely payment and settlement, wealth management, technological output, financing services, foreign exchange agency, capital and asset debt structuring services, application of funds and training and exchanges.
The Industrial Bank started offering township banks agent connection to payment systems in the second half year of 2009. The first bank it cooperated with was the Xiaolan Town Bank of Zhongshan, Guangdong. This March, the IB upgraded its system to offer a client end mode. This exempts many township banks from system development, renovation and hardware equipment purchase, allowing them to make large savings in system construction and operation in addition to boosting access efficiency. At the same time, IB also provides value-added services such as system operation training for township banks. Agent connection to payment systems has proved to be a very popular service among many village and town banks. In just a short space of time, over 10 township banks signed cooperative agreements with IB, including the Dongguan Chang'an Town Bank, which has the most registered capital in the country.
Apart from agent connection to payment systems, IB also actively provides technology output services for township banks. Currently, it has provided core system construction and operation and maintenance services for five township banks, and has signed cooperative agreements for “Bank-Bank Platform Counter All-fast” with six township banks.
Since the start of this year, IB has set township banks as its key objective for “Bank-Bank Platform” services and expansion, mainly providing payment & settlement and technology & management export. It hopes to help provide support to rural banks in overcoming payment & settlement bottlenecks and allowing the service function of new rural financial institutions to be enhanced. At the same time, it is also performing its social responsibilities to advance the growth of rural financial service outlets and serve agriculture, farmers and villages.
First Low-carbon Credit Card
Seeking a New Path towards Low-carbon Consumption
As an active advocate of green finance and China's first “Equator Bank”, IB took the lead in issuing the first low-carbon credit card in China in a departure from the traditional mode by which companies fulfill their social responsibilities. In doing so, they have expanded energy saving and emissions reduction from ordinary corporate projects to include personal consumption by providing a convenient bank transaction platform over which Chinese consumers can become actively involved in carbon emission reduction and realize carbon neutralization.
“In addition to having all the functions of a standard credit card, the low-carbon credit card also offers a solution for personal carbon trading. Consumers can purchase carbon emission reduction quota from the Beijing Environmental Exchange using their low-carbon credit card at to neutralize or offset their individual carbon emissions. In this way, consumers are getting to know about low carbon, and are becoming familiar with their generation, transaction and the impact they have to the society. This is what we are hoping to see with this card. ” officials from the IB credit card told the media.
China's low-carbon credit card has the following unique features: firstly, it is the first carbon themed credit card in China; secondly, IB has joined hands with the Beijing Environmental Exchange, an authoritative environmental rights and benefits transaction institution in China, to build the first credit card carbon emissions reduction personal purchase platform. This allows individual consumers to participate in carbon emission reduction transactions for the very first time; thirdly, the bank has established the first “personal green file” system with Beijing Environmental Exchange, which allows users to trace and check their personal carbon transaction record. The system serves to encourage card holders to actively get involved in carbon emissions reduction and advocate a low-carbon lifestyle. IB requires verified ordinary card holders to purchase one ton of carbon emission volume in the first year and gold card holders to buy two tons every year. According to international pricing, one ton is sold for RMB 35 Yuan. Clients that apply for a low-carbon credit card are required to make a social contribution up front.
As far as the Industrial Bank's low-carbon credit card itself is concerned, the card is made from a new type of environmentally friendly degradable material, which reduces the damage to the environment caused by the disposal of traditional cards. The concept of low carbon and environmental protection is thus embodied in the actual design of the card. This product has received a warm welcome from the market thanks to its new concept of green consumption. In the space of less than half a year, the Industrial Bank has issued 50,000 low-carbon credit cards, and its clients have purchased 15,000 tons of carbon emission reduction quota.