Date: December 10, 2010 Source: Economic Daily
Two years ago, the Industrial Bank promised publicly to adopt the “Equator Principles”. As a leader and promoter of “green finance” in China, the Industrial Bank has no longer limited its layout of credit supply to some large, conventional credit projects that are believed to have stable and significant returns, and it has gradually explored an avenue for growth for enterprises, society and itself to achieve a win-win situation in green finance projects.
“Not only does conventional soda ash production consume a great deal of coke and electricity, but it will also produce a considerable amount of carbon dioxide during calcinations.” The project director of soda ash production based on integrated utilization of carbide slurry in Shandong Haihua Co, Ltd., told the reporter that their original ammonia-soda process based soda ash production with carbide slurry as a raw material could avoid a large amount of the carbon dioxide produced and emitted in the conventional process.
In fact, though such processes technologies may contribute a lot to enterprises for improving their energy utilization efficiency and save on energy cost, the technological transformation projects regarding industrial production lines could not be carried out due to the lack of circulating capital. “In the conventional mode, the lending bank would ask us to provide a warranty, mortgage and pledge, etc., so it was very hard to apply for loans. In 2008, The Industrial Bank introduced an energy conservation and emission reduction project loan to us, and provided a loan of RMB 265 million to our soda ash production based on the integrated utilization of carbide slurry, with a loan period of up to five years and a flexible repayment period, making it possible to launch this project. Since the project was put into production, it has not only reduced the consumption of limestone and coke in the soda plant, but also saved energy, up to 115,000t of standard coal and produced reductions of 316,000t of carbon dioxide a year. The cost savings alone bring the group economic benefits of up to RMB 59 million.” said this project director.
It is said that the energy conservation and emission reduction loan is a service only provided by the Industrial Bank in its green finance practice. After researching and exploring in recent years, Industrial Bank has preliminarily established a green financial service system with three main blocks – energy efficiency finance, environmental finance and carbon finance – for corporate and retail customers.
For several years, it has not only brought a financial burden of Industrial Bank, the strategic practice of “green finance” has also brought new business areas. The bank has successfully extended its services to enterprises and projects that would be hard to access before, thus bringing quality capital and new income sources. Now, the bank has established a systemic product and service system, such as energy conservation and emission reduction based “8+1” financing service model for corporate customers, and customized financial services for the early, middle and final stages in carbon trading. Meanwhile, it tries to introduce a low-carbon concept into the field of personal finance, taking the lead to issue low-carbon credit cards to individual customers around China.
Financial exploration in sustainable development
As early as 2005, the Industrial Bank began to cooperate with the International Finance Corporation (IFC) to have joint discussions on a commercial model for energy efficiency financing in China, and in 2006, they cooperated to provide energy conservation and emission reduction loans. In 2007, the bank signed the “Statement by Financial Institutions on the Environment and Sustainable Development” of the United Nations Environment Programme (UNEP); in 2008, it promised publicly to adopt the “Equator Principles”; and in 2009, it established a special agency for sustainable financial services, i.e. the Sustainable Finance Center in Beijing.
“Equator Principles” are the financial indexes used to determine, evaluate and manage social and environmental risks during the process of project financing. According to the principles, banks and enterprises should all abide by environment protection standards and follow the principles of sustainable development in every phase of credit activity. As for the Industrial Bank, the implementation of “Equator Principles” is a top-down process, including the understanding of corporate governance, implementation through the corporate culture, and enforcement based on regulations and process norms. In terms of project financing scope, “Equator Principles” are applicable to every new project financing that involves a gross fund cost of over USD 10 million. In fact, the Industrial Bank encourages managing all projects or non-project financing below USD 10 million according to the principles.
On December 22, 2009, the Industrial Bank announced the formal launching of its first project compliant with the “Equator Principles” - 2×300MW expansion project of the Fujian Huadian Yong'an Power Plant. This signifies that Chinese-funded banks accomplished the transformation from regulating the internal environment and managing social risks to participating in specific projects and that type sustainable finance has gained further progress in China . Huang Biaobin, General Manager of the Fujian Huadian Yong'an Power Generation Co., Ltd. said that they had never imagined this detailed and specialized advice to an enterprise from a bank, such as “establishing social and environmental management systems” and “preparing occupational safety instructions for all positions”, and additionally, the bank could help the enterprise to formulate an ‘action plan' and take relieving and monitoring measures in phases and batches in reference to the project environment and social risks. From a corporate perspective, not only might the “Equator Principles” influence the projects per se, but they may also be of great significance to the operation, management and sustainable development of enterprises. By the end of June 2010, the Industrial Bank has carried out examinations over environmental and social risks for the financing for 12 projects compliant with “Equator Principles”, including 1 Class A project and 11 Class B projects, with a total project investment hitting RMB 6.577 billion.
Strict Unification of Regulatory Standards
To promote “green finance” projects in a large scale way to provide unified implementation standards so that loan officers can have regulations to follow. The Sustainable Finance Center established by the Industrial Bank in Beijing is responsible for operating, managing, marketing and planning the sustainable financial services including carbon finance, energy efficiency finance and environment finance, etc.
“We are responsible for accomplishing product creation, technical support and standard formulation, etc.” Wu Tianxiao, General Manager of the Sustainable Finance Center of the Industrial Bank, told the reporter. At present, the center has helped many customers to sign carbon reduction sales agreements with international carbon buyers. By providing the first carbon delivery L/G, the bank has, with its credit, helped the project owners to receive sales payments in advance, combining carbon assets management and low-cost enterprise financing. It has provided escrow and settlement services for the first voluntary carbon reduction transaction funds.
Wu Tianxiao also introduced two new products released recently: the first; carbon asset pledge-based credit extension, which regards the unfulfilled incomes of an emission reduction company by selling carbon reduction as a type of asset for financing guarantee, with a view to help emission reduction project owners to activate their future carbon assets; the second; emission right mortgage financing, which means that a discharging enterprise uses its purchased emission rights as a mortgage to apply for financing, or that a discharging enterprise applies for special financing to purchase emission rights and uses that right as a mortgage, and hence the emission right becomes a current asset of the enterprise. This becomes a new way to “financing mortgages” of enterprises.
At present, the Sustainable Finance Center of the Industrial Bank has established a technical service team for energy conservation and emission reduction, mainly consisting of internal technical supporters and supplemented by external experts. In addition, through research into market segment and project practice, it refines industrial understanding and know-how in a standardized manner, thus establishing detailed entrance criteria for regulating the energy conservation and emission reduction credit services. While controlling the credit risks effectively, the center has also built up core competitive edges for the Industrial Bank in sustainable financial services.
By the end of October 2010, the Industrial Bank has accumulatively provided energy conservation and emission reduction loans of up to RMB 42.305 billion, supporting projects which may, each year, save 18,197,800t of standard coal, reducing carbon dioxide by 49,569,500t, decreasing chemical oxygen demand (COD) by 718,300t and sulfur dioxide by 20,100t, utilizing 6,125,000t of solid waste in an integrated way, and save 36,591,000t of water in China. It's worth noting that the default rate of loans to all energy conservation and emission reduction projects has been kept at zero and the loan return level has ranked high among the long-term and mid-term projects since the Industrial Bank released this service.
If we say that the Industrial Bank has sowed “green” social responsibilities, now it begins to have a big harvest of “golden” benefits.