Date: December 21, 2012 Source: Economic Daily
Against the backdrop of global response to climate change and the cause of energy conservation and emission reduction promoted by China, Industrial Bank (IB) proposed the social responsibility practice model of “obtaining reasonable profits while bringing benefits to the stakeholders”. In 2005, IB and International Finance Corporation (IFC) explored the cooperation in energy-efficient financing program, releasing the energy-efficient financing product innovatively. By the end of this November, IB has accumulatively extended nearly 4,200 “green finance” credits, with an amount of almost RMB 200 billion. If all the projects can be implemented, the annual emission reduced is equivalent to shutting off 151 thermal power plants of 100 MW or stopping running 70,000 taxis in Beijing for 45.5 years. The bank has built up its “green competitiveness” gradually.
In 2005, IB, in collaboration with our partner IFC, designed and developed the energy conservation and emission reduction financing products. IB released the first energy-efficient project financing product in China in 2006, and became the first Chinese bank releasing comprehensive carbon financial services in 2007. In 2008, IB announced to the public to adopt the Equator Principles, becoming the first Chinese “Equator bank”, and in 2009, the bank established the Sustainable Finance Center, the first institution specialized in sustainable finance in China, and the first project compliant with the “Equator Principles” was implemented in Yong'an Fujian. In 2010, IB issued the first low-carbon credit card in China, extending the green finance from the field of enterprise project to personal consumption, and the first emission rights pledged loan was granted in Jiaxing. In 2011, IB granted the first carbon asset pledged loan in China, and other innovative green credit products like emission rights pledged credit were also released in succession. In 2012, the Sustainable Finance Center of the bank was upgraded into the Sustainable Finance Department, a Class I department of the Head Office to manage the development of green finance businesses in an all-round way.
With sustained innovation and bold attempt in the field of green finance in the latest seven years, IB has become the advocator of sustainable finance concept and the forerunner of green finance businesses in China.
Pioneering exploration brought a new oasis
Green finance contains great demands for financial services, but some people still doubt if it can bring high benefits to banks. The sustained rapid growth of IB in recent years showcases that “green” investment can also be returned by “gold” incomes.
“Green economy integrates the low-carbon economy, recycling economy and ecological economy,” General Manager Liang Pingrui of the Sustainable Finance Department of IB told the reporter.
The low-carbon economy, aiming at reducing the emission of greenhouse gas, intends to improve the energy production and use efficiencies and increase the production and utilization of non-carbon fuel by means of innovating in concept, technology and industrial structure, as well as developing and utilizing new energy. In recent years, low-carbon economy related projects such as clean energy and green lighting have been launched one after another and became the objects that participated in and supported by the bank actively. By the end of this November, IB has provided financing loans of more than RMB 100 billion for these projects. Recycling economy aims to utilize resources in an efficient and recycled manner and follows the principles of “reducing, reusing and recycling”. It is an important way to transform the conventional social development model of China. Up to now, IB has provided financing loans of nearly RMB 44 billion to projects in the field of recycling economy. Another area of green economy is ecological economy. In essence, it holds that economic development should be put on the basis that the ecological environment can stand and it aims to build a composite ecological system where the economy, society and nature can circulate in a desired way.
With business practice in green finance, IB has gradually understood the profound connotation of green finance and the sustainable development concept extended from it. Moreover, the bank has gradually elevated the concept to the level of corporate governance, and put forward the social responsibility practice model of “obtaining reasonable profits while bringing benefits to the stakeholders”, so as to push forward the innovation in banking business models. The sustainable development concept which contains the green finance concept has become the core concept for guiding the operation and management of IB and transforming its business process.
On this September 23, IB ranked top in the green credit ranking of 50 Chinese banks released by the Ministry of Environmental Protection and became the only bank rated as Class A (above 80 points). Meanwhile, it won the 2012 Outstanding Energy Performance Contracting Product Prize for Innovation in Green Finance awarded by the China Energy Conservation Association. In this year, the bank has won in succession the 2011 Best Corporate Social Responsibility Financial Institution Award and 2011 Corporate Social Responsibility Award for Best Green Finance issued by the Chinese banking industry, and the Best Green Bank Prize awarded by TOPCFO. Moreover, it was the only winner of Carbon-value Social Citizen Award at the Fifth World Economical and Environmental Conference. Behind such honors is the unremitting perseverance in the field of sustainable finance.
Creating specialized credit models
The Sustainable Finance Center of IB established in 2009 is an important platform for the bank to “till” green finance deeply. In recent years, the green finance based financing of the bank has kept growing at a rate over 200% each year, and it has developed two ranges of products regarding financing service and emission right finance.
IB has kept pushing forward the specialized operation of green finance, establishing an energy-efficient financing team in 2005, setting up the Sustainable Finance Center in 2009, and upgrading the center into the Sustainable Finance Department in 2012. And it has established five specialized teams respectively for project financing, carbon finance, market research, technical services, and Equator Principles review. Meanwhile, the bank has, according to the divided segments, formulated the technical admittance criteria, formed the green finance credit admittance, established a green finance certification system, and carried out “measurable, reportable and examinable” environmental benefits calculation. We have set up departments in all branches for controlling environmental and social risks in a planned manner and driving forward green finance businesses, and appointed product managers in charge of green finance.
Since the first energy-efficient financing project was implemented in 2006, IB has accumulatively extended nearly RMB 200 billion green financing loans to around a thousand enterprises with a variety of financial tools by the end of November 2012, growing at a rate over 200% on average each year.
In the aspect of financing service, IB released “8+1” financing service model considering different demands of customers and project types. “8” refers to the utilization of eight conventional credit modes, including energy conservation and emission reduction technical reform project financing, financing under CDM, energy management company (EMC) financing, credit financing of buyer's credit for supplier of energy-conserving and emission-reducing equipment, financing for the production increase of energy-conserving and emission-reducing equipment manufacturer, financing for utilities service supplier, financing lease, and emission right pledge-based financing. “1” refers to the non-credit financing mode, covering the issuance of debt financing tools including short-term bonds, medium-term notes and SME collection notes, financial lease, structure financing, and trust financing, etc.
In the aspect of emission right finance service, IB has developed special products and services for international carbon trading, domestic carbon trading pilots and emission right trading pilots. In the aspect of international carbon trading market, IB has released such products as clean development mechanism (CDM) project development consulting, carbon-purchasing agency, performance guarantee for verified carbon emission reduction (CER), and carbon assets pledged credit extension, covering all the links of carbon trading in the upstream, middle stream and lower stream, all of which have witnessed successful cases. Meanwhile, it has established extensive cooperation with dozens of overseas carbon traders and domestic mainstream environment benefits and rights exchanges. With regard to domestic carbon trading pilots, IB has launched financial innovation in carbon trading pilots in the exchanges in Shanghai, Hubei, Guangdong and Tianjin. Meanwhile, with the full support and cooperation of the Sustainable Finance Department of IB, a number of systemic and constructive opinions and suggestions are proposed in such aspect as the formulation of trading rules, production selection, joint channel construction, system development, and online test. On June 21, 2012, Guangzhou Exchange Services Group and IB Guangzhou Branch signed the Cooperation Agreement on the Construction of Guangdong Provincial Carbon Emission Right Trading Platform with substantial contents. This signified the final confirmation and establishment of the substantial cooperation relationship between the two parties, and IB became the principal settlement bank for Guangzhou Carbon Emission Rights Exchange. In the aspect of emission right trading pilots, IB took the lead to release the integrated financial services of emission rights, providing a package of products and services for governmental agencies and enterprises regarding the consulting for the design of emission rights trading systems, development of emission rights trading and settlement system, emission rights pledged credit, and financing for projects reducing the emission of pollutants. Moreover, it pioneers to launch cooperation in Hunan, Hebei, Shanxi, Jiangsu, Zhejiang, and other regions.
Clinging to Green Finance to accumulate development potential
Although the green finance development of most banks still remain in the initial stage, with such problems as limited understanding, incomplete policy environment and insufficient professional capability to some extent, the consensus that green finance is a new growth point has been reached gradually.
General Manager Liang happily told the reporter in the interview that IB began to release the energy performance contracting financing in the form of individual case in 2007. Major breakthrough was achieved in this year. By pledging the future usufruct under an energy performance contracting as the guarantee, the bank formally released the special financing product based on energy performance contracting, so as to alleviate difficulties of energy-conserving projects in financing and guarantee.
After the first energy performance contracting (EPC) financing loan by using the future usufruct of projects as the pledge was granted to Anhui LINTHA successfully, IB further provided such financing to a group of similar customers of energy-saving service companies. For instance, Shenzhen Prosunpro Solar Energy Co., Ltd . is one of the solar enterprises with the greatest R&D capabilities in South China. In 2012, the company undertook the energy-saving transformation projects for solar water heating systems of two schools in Guangxi in succession. Hence, it was in need of medium- and long-term financing. However, in developing projects in a rolling manner for a long period, the company could hardly provide any effective mortgage and guarantee any more. Furthermore, it was extremely difficult for such a company to get a solution by resorting to the conventional commercial loan in investing in EPC projects.
At the critical time, IB provided the energy-saving service company with a five-year project loan worth RMB 14 million in total by pledging the future usufruct of projects, which accounted for 70% of the total project investment, guaranteeing the smooth implementation of EPC projects vigorously. As estimated, after the projects being put into operation, it is expected to save 561 tons of coal equivalents and reduce 1,380 tons of carbon dioxide.
The in-depth promotion of green finance not only provides financial support, but also helps customers to identify, manage and prevent environmental and social risks. The 300,000 t/a plasterboard cover paper project of Shanxi Qiangwei Paper Co., Ltd. is a large project of the papermaking industry at the provincial level. With a total investment of nearly RMB 1 billion, the project would register taxes over RMB 100 million and provide jobs for more than 700 people after completion, with both good economic and social benefits. In line with the Equator Principles, the project was of Category B, namely, there are certain hidden environmental and social problems. Nonetheless, the impacts to the surrounding environment can be minimized with effective measures.
In the stage of environmental and social due diligence investigation, IB discovered that the enterprise had not constructed an accident capacity pond for the treatment of sewage in accordance with relevant standards. Hence, not only was it at the risk of being punished by the environmental protection authorities, it also couldn't organize emergency response to special situation. Moreover, it would take more time and cost if the enterprise chose to make modification after the completion of the project. Considering the above circumstances, the bank made in-depth communication with the enterprise, explaining the Equator Principles and the concepts of environmental and social risks. Finally, the enterprise was convinced, and agreed to construct the accident capacity pond in accordance with relevant standards.
Shortly after the project was completed, the superior environmental protection authorities carried out special inspection over the environmental protection of local paper-making enterprises. All of those failing to construct capacity ponds in accordance with relevant standards were required to shut down for rectification. However, the project of Shanxi Qiangwei Paper saw no impact in its production and operation as it had taken corresponding measures in accordance with the requirements of the Equator Principles and avoided environmental and social risks.
The concept of green finance has been widely accepted now, and it has been generally agreed to develop green finance in the banking industry. General Manager Liang believed, nonetheless, the green finance of most banks remains at the initial stage at present, and there are some problems restricting the development of green finance, e.g. the understanding of green finance is not comprehensive; the policy environment of green finance needs to be improved; the professional capability to develop green finance should be further built up.