China Finance , Issue 20, 2013
With years of exploration and practice, Industrial Bank (IB) has understood the great significance to develop green finance and take a path of sustainability. In 2005, IB began to cooperate with International Finance Corporation (IFC) to carry out energy efficiency financing program, opening the curtain for IB to learn from advanced international modes and combine the concept of green finance and day-to-day operation of a commercial bank in an organic way. In October 2007, IB signed the “Statement by Financial Institutions on the Environment and Sustainable Development” with United Nations Environment Programme (UNEP) to further consolidate the concept of environmental risk management. In October 2008, it officially announced to the public to adopt the Equator Principles, becoming the first Equator Bank in China.
Constructing a Specialized Management System
Under the guidance of the Equator Principles, IB started from the areas of intensifying decision-making management, optimizing organizational structure, and improving the construction of systems and built a relatively complete system for the management of green finance.
At the decision-making layer, IB's board of directors and management team has established the work leading group for social responsibilities and the work leading group for equator principles, and combined the two into the work leading group for social responsibilities at the beginning of 2013, getting fully involved in the implementation of sustainable development and the Equator Principles so as to ensure the full-scale and thorough implementation of the work.
At the layer of organizational structure, IB has gradually improved the organizational structure for sustainable development by establishing a professional energy efficiency financing team in 2005, setting up the Sustainable Finance Center in 2009, and upgrading the Sustainable Finance Center into the Sustainable Finance Department, a Class I department of the Head Office, in 2012. Now, the Sustainable Finance Department of IB Head Office has established five specialized teams including project financing, carbon finance, market research, technical services, and Equator Principles review, and built an assets operation platform integrating the six functions: product creation, technical support, assets management, marketing operation, trading service, and business cooperation, and built a technical support system relying on both internal and external expert teams. At the layer of branch, IB has also set up functional departments in all branches for controlling environmental and social risks in a planned manner and driving forward green finance businesses (sustainable finance department at the branch level), established professional operating team for green finance and appointed product managers in charge of green finance.
At layer of regulations and rules, on the basis of the requirements of the Equator Principles and in combination with relevant guidelines of the China Banking Regulatory Commission (CBRC) on credit extension for energy conservation and emission reduction and on green credit as well as the features of its own existing credit procedure, IB has set down a range of normative documents covering regulations and rules, such as “Policies for the Management of Environmental and Social Risks”, “Financing Management Measures for Projects Applicable to the Equator Principles”, “Classification Guidelines on the Financing of Projects Applicable to the Equator Principles”, and “Code for Examination and Approval by Experts on Environmental and Social Risks”, and supporting tools, model texts and relevant guiding opinions, thus forming a complete institutional system covering “basic systems – management measures – operation procedures”.
At the layer of business process and management mechanism, IB has built and refined the system for controlling environmental and social risks and relevant business processes, and introduced supporting tools for investigation, analysis, and risk monitoring, and legal texts while streamlining and improving the relevant business systems in an all-round manner and reinforcing regulations based hard restrictions, thus fully enhancing the management level of project risks.
In terms of cultural implantation, IB has incorporated the concept of green business operation into its corporate culture. IB has actively integrated corporate culture and corporate social responsibility with green finance. It has transmitted the concepts of green finance and corporate social responsibility inside the Bank, built its green finance capacity, exerted itself to reduce carbon emission in its own operation, and promoted green operation.
Intensifying Innovation in Green Finance Products and Service
In the area of green finance, IB has mainly released three type of financial service in an innovative manner: first, energy conservation and emission reduction financing service; second, emission right trading service; and third, personal low-carbon financial service.
Energy conservation and emission reduction financing service
In the collaboration with IFC, IB started from releasing the first energy efficiency financing product in China in 2006, and then timely released “8+1” financing service model considering different demands of energy conservation and emission reduction customers and project types. Now, the green finance based financing service offered by IB covers all areas of the low-carbon economy, supporting a great number of enterprises and projects that can achieve energy conservation, consumption reduction, reduction of greenhouse gas emission in the sectors including industry, transport, construction, new energy and renewable energy. In 2012, IB innovatively released the special financing product for energy performance contracting. With the product, it established the non-typical future usufruct of projects authentically as a standardized guarantee. Meanwhile, with the support of measures for controlling cash flow, it alleviated the financing guarantee problem of asset-light energy-saving service suppliers. Again, the Bank and IFC launched their collaboration regarding the third phase of energy conservation and emission reduction loan, offering the first product in China for providing special financing services for the energy conservation and emission reduction of SMEs in the underdeveloped areas, effectively pushing these areas to launch low-carbon projects that improve energy efficiency and achieve the effect of reducing the emission of greenhouse gas. By the end of 2012, the balance of green finance based financing granted by IB hit RMB 112.609 billion, of which the green finance loans accounted for RMB 70.590 billion and the non-credit financing RMB 42.019 billion.
Apart from conventional credit financing products, IB has also brought into play its advantages of integrated financial service to expand the field of green financial service by making use of the flexible industrial characteristics of lease and trust. Taking energy conservation and emission reduction projects as the key area for business extension, Industrial Financial Leasing Co., Ltd. has preliminarily built its core competitive edges in financing lease of energy-conserving and emission-reducing equipment. By the end of 2012, the balance of energy conservation and emission reduction financing lease receivables of Industrial Financial Leasing hit RMB 13.397 billion, which accounted for 33.5% of the total balance.
Emission right related financial service
By now IB has created pledge financing, platform construction, trading service and information consulting product in the area of emission right trade, as well as a variety of service products and models for serving different links of emission right trade, and developed special products and services for international carbon trade, domestic carbon trading pilots and emission right trading pilots.
In the aspect of carbon finance, IB independently developed the tool for evaluating carbon assets, released the first Chinese carbon assets pledged credit business, and provided the loan to Xingyuan Hydropower Generation Co., Ltd. of Minhou County, Fuzhou by taking the future carbon assets as the pledge. It established long-term cooperation relations with dozens of international carbon purchasers which are most active in China and facilitated more than 10 projects in the execution of carbon reduction sales agreement (ERPA), and issued the first carbon delivery L/G at home. It provided trading settlement and funds custody service for the first voluntary carbon emission reduction transaction at home. It has actively got involved in the construction of domestic carbon-trading market and built cooperation platforms for carbon finance. IB and Shanghai Environment and Energy Exchange worked together to extend the carbon trading pilots in Shanghai. Up to now, the Bank has established relations with seven pilot provinces and municipalities for carbon emission trading and signed cooperation agreement with five of them, carrying out all-round cooperation in the aspects of the construction of carbon emission right trading system, capital clearing and product development.
In the area of emission right related products, considering the increasingly improved system for the pilots of emission right trading at home in recent years, IB officially released the “business of emission rights pledged credit” in 2012, recognizing the guarantee method to pledge emission right for financing of enterprises. The business can not only help enterprises to activate their emission right assets, but also enable them to really see the asset value of emission rights. In this way, it can mobilize the enthusiasm of enterprises to manage their emission right assets and participate in the emission rights trading market so that they can pay attention to the prevention and control of pollution. Meanwhile, IB also released integrated financial service solutions for 10 pilot provinces and municipalities for emission rights trading.
Personal low-carbon financial service
In January 2010, IB issued the first low-carbon credit card in China. Relying on its industrial experience accumulated in green finance, it has extended green finance from the field of enterprise project to personal consumption, providing a practical and feasible new path for individual customers to achieve “carbon neutrality”. The low-carbon credit card has attracted an increasing number of common people who love environmental protection to participate into the low-carbon campaign, becoming the “live water source” for the low-carbon cause. By the end of 2012, a total of more than 169,000 China Low-carbon Credit Cards have been issued, and the purchased voluntary carbon emission reduction totaled 40,593 tons, equivalent to neutralizing the carbon emission by 292,000 people traveling 1,000 km by air.
Effect of Practice in Green Finance
With more than seven years of exploration and practice in green finance, IB has achieved the unification of economic, environmental and social benefits in its localized green finance practice.
First, the large-scale development of green finance. From the implementation of the first energy-efficient project financing project in 2007 to the end of 2012, IB accumulatively granted nearly RMB 200 billion of “green finance” based financing loans to around 1,000 enterprises with a variety of financial tools, of which the balance of loans accounted for nearly 10% of the corporate credit balance. The green finance business covers three major fields of low-carbon economy, recycling economy and ecological economy. These projects involve a variety of projects such as improvement of energy efficiency, development and utilization of new energy and renewable energy, carbon emission reduction, sewage treatment and water area control, reduction of sulfur dioxide emission, and recycling of solid wastes in the mainstream sectors of energy, construction, transport and industry. It has become one of the business fields with the most distinctive features of differentiated business operation in IB.
Second, significant environmental benefits have been achieved by green finance. By the end of 2012, the projects supported by IB have saved 255.7906 million tons of standard coal across China each year, reduced 66.8347 million tons of carbon dioxide, 886,500 tons of chemical oxygen demand (COD), 15,100 tons of ammonia nitrogen, 43,600 tons of sulfur dioxide, and 6,900 tons of oxynitride, utilized 15.0129 million tons of solid waste in an integrated manner, and saved 255.7906 million tons of water. The annual emission reduction realized is equivalent to shutting off 153 thermal power plants of 100 MW or stopping running 100,000 taxis for 32 years. The effect in boosting energy conservation, emission reduction, and green environmental protection is self-evident.
Third, the increased influence of green finance brand. Thanks to its unremitting efforts in the field of green finance, IB has gained the attention and recognition of the international community and all circles at home. IB won the annual sustainable banking award jointly appraised by the British Financial Times and IFC twice in 2007 and 2009 respectively, the only Chinese bank winning this award up till now. In 2012, it topped the ranking of “2012 China Green Credit Report” released by the Policy Research Center for Environment and Economy of the Ministry of Environmental Protection. In recent years, the bank has won a number of honors appraised by domestic mainstream media for many times, such as the “Best Corporate Citizen”, the “Best Green Bank”, and the “Low-carbon Pioneer Enterprise”. In particular, IB received the honor of “National Collective Role Model for Emission Reduction” for the “11 th Five-year Planning” period jointly conferred by the Ministry of Human Resources and Social Security (HOHRSS), the National Development and Reform Commission (NDRC), the Ministry of Environmental Protection (MEP) and the Ministry of Finance (MOF), becoming the only commercial bank receiving the honor across the entire country.
The Innovative Way to Practice Social Responsibility by “Obtaining Reasonable Profits while Bringing Benefits to the Stakeholders”
IB's practice in green finance in recent years indicates that green finance is not a cause where one can only give without return. Green finance contains boundless commercial opportunities, and “green” investment can also be returned by “golden” incomes. This is the social responsibility philosophy of “obtaining reasonable profits while bringing benefits to the stakeholders” upheld by IB all the time, which has also extended, promoted and deepened the sustainable corporate social responsibility practice by making innovation in commercial models. For this reason, IB has put forward the social responsibility practice model of “obtaining reasonable profits while bringing benefits to the stakeholders”, namely to combine social responsibilities with our own banking business, implement such responsibilities into the specific operation and management links of the bank, and seek business opportunities during the performance of social responsibilities, so as to explore a sustainable and developable commercial model and social responsibility practice model in which a win-win result can be achieved between the bank and the society. Based on this understanding, IB combines the performance of social responsibilities and various banking businesses in an organic way, guide management and operation activities with the practice of CSR, observe the three principles of “appropriateness”, “growth”, and “profit boosting”, advocate philanthropy innovation, and extend, promote and deepen sustainable CSR practices gradually according to local conditions.
Furthermore, the practice of IB in the aspect of sustainable finance in these years fully proves that it is replicable and promotable for a bank holding the green concept and giving an eye to sustainability to perform social responsibility by combining social responsibility with its business transformation and financial innovation organically in the way of “obtaining reasonable profits while bringing benefits to the stakeholders”. Far from being a marketing slogan of IB, green finance is an innovative financial model that combines the Bank's social responsibility, business transformation and risk management in an organic way. Rather than becoming a financial burden, it opens a new business area for IB and brings assets of high quality and considerable profits. What's more important is sustainable finance, as a knock-door effort, has boosted the elevation of IB's corporate governance and business operation concept.
A Consensus Reached on the Philosophy of Sustainable Green Finance
Over these years, the study, exchange, exploration and practice in the area of green finance brings many important changes to IB, which can mainly be seen in the following three aspects:
First, exploration in business practice becomes a consensus at the height of corporate governance, which further guides the Bank's business development. From exploring cooperation on energy efficiency financing program to adopting the Equator Principles in IB under the leading and driving by the board of directors, the philosophy of sustainable finance has become a consensus for the corporate governance of the Bank. Combining the philosophy of sustainable finance and traditional Chinese morality and culture, IB innovatively put forward the social responsibility concept of “obtaining reasonable profits while bringing benefits to the stakeholders”, concretely establish it as its basic idea and rule of conduct to “implement the Scientific Outlook on Development, further the understanding to the relationship between the social responsibilities of a bank and its own sustainable development, actively explore ways to push forward the performance of social responsibilities as a bank, and construct a relationship where human can live in harmony with the nature, environment and society”, with a view to regulating all business operation and management behaviors of the Bank.
Second, seeking opportunities proactively instead of accepting restriction passively, and self-conscious action instead of spontaneous exploration. From the cooperation on the development of energy efficiency financing program to active development of carbon finance and environment finance and issuance of low-carbon theme credit card; from adopting the Equator Principles prudently to promoting the philosophy of sustainable finance to all social circles actively, IB has changed to seek opportunities for development proactively instead of accepting restriction passively. Rather than taking the extension of green credit and observation of the Equator Principles as obligations and restrictions for its business development, the Bank now regards them as powerful tools for creating differentiated advantages and exploiting new commercial opportunities. In fact, green finance has gradually got blended into the brand connotation of IB and gradually become one of its core competitive edges.
Third, the change from the development and promotion of single green finance product to overall reconstruction of commercial models and business process. From merely offering green credit to restructuring the institutional system for management of environmental and social risks in an all-sided manner and reconstructing the business process in accordance with the Equator Principles, the philosophy of sustainable finance, the Equator Principles in particular, has gradually penetrated into all links of IB's business operation, and thus driven the Bank to reform and reforge its business operation model and business process in a profound manner.