Date: October 30, 2013 Source: Economic Daily
Sustainable development and green finance have been accepted by mainstream banks in the world, becoming one of the important rules of game in the international financial market. With the gradual implementation of relevant strategies and policies, the development of green finance at home is entering into a new historic stage, which brings unparalleled opportunities for the business. Commercial banks will have a broad space in developing green finance to settle the problem of excessive capacities.
In order to accomplish the new tasks and meet the new requirements for building China into a moderately prosperous society in an all-round way by 2020, the state has explicitly elevated it up to the level of national strategy to construct ecological civilization and settle the problem of excessive capacities, and put it at a more prominent position. Commercial banks are important players in the domestic allocation of financial resources. To implement the development strategies of the Party and the state and lend a boost to settling the contradiction between the restricted environmental resources and excessive capacities, the key is to uphold the “green, energy-conserving, environment-friendly and sustainable” business concept and develop the business of green finance vigorously.
Where are opportunities?
According to international experience, it becomes an unavoidable trend and inherent demand to develop green finance and settle the problem of excessive capacities when the development of modern economy and industrial civilization reaches a certain stage. The Industrial Revolution starting in the 18 th century brought the social and economic development of human beings into a new stage, and meanwhile caused a range of contradictions and problems such as environmental pollution, ecological unbalance, and periodic surplus of production capacities. As an important solution for breaking through the restrictions of resource and environment and boost the sustained sound development of economy, in recent years green finance has increasingly gained high attention from all countries around the world and the international finance community, and sustainable development and green finance have been accepted by mainstream banks in the world, becoming one of the important rules of game in the international financial market. For instance, the well-known “Equator Principles” in the international finance community has now been adopted and implemented by 78 leading financial institutions from the five continents around the world including Citibank, HSBC, and Barclays Bank, and the financing volume of projects observing the principles has accounted for 70% of the total project financing volume in emerging market economies around the world.
Based on domestic situation, since China put forward the restrictive targets of lowering the energy consumption each unit GDP by 20% and reducing the total emission of main pollutants by 10% in 2006, the transformation of economic growth mode and process of industrial restructuring have been accelerated in a sustained manner, and it has been specifically taken as an important grab and “booster” to boost green credit and develop green finance. In 2012, the 18 th CPC National Congress further put the construction of ecological civilization and “Beautiful China” at the “five-in-one” strategic height together with the construction of economy, politics, culture and society. Starting from this year, the State Council has issued a number of important documents in succession, including the “Guiding Opinion on Support of Finance to Structural Adjustment, Transformation and Upgrading” and the “Guiding Opinions on Settling the Contradiction of Excessive Production Capacities”. With the gradual implementation of relevant strategies and policies, the development of green finance at home is entering into a new historic stage, which brings unparalleled opportunities for the business. Commercial banks will have a broad space in developing green finance to settle the problem of excessive capacities.
What are purposes of innovation?
As the forerunner and advocator of green finance in China, and the first and only bank promising to the public to adopt the “Equator Principles” at home now, Industrial Bank (IB) has long before realized the great significance and room of performance to develop green finance and avoid the credit risks due to excessive capacities. Since launching energy conservation and emission reduction loan and developing the domestic green finance market formally in 2005, IB has made unremitting exploration and bold innovation in developing green finance and settling the problem of excessive capacities, witnessing significant achievements.
Constant innovation in green financial products. Over more than 7 years, IB has, in succession, released a number of innovative products in China, including the first energy conservation and emission reduction loan, the first low-carbon credit card, the first emission right pledge based credit business, the first carbon assets pledge based credit business, and the first energy performance contracting (EPC) based financing. In this way, it has now become the Chinese bank boasting the broadest green financial product line and the most diversified product families and covering the widest areas and regions. By the end of September 2013, IB has accumulatively provided 2,350 enterprises with green finance based financing totaling more than RMB 320 billion, with a financing balance approaching RMB 170 billion. The projects supported could save more than 23 million tons of coal equivalents within China each year, reduce more than 67 million tons of carbon dioxide, utilize more than 15 million tons of solid waste in an integrated manner, and save more than 255 million tons of water. The emission reduced is equivalent to shutting off 154 thermal power plants of 100 MW or stopping running100,000 taxis for 32 years.
Commitment in pushing the efforts of settling the problem of excessive capacities. IB has actively implemented national credit policies, industrial policies and environmental protection policies on its own, adhered to the principle of “guaranteeing credit in some areas and limiting it in others”, and implemented differentiated credit policies, giving priority to supporting those leading and backbone enterprises in the industries with excessive capacities to grow better and stronger and compressing or exiting enterprises with out-of-date capacities, and prohibiting from lending any financial support to any non-compliant construction projects. In particular, it put great stress on exercising the advantages of green finance and Equator bank, mobilized the advanced products, concepts and technologies of green finance to help preponderant enterprises in the industries in confrontation with excessive capacities to upgrade and transform technologies and products, so as to settle the contradiction of excessive capacities fundamentally.
Establishment and improvement of a long-acting mechanism to develop green finance and settle the problem of excessive capacities. Taking it as a breakthrough to develop green finance and adopt the Equator Principles, IB has fully transformed its banking business concept, abandoned the previous narrow and extensive growth model, and firmly established the philosophy of green, energy-efficient, environment-friendly and sustainable development. On that basis, it has pushed forward the all-round reform and improvement of its business operation model and business system. Now, IB has established a specialized system for the operation and management of green finance across the entire bank, and built a relatively well-established set of systems and methods for the management of environmental and social risks and credit risks regarding excessive capacities. It has got infused into all aspects of IB's operation and management to develop green finance and settle the problem of excessive capacities.
Where can the foot be lodged?
Energy conservation, environmental protection and excessive capacities are social and external concerns, which determines that it requires the common attention and efforts of the whole society to develop green finance and settle the problem of excessive capacities.
At the layer of government, the key task is to consolidate top-level design, provide matching support and create a good policy environment. For instance, to reinforce legislation for strengthening hard institutional restrictions; to further specify the criteria for energy conservation and environmental protection of all industries and the admittance threshold, and intensify information sharing across the society; to improve the tax and finance policies and increase the support and incentive for commercial banks to develop green finance and settle the problem of excessive capacities.
At the regulatory layer, the key task is to implement differentiated regulatory policies and support differentiated development. For example, for commercial banks developing the business of green finance, differentiated policies may be enforced in the aspects including statistic standard, certification rules, financial resource and loan-deposit ratio evaluation; in terms of tolerance to non-performing loan ratio and policies on writing off non-performing and bad debts, more support may be provided for developing green finance and settling the problem of excessive capacities.
At the layer of public opinion, positive publicity should be intensified in an active way so as to create a favorable public opinion environment for developing green finance and settling the problem of excessive capacities.