Time: December 16 Source:China Newsweek
On November 30, the UN Climate Change Conference, which has attracted great attention, was opened in Paris France. Leaders of more than 150 countries attended the opening ceremony, providing the political impetus for the negotiation of Paris Agreement. President Xi Jinping delivered a speech at the opening ceremony, expounding the opinion and standpoint of China toward the global climate control. This is the first time that the top leader of Chinese government attended the conference. The event indicates again that, in confrontation with the environmental changes, all countries around the world further realize the need of “sharing a common fate”.
The 5th Plenary Session of the 18th CPC Central Committee, which was held not long ago, established green development as one of the five development concepts, further showcasing the extreme importance of green development in the national development system. It can be anticipated that, in the period of the “13th Five-year Planning” and even a longer period, green development will become a theme of national development and an inevitable choice for China to solve the development and protection problems and achieve development on a path characterized by production progress, well-off life and sound ecological environment.
In the process of pushing the green transformation of economy in China, the government attaches more and more importance to bringing into play the guiding role of market, especially that of financial policies, mobilizing enterprises and social forces into the “green revolution” in a more extensive manner.
In an early time this year, China Banking Regulatory Commission (CBRC) and the National Development and Reform Commission (NDRC) jointly issued the “Energy Efficiency Related Credit Guidelines”, encouraging financial institutions to develop energy efficiency related credit services in an active way and supporting the industrial restructuring and technical transformation and upgrading of enterprises. As indicated by the central bank, it is now leading the drafting of the “13th Five-Year” Planning for Financial Reform and Development in China, in which green finance is an important part. Moreover, the guiding opinion on green financial bonds compiled under the leading of the central bank is expected to be issued in the near future.
Obviously, under the pressure of structural adjustment and the severe environmental situation, green finance is given more missions and elevated to a higher level in China.
Initiation of green finance
Against the background that the state has been actively pushing forward the development of energy-saving and environment-friendly industries and driving the green transformation of economy, green finance has enjoyed great popularity among an increasing number of domestic financial institutions, especially banks, in recent years. As revealed by statistics, the green credit balance of the banking industry rose from RMB 340 billion in 2007 to RMB 7.59 trillion in 2014.
As early as years ago, some banks with acute insight to the market began to engage in the area of green finance and made significant achievements. Specifically, Industrial Bank (IB), the first one launching green financial services in China, has led the development in the area all the time.
As early as 2005, IB innovatively introduced the loss-sharing mechanism from International Finance Corporation (IFC), launching the energy efficiency project financing as the first bank. From then on, the bank has gone farther and farther in the area of green finance, creating many No. 1 cases in the industry: in 2007, it became the first bank offering integrated carbon finance services in China; in 2008, it adopted the Equator Principles, becoming the first Chinese “Equator bank”; in 2009, it established the only institution specialized in sustainable finance in China at that time – Sustainable Finance Center; in 2010, it granted the first carbon assets pledged loan and the first emission rights pledge-based loan, and issued the first low-carbon credit card in succession; in 2011, it successfully implemented the first project following the Equator Principles voluntarily in China; in 2014, it issued the first green finance asset-backed securities, and formulated the marketing guide for PPP service of environment finance…
Up to now, IB has established a green financial product and service system covering energy conservation and environmental protection financing service, emission right financial service and personal low-carbon financial service, thus including both corporate and personal financial services. Take the energy conservation and environmental protection financing service as an example. IB has built a system of green financial products and services which includes ten general-purpose products, seven characteristic products, five financing models and seven kinds of solutions.
“It was not all plain sailing in choosing the path of green finance. We encountered some difficulties at the initial stage.” said frankly Fang Zhiyong, General Manager of Environment Finance Department of IB. Many people didn’t have the concept of green development 10 years ago, and green finance was strange to most enterprises. The Equator Principles were even “highbrow” ones because a financial institution observing the principles should, when granting a project loan over USD 10 million, conduct an overall assessment over the influence of the project to environment and society and facilitate the harmonious development of the project, society and environment by using the financial leverage. This would, no doubt, increase the banking cost and require the understanding and self-conscious action of the enterprise.
Nevertheless, IB didn’t shrink back in face of such difficulties. The bank has elevated green finance and the sustainable development concept extended from it to the level of corporate governance, innovatively put forward the way to perform corporate social responsibility through “obtaining reasonable profits while bringing benefits to the stakeholders”, and made green finance and sustainable development concept penetrate into all links of business management and development. Moreover, the bank has actively promoted and publicized sustainable development concept covering the Equator Principles in an uncompromising way, shared successful experience of multinationals both from home and abroad in the management of environmental and social risks, and helped corporate customers to improve their management of environmental and social risks in their projects, with a view to making more and more enterprises transform from following the Equator Principles passively to seeking, on their own initiative, to manage risks with the principles and achieve sustainable development. By the end of this October, IB has examined the applicability of 890 projects to the Equator Principles altogether. Of them, 251 were applicable to the financing based on the Equator Principles, involving a total project investment of RMB 542.711 billion and 244 customers in 10 major industries specified in the national standard, and covering 38 branches of the bank.
Growing into a green finance group
The development of green industries and green transformation of conventional industries have an increasing demand for financial service, and “green finance” becomes a new trend and tide for the development of financial institutions, especially the banking industry which is at the turning point of transformation. In the coming 5 years, some experts predict, the funds needed by China's green finance will see a scale ranging from RMB 14 trillion to RMB 30 trillion. The annual mean financing scale will reach RMB 3 trillion even based on the minimum estimation.
Facing such an immense market potential, an increasing number of banks gradually sense the commercial opportunities contained in “green finance”, contesting a piece of the big cake of green finance worth over RMB 10 trillion. Fang Zhiyong said: “The intensified market competition is not out of expectation, and it is not a bad thing. This indicates that more and more financial institutions have reached a consensus on green development and we have already been ready.”
With 10 years of exploration, IB has established its specialized advantages in the area of green finance in the industry. Relying on the largest professional team of green finance in China, it has set down the technical admittance standard, formed the green finance credit admittance. The bank has established a green finance certification system, realizing certification over green finance projects one by one. Moreover, it has carried out “measurable, reportable and examinable” environmental benefits calculation. It has also launched innovated financing products such as energy performance contracting (EPC), carbon emission right trading, and emission right trading, and offered a package of green finance tactics. In this way, IB has built a comparatively well-established financial product system covering the upstream and downstream of the green industry chain.
As one of the commercial banks with the largest number of financial licenses in China, IB has brought into full play the group-based and integrated business operation advantages, and made active innovation in funds raising and financing tools in recent years. In the area of financing tools, while making use of the conventional credit tools in a reasonable manner, the bank provides environment finance customers with financing service through a variety of financing products such as lease, trust and debt financing tool. Of the current financing balance for environment finance, that offered by non-credit ways such as lease and trust accounts for nearly 50%. In the area of funds-raising tools, it provides rich capital sources for green finance by way of green credit asset securitization and financial bonds.
With the acceleration of group-based integrated development, IB has elevated the business of green finance to the group level. “In the first half of this year, we established the special promotion group of environment finance at the group level and set up a group linking mechanism to intensify the linkage of products and services, with a view to realizing the frog-leap development from a ‘green bank’ to a ‘green finance group’.” According to the introduction of GM Fang, the specific measures include: establishing a professional support team for the group-based businesses at all business lines and in all group members; improving a range of procedures or rules covering marketing organization, performance measurement, resource allocation and product development, which are established for supporting the group-based development of environment finance; establishing a linked marketing and coordination promotion mechanism, conducting linked marketing cross departments and group members led by the Environment Finance Department of the Head Office for key customers and projects, which is also responsible for coordination promotion, and so on.
With regard to the five-year planning for growing into a “green finance group”, IB has put forward two business development objectives – in the coming five years, the business growth speed of environment finance across the whole group should not be less than the average growth speed of the whole bank, and the volume of growth should not be lower than the figure in the previous year; five years later, the financing balance registered with the business of environment finance at the group level should hit RMB 1 trillion or more, and the number of environment finance customers (projects) to whom the group offers service should hit 10,000 or more.
Boost the building of “Beautiful China”
Beautiful China, a dream from “bony” to “plump”, cannot be fulfilled without the support of green finance. “The resource-allocating and leveraging roles of green finance should be brought into full play to guide social capital to the green and low-carbon industries and actively push the transformation of economic development model and industrial conversion and upgrading, so as to accelerate the construction of ‘Beautiful China’,” said GM Fang.
For IB, to develop green finance is also a full embodiment for its social responsibility practice philosophy of “obtaining reasonable profits while bringing benefits to the stakeholders”, namely to perform social responsibilities in the process of providing products and services so as to achieve the commercial interests of the bank and social environment benefits in a harmonious way.
Take green lease as an example. As an important medium- and long-term financing tool in the non-credit area, financing lease boasts special advantages such as flexible use and tax concession. IB and its subsidiary Industrial Financial Leasing Co., LTD, making use of the integrated banking and leasing advantages, have worked jointly to promote green trip, setting down a development objective of “1,000 vehicles in 10 cities” with regard to the area of clean energy powered bus, namely to promote 1,000 clean energy powered buses in 10 key cities such as Beijing, Tianjin, Shenzhen, and Jinan in the mode of financing lease. Moreover, the capital problem for clean energy transport is solved by the way of after-sale leaseback. Up to now, such buses have been put into use in 6 cities including Jinan, Tianjin and Harbin, and the total investment in the entire “green trip” project including rail transit has reached RMB 7 billion.
With exploration and practice over 10 years, IB has gradually opened a road of sustainable development from “green” to “gold”, making active contribution to the building of “Beautiful China” while harvesting economic benefits. As indicated by relevant data, by the end of Oct. 2015, IB has granted green finance based financing to nearly 6,000 enterprises or projects of energy conservation and environmental protection, covering a variety of projects in mainstream industries. With a total of financing value over RMB 750 billion, the green finance based financing balance hit RMB 372.1 billion. According to estimation, the projects supported by the green finance of IB can save 25.54 million tons of coal equivalent each year, reduced 71.61 million tons of carbon dioxide, 1.39 million tons of chemical oxygen demand (COD), 50,600 tons of ammonia nitrogen, 100,400 tons of sulfur dioxide, and 29,900 tons of oxynitride, utilized 17.26 million tons of solid waste in an integrated manner, and saved 285.65 million tons of water.
In the future, IB will, centering on the key areas for the business of green finance such as energy-saving industries, resource recycling industries and environmental protection industries, and key areas such as utilization and protection of water resource, atmospheric control, solid waste, centralized heating, and green building, bring into play its group-based business advantages, accelerate the innovation in and implementation of specialized products and services based on the features of energy-saving and environment-friendly industries and corresponding financing needs, and build a group-based green product and service system with a complete variety and rich categories covering green financing, green leasing, green trust, and green fund, boosting the building of “Beautiful China” uncompromisingly.