Proposal on Applying the Equator Principles in Bank Project Financing Review

Committee members at the 2^nd Session of the 11^th National Political Consultative Conference put forward the Proposal on Applying the Equator Principles in Bank Project Financing Review.

As the concept of sustainable development becomes more widely accepted and energy-saving and emissions reduction policy is implemented, the banking industry should assume more social responsibilities. Banks should increase the awareness of the environmental and social impacts of the project finance that they provide and employ advanced financing techniques to limit high energy consumption and pollution, so as to realize the sustainable development of the society. Currently, 67 banks all over the world have adopted the Equator Principles. About 85% of the world’s trans-national project loans are provided by the Equator Banks

The Equator Principles have become international convention in the global project financing market. They have played an important role in the transformation of the operating philosophies and (mainly risk control) and financing values (mainly bank’s human rights values) of commercial banks. By applying the Equator Principles in financing project review, borrowers have been asked to pay more attention to the impact that projects exert on the environment and society, otherwise, this may result in a breach of contract. In communities where projects are located, it is becoming more common for borrowers to hold talks with the community.

With the implementation of sustainable development and energy-saving and emissions reduction policies, “green credit” is gradually becoming a key issue in China’s banking industry. For this reason, the board of directors of Industrial Bank made a decision in 2006 to adopt the Equator Principles. It has integrated the Equator Principles into its actual credit review process; in 2007, the China Construction Bank established an entire finance review process in emulation of the “Equator Principles”. However, few other banks have integrated the Equator Principles into their project financing review, demonstrating that Equator Principles are still in the trial phase in China, and thus being highly limited in the nation’s project financing. Therefore, in an age when environmental and social risks are exerting an increasingly large influence on people’s living environment, there is a pressing need to up the pace at which the Equator Principles are integrated into finance review.

In today’s society, all risks, be them financial, legal, regulatory, political, environmental or social, are connected, and have become a major problem that we are facing. Therefore, there is a need to integrate the Equator Principles into the review process when commercial banks are deciding whether or not to grant project financing loans so as urge commercial banks and project initiators to pay more attention to the impact that financing project exert on the environment and society. This will help to advance the cause of the sustainable development of the banking industry and the country. To this end, the following are suggestions regarding the integration of the Equator Principles into the project financing review of banks:

1. Ask the State Council to appoint the China Banking Regulatory Commission and People’s Bank of China to lead a study into the integration of project finance into loan review processes and formulate a sample process that can be used a source of reference by commercial banks;

2. Ask China Banking Regulatory Commission and People’s Bank of China to contact the IFC and leading Equator Banks and request training for China’s bankers.(source: Tencent News)