Local Governments Collaborate with Banking Supervision Authorities to Formulate Rules and Regulations for Green Credit

On July 27 2009, the Shijiazhuang Central Branch of the People’s Bank of China, Hebei Bureau of Banking Supervision and Hebei Environmental Protection Bureau jointly released the Measures for Assessment of Green-credit Policies in Hebei Province (trial) (hereinafter referred to as the Measures), which is designed to promote the adjustment in economic structure and the changing of the mode of economic growth in Hebei Province by means of rating the implementation of green credit policies by financial institutions. (For detailed information, please visit to Hebei Province Government Information  System).

While specifying leading organs and organizational structures, the Measures stipulated the carrying out of biennial assessments of the results of green-credit policies as implemented by financial institutions including province-wide policy banks. The content of the assessment mainly covers the implementation of national and provincial policies on environmental-friendly credit by financial institutions. Specifically, the assessment is divided into 14 items, and helps institutions to allocate their credit resources rationally and actively provide green credit, green financial products and green financial services. It prescribes an organic mode that integrates self assessment, verification assessment, social assessment, media assessment and internet assessment for a comprehensive quantitative rating of the implementation of green credit by financial institutions. According to the score, one of four grades will be given, namely Excellent, Good, Standard or Below Standard. Those rated as “Excellent" will be conferred the title “Excellent Enterprise in Green Credit” and given a formal commendation; Those rated as “Below Standard” will be criticized publicly and ordered to take remedial action within a prescribed period.

Prior to this, Hebei Province founded China’s first special committee for environmental protection finance. The committee is responsible for decision-making on significant issues concerning environmental finance. A long-term mechanism for cooperation in environmental finance has been established by the committee, and the results have been highly positive so far.

Almost at the same time, a similar policy was carried out in the western Chinese city of Xi’an. In August 2009, the city officially launched a green credit system. Environmental protection departments will provide more information on illegal practices; companies with malicious violations in any of eight categories will be restricted from taking out bank loans.

The information submitted by the departments of environmental protection will be more clear-cut. Enterprises will be categorized into two types, namely malicious violation and common violation. In the new Measures, eight acts are defined as “malicious violations”, including discharge of pollutants via concealed conduits without permission; "standard" discharge by means of dilution; illegal discharge of toxic substances; practices such as launching construction without prior permission, exceeding limitations on approved construction projects, construction and operation without permission, trying to pass large projects off as small ones in the review phase; refusing and obstructing to on-site inspection; unauthorized changes to sample modes and spots of automatic testing equipment in order to evade monitoring; alteration and forgery of monitoring data; and refusal to report or misrepresentation of the registration of pollution discharge. Commercial banks will regard compliance with environmental laws as a key condition when considering whether or not to grant an enterprise a loan.

Meanwhile, environmental protection departments will increase the frequency and intensity the notifications they give to the banks. On the 25th day of each month, environmental protection departments in all districts and counties will submit a written report including environmental data of all offending enterprises within their jurisdiction to the Xi’an Envrionmental Protection Department. After verification and compilation, the Department will forward the information to credit departments at branches of the People’s Bank of China and also send copies to the Shaanxi Environmental Protection Bureau. These bad records will have a direct impact on the loans of offending enterprises.

In August 2008, Shandong Environmental Protection Bureau and Ji’nan Branch of the People’s Bank of China issued the Instructions on Green Credit, laying down explicit requirements that banks provide credit support for technological innovations in energy conservation and emissions reduction and technological renovation for the purpose of energy saving and environmental, whilst at the same time imposing strict restrictions on the granting of loans to the enterprises with a poor environmental record. In May 2009, Taian Environmental Protection Bureau formulated and distributed the Specific Measures to Promoting Green Credit (hereinafter referred to as the Measures). The measures defined 10 categories of offenses and 4 categories of compliance for integration into bank credit systems. The means of collection, collection procedures and time limits for the reporting of the above information were also defined in great detail. To guarantee that those enterprises taking repaid measures to remedy offences in environmental protection, the Measures also defines internal mechanisms for error-correction in information submission. Verification is conducted based on the prescribed procedures and time limit. For submissions inconsistent with the actual situation or that need to be modified, the Tai’an environmental protection bureau, together with Tai'an Branch, PBC, will delete or amend the information promptly.

In fact, many local governments in China have already come to realize the positive role that green credit plays in promoting energy conservation, emissions reduction and environmental protection. They are also well aware of the bottlenecks that exist in the promotion of green credit, and have formulated special rules and regulations in response. Progress in the First Phase in Green Credit, issued by the State Environmental Protection Administration early in 2008, included the following sentence: “In July 2007, Views on Implementing Policies and Regulations of Environmental Protection to Guard Against Credit Risks was jointly issued by the State Environmental Protection Administration, the People’s Bank of China and China Banking Regulatory Commission, meaning that green credit had entered the field of pollution reduction in China as an economic means. The policy has received a positive response from financial systems and environmental protection departments in most regions since being launched. In alliance with financial regulators, environmental protection departments in over 20 provinces and cities, including Jiangsu, Zhejiang, He’nan, Heilongjiang, Shaanxi, Shanxi, Qinghai, Shenzhen, Ningbo, Shenyang and Xi’an, have releases measures and stipulations on green credit.”

For example, Views on Promoting Green Credit by Xuzhou Municipal Government

(For more details, please visit “Information Disclosure by Xuzhou Government )

The Anhui Banking Regulatory Bureau signed an information exchange and sharing agreement with the Anhui Environmental Protection Bureau, thereby establishing mechanisms for information sharing between the two. Joint efforts are being made to promote energy conservation and green credit.

(For more details, please visit China Environment Protection Network )

From an overall comprehensive level, some provinces and cities have laid down provisions for green credit. For example, the Views on Promoting the Capital’s Financial Industry formulated by Beijing City, the Guide on Credit Direction in Shanghai (Revised in 2008) printed and distributed by Shanghai Branch of the PBC, the Instructions on Strengthening Finance, Supporting entrepreneurial innovation and Promoting the Construction of Ecological Civilization by Lishui City and the Instructions on Promoting Green Credit by Zhengjiang City. Many other provinces and cities have integrated green credit into energy conservation and emissions reduction. For instance, Yichun City, Jiangxi Province formulated detailed directions on developing green credit and assisting energy conservation.

(for details, enter “Information Disclosure by Yichun Government )

The progressive establishment of these rules and regulations will help to resolve a series of problems existing in green credit. For example, there were no supervisory standards for supervision previously, there were policies but no work standards, and financial enterprises were not clear on how to act. These problems led to low policy efficacy; another problem is that there was no assessment for the implementation of green credit policy, and the phenomenon of bad money driving out good money emerged; There was also a lack of incentive mechanisms for promoting green-credit policy.

We believe, with the concern and participation of many more financial institutions and the help of specific assessments and standards, green credit policy will play a more positive role in promoting energy conservation, emissions reduction and environmental protection at both central and local levels.