Green Credit Is a Huge Opportunity for Commercial Banks

On 26 November 2009, the Chinese Government formally announced targets to control greenhouse gas emissions. According to the plan, China will cut carbon dioxide emissions per unit of GDP by 40%-45% before the year 2020, with emissions from 2005 being basis of comparison. Premier Wen Jiabao made a notable statement when announcing the targets, saying that “This is a voluntary action taken by the Chinese government based on its own national conditions”. This means that China will make more specific targets for energy saving and emissions reduction by the year 2020 regardless of whether the Copenhagen Summit succeeds or not or whether negotiations on global climate change continue or not. This action is not at all related to the emission reduction targets large emitters such as the United States, Brazil and India, nor does it have anything to do with the results of the Copenhagen Summit. It is an inevitable requirement deriving from China’s core interests.

In the next decade, China will require huge investments in energy saving and environmental protection, which will call for urgent financing from the financial system. This presents commercial banks with an unprecedented opportunity for growth. At present, green credit in China has obtained only partial successes, and remains a long way off its expected targets. In addition to factors associated with the system, there are also several technical difficulties hindering the advancement of green credit policy, including the urgent need to enhance the operability of green by formulating a practical standard for implementation to regulate bank operations. Standards for green credit tend to be comprehensive in nature, placing an emphasis on principles, and there is a lack of a specific directory for green credit and criteria for evaluating environmental risks. As a result, China’s commercial banks find it difficult to formulate regulatory measures and detailed internal rules on the implementation of green credit, and the operability thereof suffers as a result. For example, the Environmental, Health and Safety Guidelines stipulated by the Equator Banks is a commonly accepted standard for environmental protection in international financing projects. These guidelines regulate environmental issues, solutions and criteria for 63 industries, including manufacturing, chemical and energy sources. However, China lacks specific regulations on criteria for admission, technology, emissions, energy consumption and recycling capacity in green credit. Moreover, the scope of high-pollution and high-consumption industries as stated in the Opinions is not clear enough.

Along with the increasing demand for energy saving and emissions reduction finance, commercial banks urgently require corresponding criteria for technical admission so as to further improve the operability of green credit. In order to further respond to demand for energy saving and emissions reduction financing, China’s commercial banks should establish relative financial service departments as soon as possible to operate, manage and market sustainable financial businesses such as carbon finance, energy efficiency finance and environmental finance. This will provide a solid foundation for the vigorous development of green credit in the future. Secondly, commercial banks should stipulate criteria for admission of green credit projects as soon as possible so as to provide technical consultation and support for green credit.

Since stipulating the admission criteria of green credit projects requires that professionals have a high degree of professional expertise in the fields of environmental protection and energy sources, commercial banks are recommended to cooperate with authoritative scientific research organizations in the fields of environmental protection and energy sources in the establishment of an operable admission criteria for green credit as soon as possible. (Source: Economic Information Daily)