Environmental Protection Enterprises: Important Link in the Banking Service Value Chain

When the Copenhagen Climate Conference held in December 2009 forced the outlandish concept of a low carbon economy into the minds of people who thought it had nothing to do with them, more and more Chinese environmental protection enterprises have started to find their place in the strategic value chain of financial services provided by commercial banks.
In the opinion of Wu Xiaoqing, Vice Minister of Environmental Protection, finance will become an important factor influencing the development of the environmental protection industry, and green investment will become an inevitable choice following the adjustment of China’s investment strategy in the future.
Driving Force of Environmental Protection Industry
More and more instances show that adopting “green credit’ as a long-term business strategy, pulling out of “high-pollution, high-consumption and excessive capacity” industries and establishing a long-term effective mechanism of “supporting energy conservation and environmental protection through credit” have become the common strategic focuses and successful areas of numerous industries.
Challenges to Banking Innovation
According to statistics, the gross output value of China’s energy conservation and environmental protection industry in 2008 was RMB 1.41 trillion, accounting of 4.7% of the GDP. Thanks to policy encouragement, the environmental protection industry is set to maintain an annual growth rate of 15%-20% over the next few years. The gross output value of the environmental protection industry during the 12th Five-year Plan is expected to reach RMB 4.9 trillion.
Clearly, China’s environmental protection industry is entering a golden age. To a large extent, the health and efficiency of this industry will determine the price that China will have to pay to resolve its environmental issues.
It is worth noting that the industry pressure that China bears on unit area has exceeded the pressure that any of the developed countries had to face when industrializing. The reason that China’s environmental protection industry cannot just follow in the footsteps of foreign counterparts is that it cannot simply use the solutions that other countries have used in the past to solve today’s issues.
At present, China’s environmental protection industry is still in the primary stages of development, with low industrial concentration and weak management capacity. Moreover, the percentage of small and medium enterprises is over 98%. Since the environmental protection industry requires advanced technology, the aforesaid conditions have directly led to low competitiveness of enterprises and restricted their development and profitability.
Although China’s environmental protection industry has made great progress in recent years, its total scale is limited and it is still not accessible enough. It especially lacks fixed long term mechanisms and channels for environmental protection investment, which has affected the developmental potential of the industry.
“An essential element of green credit is to find a win-win mechanism.” According to Wang Jinnan, Vice President of Chinese Academy for Environmental Planning, a big difficulty is how to transmit effective regulatory information and environmental risk information of companies to the credit departments on a timely basis.
On the other hand, commercial banks lack innovation. Their high loan interest rates and short loan terms are unable to satisfy the low profit and long term characteristics of urban public environmental infrastructure.
It is estimated that the total investment into environmental protection during the 12th Five-year Plan will be RMB 3 trillion. However, more is needed to deliver on China’s promise to cut carbon dioxide emissions per unit of GDP by 40%-45% before 2020.
In fact, such a huge market and potential has challenged commercial banks’ ability to innovate. The question of how to enable more environmental protection enterprises to become a part of the strategic value chain of bank financial services and enable them to benefit from banking services and create value for banks still requires banks to make great efforts in innovation. (Source: Financial News)TOP