Green Finance: How Well is the Banking Industry Doing?

Recently, the Report on the Environmental Record of China’s Banks (NGO Report 2009) was published by nine civil environmental protection organizations in Beijing. The report was drafted by Green Watershed, the Global Environmental Institute, Green Homeland and other NGOs. It offers an evaluation of the 14 listed banks and 3 foreign-funded Equator Banks in China in terms of their performance in green credit.

According to the report, in terms of environment policies and implementation measures, Chinese listed banks are actively responding to the national green credit policies. Banks such as the Industrial Bank, Industrial and Commercial Bank of China, China Merchants Bank, China Construction Bank, Band of Communications and the Shanghai Pudong Development Bank have formulated their own green credit policies and criteria on the basis of national policies. Some banks have formulated detailed measures aimed at “high-polluting, high-energy-consuming” industries, which include one-vote-rejection systems for environmental appraisal and enterprise blacklists. These polices reduce or restrict the supply of credit to such enterprises. Some banks have enhanced their post-loan risk control and monitoring activities. The Industrial Bank has not only formulated its own “Environmental and Social Risk Management Policies”, but has also taken action in committing itself to the Equator Principles. Although small and medium banks have generally not made outstanding progress in terms of policy and sustainable strategy, they have made progress and have innovated in regard to general measures.

In terms of special organizational and personnel arrangements for green credit, IB has established a sustainable finance office and CMB has established a sustainable finance working group. However, most banks are yet to establish dedicated departments for environment related affairs. Many banks have not included green finance departments in their core and long-term development strategies. According to the report, this is not conducive to the implementation of green credit policies and the sustainable development of banks in the future.

The report noted that most banks have started to implement national green credit policies in actual banking operations by reducing or withdrawing loans to risk projects and providing greater support to energy saving and environmentally-friendly projects. Industrial and Commercial Bank of China, China Construction Bank and the Industrial Bank have given outstanding performances in this regard.

In terms of adopting international practices, IB has adopted the Equator Principles and joined the Financial Action of the United Nations Environment Programme and Carbon Disclosure Project. CMB has also joined the Financial Action of the United Nations Environment Programme and ICBC joined the Carbon Disclosure Project in 2008. The report maintained that adopting and implementing international criteria will lead to significant enhancements in the management level of banks. It also means adopting stricter standards, disclosing more detailed information and being subject to public monitoring.

In terms of information disclosure, all of the 14 Chinese listed banks have published their social responsibility reports for 2008. Industrial and Commercial Bank of China, China Construction Bank, Bank of China, Industrial Bank, Bank of Communications, Shenzhen Development Bank and China Minsheng Bank have formulated special codes for the disclosure of related information. However, disclosure of environmental information is still lacking in terms of transparency and relevance.

In terms of controversial loan projects, the report found that the large commercial banks tend to have a greater number of controversial projects, such as the Industrial and Commercial Bank of China, China Construction Bank, China Merchants Bank and Bank of Communications. China Minsheng Bank and China CITIC Bank have certain projects disputed by the public.

Links:

1. The fourteen Chinese public listed banks include ICBC, CCB, BOC, BOCOM, CMB, Hua Xia Bank, IB, SPDB, SDB, CMBC, Bank of Beijing, Bank of Ningbo, Bank of Nanjing and CITIC Bank.

2. The three foreign-funded Equator Banks in China are Citibank China, HSBC Bank (China) and Standard Chartered (China).

3. The Equator Principles (EPs) are a financial industry benchmark for determining, assessing and managing social and environmental risks in project financing. There were established on the basis of the Policies and Guidelines on Sustainable Development of the IFC and the World Bank.

The Equator Principles require financial institutions which invest in projects to conduct comprehensive assessments on the potential environmental and social impacts of the project, and by using financial leverage, to encourage the project to play an active role in environmental protection and social harmonious development. The EPs apply to all new project finance globally with total project capital costs of US$ 10 million or more, and cover all industries. Over 60 world financial institutions have adopted the Equator Principles. The amount of project financing applicable to the Equator Principles accounts for 85% of the international project financing total. (Source: China Economic Times)