The First Green Credit Development Report Published by Ministry of Environmental Protection Disclosing 40,000 Pieces of Law Enforcement and Punishment Information Incorporated into the Bank Credit Reporting System

To now, the green credit system as a policy for the environmental economy has been rolled out for three years. During the three years, the Department of Environmental Protection issued over 40,000 pieces of law and punishment information into the banking system. Today, the first “Green Credit Development Report” published by the Policy Research Center for Environment and Economy of Ministry of Environmental Protection (hereinafter referred to as “PRCEE”) sheds light on the law enforcement and punishment information that’s already been incorporated into the banking system across China.

“Green credit is the one of the seven environmental economy policies witnessing the fastest development.” In an interview with a reporter from Legal Daily, Yuan Qingdan, deputy director of PRCEE expressed satisfaction regarding the environmental economy policy progress, but he also admitted that the incomplete policy system would directly impact the effect of implementing green credit. He believes that it is currently impossible to assess and evaluate the implementation effect of green credit policies in a pertinent way, and that the long acting mechanism for environmental protection based on green credit had not been established yet.

Incorporating Punishment Information to Restrict Illegal Enterprises

In 2007, the former State Environmental Protection Administration, People's Bank of China and China Banking Regulatory Commission jointly issued “Opinions on Implementing Environmental Protection Policies and Rules and Preventing Credit Risks”, Yuan Qingdan said, this is an sign to initiate the green credit system in China. It is introduced that after this, the Ministry of Environmental Protection signed an information sharing agreement with the China Banking Regulatory Commission with People’s Bank of China jointly issued the “Circular on All-round Enforcement of Green Credit Policies to Further Improve Information Sharing”, thus incorporating the environmental performance of enterprises into the bank credit reporting system.

“Up to now, there have been almost 40,000 pieces of environmental protection information incorporated into the credit reporting system, and many enterprises violating environmental protection laws have their loans restricted or taken back by banks. The green credit policies are gradually showing their effect.” Yuan Qingdan told the reporter that the green credit policies have also been promoted actively around China and there have been over 20 provinces and municipalities implementing relevant local administrative measures. Hebei Province also took the lead in having been assessed over the implementation of green credit policies by local banks and announced the result to society.

With 40,000 pieces of law enforcement and punishment information around the country incorporated into the bank credit reporting system, Yuan Qingdan expressed: “some polluting enterprises definately cannot obtain loans.” However, he also admitted that no overall follow-up had been done regarding how many polluting enterprises hadn’t got loans.

Only Industrial Bank Joined the Equator Principles

The key to implementing green credit policies is to stop extending loans to those polluting enterprises, the enterprises covered in the “blacklist” (e.g. enterprises covered in the 40,000 pieces of illegal information provided by the departments of environmental protection). In the opinion of Yuan Qingdan, this is equivalent to “stop providing milk to polluting enterprises”. It required the banking sector to take resolute measures.

The report released by PRCEE today revealed the performance of 12 commercial banks in implementing the green credit policies, including Industrial and Commercial Bank of China (ICBC), Bank of China (BOC), China Construction Bank (CCB), etc. Of them, Agricultural Bank of China (ABC) and IB both make it clear that observation of environmental protection laws as one necessary condition for the approval of loans, to have strict examination over the environmental protection information of enterprises and to enforce “one-vote-down system” of environmental protection. ABC refused 83 loan projects after considering environmental protection factors. However, most of the other banks did not provide similar information.

Moreover, the banking sector did not show enough enthusiasm for joining the “Equator Principles”, which are the most representative and extensively applied green credit guidelines around the world. Although it is a series of principles and not a set of regulations, the Equator Principles could to the largest extent avoid environmental risks during the process of determining, assessing and managing project financing. As a result, the principles had won wide recognition in the international community. Yuan Qingdan introduced that currently there were 69 Equator Principles Financial Institutions (EPFIs) around the globe, from both developed countries and developing countries. Its banking business reaches over 100 countries around the world and 90% of all international financing were done through Equator banks. From 2008 to the present day, in China only Industrial Bank has joined the “Equator Principles” while other banks still wander outside the “Equator”. “The specific implementation of green credit policies in China at present has three layers: the first echelon represented by Industrial Bank who have joined or will join the international “Equator Principles” organization; the second echelon is represented by Bank of Communications and CCB who establish their own standard for green credit policies; and the third echelon includes banks who mainly transmit documents and lack innovation.” said Yuan Qingdan. The work of green credit mostly remains at the stage of understanding its meaning and role.

Incomplete Green credit policies System

Although the green credit policies have been put into effect, the credit risks resulting from polluting enterprises still exists based on the data published by relevant parties.

According to the statistics of China Banking Regulatory Commission, by the end of May 2005 the balance of medium and long-term loans of major financial institutions in the sectors featuring “heavy pollution and high energy consumption” reached RMB 2,300 billion, up 23.43% compared with the same period in 2008. Yuan Qingdan disclosed that most enterprises causing heavy metal pollution in 2009 were ordered to shut down by the state or local government, so banks were confronted with many non-performing and bad debts.

He believed that the incomplete policy system directly affected the implementation efficiency of green credit policies.

Yuan Qingdan said: “The incomplete policy system is reflected in the lack of technical policies, especially the technical policies regarding green credit, such as performance evaluation criteria, and a guide for the assessment of industrial performance on environmental protection.” Current policies were more restriction and limitation oriented, but preferential green credit policies based on encouragement and subsidy are greatly insufficient while many regulations are merely articles and clauses. Due to the lack of financial products and means, the benefits for all parties could not be balanced and preferential credit policies could not be implemented. Moreover, the credit funds for controlling industrial pollution under the state support are in a declining trend. 　

Meanwhile, it was in lack of technical policies for guiding banks to manage and control credit risks. In particular, the absence of policies and documents aimed at the characteristics of different sectors, such as environment, health and safety instructions, which resulted in banks wanting of specific policy-based guiding tools for the assessment of environmental risks and credit management.

Yuan Qingdan said, the policy design for green credit in China was a bit compulsory, but the specific policy implementation was more characterized by free will. The main cause leading to such policy alienation, as believed by Yuan Qingdan, is the “lack of supervising and restricting mechanisms”. “Owing to the lack of supervising and restricting mechanisms, banks will take into consideration commercial benefits more in the implementation of green credit policies, so they extended credit support to some enterprises and individuals whose problems are hard to define and to reveal in a short period of time. On the other hand, the lack of supervising and restricting mechanisms also allows banks to behave differently in the implementation of green credit policies; as a result, the enthusiasm of those banks to carefully implement such policies is hurt.”

In addition, the implementation effect of green credit policies could not receive pertinent assessment and evaluation, resulting in difficulty establishing a long-acting management mechanism for environmental protection based on green credit.

The insufficient capacity of environmental protection departments and the banking sector in implementing green credit policies also restricting green credit from being effectively implemented. Insufficient capacity refers to the lack of human resources and management capability.

In view of these problems, the Report concluded that the supervision and enforcement system of green credit in China still need to be improved; meanwhile, the coordination between the environmental protection departments and the banking sector should also be intensified.

Yuan Qingdan said: “in the future PRCEE will publish a report each year. This year the report contains more commendations, but in the next year’s report will contain criticisms.” In the next year, PRCEE would try to give pertinent assessment and evaluation over the implementation effect of the green credit policies. (source: china.com.cn)

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