Beijing, June 7, 2012 - China works hard to develop a more sustainable economy and its banks play a crucial role in the process, a topic addressed by Mr. Paul Clements-Hunt the ex-chairman of UNEP FI, and Mr. Tang Bin the Board Secretary of China Industry Bank (CIB), in the 3rd webcast of the China Social Investment Forum (China SIF).
International Trends of Sustainable Finance
It’s a challenging period for sustainable finance now, particularly for western banks. Before the financial crash of 2008, many big banks from America and Europe were exploring opportunities in sustainable finance, but perhaps not yet committed to implementing its best practices. The economic downturn forced bankers to review their methods for realizing profits. It also gave them a chance to think about the concept of true sustainable banking and explore new opportunities.
In Mr. Clements-Hunt’s view, one can see three global trends in sustainable finance. First, banks, particularly western banks, are in the process of redefining themselves: what is their function in society? Second, financial institutions are still waiting for the great opportunities in green finance and sustainable finance to occur. “It’s not just about managing risk, it’s about low carbon business, renewables, sustainable structures and so on”, Mr. Clements-Hunt said. Third, policymakers are trying to promote (self-)regulation within the industry to prevent an economic downturn from happening again. They need to explore how green and sustainable finance can help to support the sustainability of the banking industry.
What can Chinese Banks do to promote Sustainable Finance?
The slow acceptance of sustainable finance by western financial institutions is creating big opportunities for Chinese banks. Some banks, such as China Industrial Bank, Chinese Development Bank and China Merchants Bank were not heavily impacted by the financial crash. Therefore, they have the opportunity to make an example of Chinese sustainable finance development to the whole world. “We are in a very interesting period for Chinese financial institutions that show international leadership”, said Mr. Clements-Hunt.
China Banking Regulatory Commission (CBRC) released the Green Credit Guidelines in February 2012. The Guidelines require Chinese banking institutions to focus on green credit in three aspects: managing banks’ environmental and social risks, increasing loans to environmentally-friendly projects and managing banks’ environmental footprint. The Guidelines of CBRC is a clear signal from the financial banking regulator to the market and it reflects the significance of sustainable development, social harmony and green finance in China’s twelfth five-year plan -- the country’s roadmap for economic development. “What I’ve been impressed with is the explicitness of the green credit policy in terms of ensuring that banks are accountable”, Mr. Clements-Hunt said. The guidelines even stipulate the board members to verify the report on green credit performance.
Story of CIB
China Industrial Bank (CIB) is a member of the UNEP FI and is the first Chinese bank to adopt the Equator Principles. And although CIB has already a done a lot in sustainable finance, it was not easy for them to implement any practical measures.
“In 2007, we systematically started exploring the feasibility of adopting the Equator Principles in China. Eventually, we were able to announce the adoption of the principles one year later in 2008”, Mr. Tang said. After that, CIB stopped lending and funding to environmental-substandard projects and asked applicant borrowers to carry out an Environmental Impact Assessment (EIA). In the beginning, CIB may have lost out on some good business opportunities, but now it is becoming more and more clear that there are enormous business opportunities in the huge green market.
“By adopting the Equator Principles, we have integrated environmental factors into the risk management of the bank. As environmental factors are considered to be of much more importance in risk management than before, the quality of our capital is directly influenced by the performance of managing environmental factors”, Mr. Tang analyzed.
“As a result of our four-year practice following the adoption of the Equator Principles, CIB’s return on invested capital (ROIC) is 24.67%, ranking the first among similar banks. The bank’s non-performing loan (NPL) is only 0.38%, the lowest among all banks. We could say this is the revenue we gained from our insistence on green finance and sustainable development”, Mr. Tang said.
Origin: http://dty.stcn.com/generalSubject.do?method=getShow&subjectId=16
