Banks are helping to finance a greener future for China and the world
Climate change is an increasingly pressing issue globally, as highlighted — once again — at the 2022 United Nations Climate Change Conference (COP27) held in Egypt in November. Alongside other governments, China has been actively implementing measures to address the problem.
In 2021, China unveiled its 14th Five-Year Plan that incorporates energy usage and emissions goals, among other metrics, to abate global warming, with reductions in energy and emissions "intensity" — the amounts required or created, respectively, for one unit of GDP — being central to its drive to go green.
According to the country’s National Energy Administration, by 2021 nearly 45 per cent of China's installed power generation capacity relied on renewable sources. While the contribution of renewables to generated power in China came in at just 30 per cent in the same year, some three-quarters of newly installed capacity was dependent on renewable generation.
Finance and carbon neutrality
To achieve the peak carbon and carbon neutral goals by 2030 and 2060, respectively — China’s so-called "dual carbon" goals — commitment from financial institutions will be essential.
Consequently, in mid-2022 the China Banking and Insurance Regulatory Commission (CBIRC), the country's financial regulator, issued its updated "Green Finance Guidelines for the Banking and Insurance Industry", acknowledging the importance of the sector.
China's dual carbon goals, green corporate governance and environmental information disclosure all featured in the CBIRC's directives on how banks should approach funding with sustainability in mind.
For its part, Industrial Bank has been a pioneer of green finance in China since becoming the country's first bank to adopt the Equator Principles in 2008, well ahead of any nationwide directive. The Equator Principles form a management framework for financial institutions to determine and manage environmental and social risks in project finance.
In 2015, the bank made green finance one of its core businesses, designating it as the primary business in 2021. In the same year, it formulated a five-year development plan for its green finance business.
By the end of 2025, Industrial Bank aims to extend Rmb2tn ($280bn) in green financing loans, with at least 55,000 green finance corporate customers.
To this end, and with the goal of a group-wide "all-green" transformation, in January 2022 Industrial Bank proposed building a professional talent team compatible with such ambitious targets, aiming to employ more than 10,000 green finance experts in three years. The bank also incorporated ESG and climate into its comprehensive risk management system, and implemented critical ESG policies and strategies across group operations, allowing it to better identify the risk a client might pose to the business, and guide enterprises to strike the balance between short-term profits and long-term sustainable development.
To support China's ‘dual carbon’ goals, Industrial Bank launched innovative financial products around carbon rights and carbon sinks, promoted the implementation of China's first blue bond and was behind the largest “carbon neutral” themed bond issued by any Chinese joint-stock bank.
Industrial Bank's commitment to green financing is clear from its capital allocation. Since its first issue in 2016, the bank has cultivated the largest balance of green financial bonds of any commercial bank worldwide, funding projects in areas ranging from energy conservation and emissions reduction to the preservation of biodiversity. By the end of September 2022, the bank's green loans totalled Rmb571bn, accounting for 11 per cent of all its loans, and provided green financing worth more than Rmb3tn to 20,000 projects.
What’s more, the bank has been extensively involved in green finance along China’s landmark Yangtze River. So far, Industrial Bank has issued more than Rmb50bn of green financing to environmental governance initiatives in 13 provinces and cities to protect the Yangtze River.
Reliable metrics for credibility
Reliable standards to measure green credentials will be increasingly critical to the credibility of the green finance system internationally, and while such standards worldwide are yet to converge, initiatives such as the EU- and China-agreed "Common Ground Taxonomy" highlight areas of similarity between regions.
Produced by the IPSF (International Platform for Sustainable Finance), the 2022-updated CGT (Common Ground Taxonomy) showcases economic activities recognised by both China and Europe as making significant contributions to climate change mitigation. It also provides a useful tool to guide cross-border climate investment. In May 2022, Industrial Bank's Hong Kong branch issued the first green bond based on these common standards.
Furthermore, Industrial Bank has not simply been a follower of standards but has also been instrumental in creating standards at home. The bank has participated in the research behind and the formulation of roadmaps to carbon neutrality at a Chinese state level. Industrial Bank also devised the domestic “Green Prosperity Index”, establishing itself as the undisputed leader in China's green industry, while also contributing wisdom and know-how to the development of green finance globally.
