Green bank of the year: Industrial Bank
Now the bank is a big green-credit provider and a fervent believer in international best practices. It has promoted the growth of green finance in China thanks to its green-bond issuance in 2016, the valuable work it has done to assist government agencies with the formulation of guidelines on green finance and its coaching of peers in the banking sector to adopt international best practice in green finance.
Industrial Bank achieved a milestone in 2016 in growing its green finance product portfolio. It was one of the first two commercial banks to place green bonds on the domestic interbank market. During the year, Chinese banks issued a total of Rmb238 billion ($35 billion) in green bonds, making China the world’s largest green-bond market. Industrial Bank accounted for Rmb50 billion, or 21% of that total.
Industrial Bank’s management understands the importance of a sound regulatory framework and international best practices when it comes to ensuring the sustainable development of green finance in China.
Last year, the bank helped China’s central bank and the China Banking Regulatory Commission to draft guidelines on green-credit provision and green-bond issuance. It also assisted them in coming up with methodologies to appraise the environmental benefits for green credit in China.
The bank regularly organizes seminars across the country to share its experience with other domestic banks in developing innovative green-finance products in line with international best practices.
After a decade of sustained efforts in applying international best practices and innovation, Industrial Bank has become a role model for other Chinese banks in the green-finance sector. But China Development Bank, a policy bank, and state-owned commercial banks such as Agricultural Bank of China have already overtaken it in terms of green-credit provision. To maintain its leadership position in the sector, Industrial Bank plans to increase the balance of its green credit to more than Rmb1 trillion and has set a target for the number of projects funded by its green finance to exceed 10,000 by the year 2020. It is also actively seeking access to the global green bond market through partnership with international financial institutions.
Best green policy bank: China Development Bank
China Development Bank was set up by the central Chinese government in 1994 with a mandate to fund domestic infrastructure and other strategic social and economic development projects. In recent years, it has also evolved into a leading green-credit provider in China and a key player in helping government agencies to institute a proper regulatory framework for the rapidly growing domestic green-finance sector.
CDB is by far the largest green-credit provider, not only among China’s policy banks but also in its banking sector as a whole. By the end of 2016, the balance of its green credit amounted to Rmb1.57 trillion ($229 billion) , accounting for 16% of the bank’s outstanding loans, well above the 10% average for China’s banking sector.
The bank is now the most powerful financial backer for the use of alternative and renewable energies in China. The balance of its credit for power generation projects using renewable energies, ranging from wind and solar to refuse incineration power, approached Rmb406 billion by the end of 2016, which was also by far the largest among domestic financial institutions.
While pumping such a huge amount of green credit into various projects across the country, the bank has demonstrated a track record in controlling risks associated with its green credit – the non-performing loan ratio of its green credit stood at 0.11%, which is well below the industry average of over 1.7%.
To support the growth of green finance in China, CDB has long been the main underwriter of green corporate bonds on the domestic market. In 2016, CDB underwrote and issued all the innovative bonds recognized by China’s National Association of Financial Market Institutional Investors in the year.
As a leading policy bank, CDB has also actively participated in the establishment of a proper regulatory framework for green credit in China. It has worked with China’s central bank and banking regulator to draft guidelines and standards on green-credit provision and helped them to install a statistical information system to track green-credit provision in China.
To support environment protection and conserve energy in China, CDB has pledged to offer Rmb1 trillion in green credit from 2016 to 2020, with the aim of increasing the balance of its green credit to Rmb2 trillion by 2020.
Best green domestic national commercial bank: Agricultural Bank of China
ABC became the first Chinese bank to issue green bonds on the international market in 2015, floating green bonds totalling $1 billion in London. It has also quickly expanded industry coverage for its green-finance business. By the end of 2016, the bank had made its green credit available for projects in up to 20 industries in China.
As a result, the balance of its green credit exceeded Rmb649.4 billion ($94.5 billion) by the end of 2016, a jump of 19.6% from a year earlier.
What has also set ABC apart from other large Chinese commercial banks in green finance is its management’s recognition that the quality of growth is at least as important as the raw numbers, prompting it to sign a partnership deal in April 2016 with the International Finance Corporation, a global leader in promoting innovation and international best practices in green finance.
Under the agreement, the IFC will advise the bank on developing an innovative programme to build a green-finance portfolio of up to $23 billion. The programme aims to reduce greenhouse emissions by 50 million metric tons a year over the next three years, which is tantamount to taking more than 10 million cars off the road.
The partnership has already started generating impressive results. With the IFC’s support, ABC organized the issuance of green corporate asset-backed securities for Gold Wind Science and Technology Co., China’s largest wind-turbine manufacturer, on the Shanghai Stock Exchange in August 2016. The securities are the first batch of corporate green ABS ever issued in China.
By engaging the IFC as a strategic partner and adviser and leveraging its own extensive network in China’s vast rural regions, where green finance is badly needed for water conservation and renewable energy development, ABC, under chairman Zhou Mubing, is well placed to play an even more important role as a green-finance provider in future.
Best green international financial institution: International Finance Corporation
No other international organization can match the IFC in contributing to the advance of green finance in China. The whole idea of green finance was brought in by the IFC, an affiliate of the World Bank. In the last decade, it has encouraged and advised a slew of Chinese banks, big and small, to provide green finance and embrace global standards in their practices.
With the rapid growth of its economy, China has overtaken the US in greenhouse gas emissions. It is now responsible for up to 30% of the annual total GHS emissions globally. In 2006, the IFC set out to halt and reverse the trend, launching the China Energy Efficiency Finance Programme.
This includes the use of risk-sharing facilities; by offering to share risks with participating Chinese banks, the IFC has worked with seven Chinese banks to deliver financing for energy efficiency and renewable energy development projects. These banks now have a combined green-finance portfolio of more than $100 billion.
While encouraging Chinese banks to expand their operations in green finance, the IFC, whose East Asia and Pacific director is Vivek Pathak, has also made continuous efforts to help them with innovation, talent development and adoption of international best practices.
With the IFC’s technical support, Agricultural Bank of China became a market leader in green asset-backed securities in 2016. Last year, it also launched its Green Finance Certificate Programme and completed the programme for Bank of Beijing. Forty trainees from the bank completed a three-tier training course on green finance.
The Equator Principles, recognized by financial institutions globally as the best practice in dealing with environmental and social risk management, are based on the IFC’s Performance Standards on Environmental and Social Sustainability. The principles are gaining followers in China. Industrial Bank was the first Chinese financial institution to adopt these principles; in January of this year, Bank of Jiangsu became the first Chinese city commercial bank to adopt the Equator Principles thanks to the coaching it received from the IFC.
To help China’s commercial banking sector create a sustainable green-financing model, the IFC has also advised the China Banking Regulatory Commission on guidelines on green credit and helped the People’s Bank of China to identify key barriers to green finance.
Most innovative green bank: Industrial Bank
To ensure quality growth of its green finance and ward off potential risks, the bank deployed advanced information technology to develop an innovative management system for its green lending.
The system, installed in December 2016, is the first of its kind in China’s banking sector. It was developed by the bank, which drew on its experience of green lending over 11 years. It has enabled Industrial Bank to upgrade its management of green lending operations in four ways.
First, it helps the bank to better assess the social and environmental benefits of its green credit and bonds, and to track the associated risks in accordance with the Equator Principles it has adopted. Second, it allows it to standardize procedures for green lending and better manage customer relations. Third, it conducts performance reviews for the bank’s employees in the green-finance division continuously. And fourth, as an information collection and file management system, it enables the bank’s green-finance team to better understand customer needs through data analysis so as to design and develop innovative tailor-made green-finance products.
In the last decade, Industrial Bank has led other Chinese banks in offering innovative green-finance products: the first green loan under the IFC’s China Utility-Based Energy Efficiency (CHUEE) Programme, the first green loan using carbon credit as security, the first asset-backed securities backed by the bank’s green credit, to name just a few.
With four state-owned commercial banks fast expanding their green lending in the domestic market in recent years, Industrial Bank, a pioneer in China’s green-finance sector, has embraced innovation to set it apart.
Supported by a team of more than 200 staff, the bank now offers the most comprehensive portfolio of green-finance products among Chinese banks, including green ABS, green financial leasing, green trust, green investment funds, green consumer loans and repurchases of assets backed by airline companies’ carbon quotas.
Best green regional bank: Bank of Jiangsu
In recent years, green lending has not only been embraced by national banks in China, but also gained traction with socially responsible and environmentally conscious regional commercial banks. Bank of Jiangsu, which operates in the eponymous eastern province, has emerged as a leader among regional commercial banks in both green-credit provision and the adoption of international green-lending best practices.
Bank of Jiangsu was incorporated in Jiangsu’s provincial capital of Nanjing in 2007. Five years later, it started to offer green credit for energy efficiency and renewable energy development projects with the IFC as an adviser. At the beginning of last year, the bank led its peers by creating a separate business unit and a dedicated team for green finance.
After several years of sustained effort to expand its green-finance portfolio, the Bank of Jiangsu’s green lending has shown robust growth. By the end of 2016, the balance of its green credit increased to Rmb46.7 billion ($6.8 billion), or 9.1% of the bank’s total corporate lending, from Rmb6.5 billion or 1.9% of total corporate lending at the end of 2013.
This year, the bank passed a milestone in green finance. In January, with the IFC’s support, Bank of Jiangsu became the first regional commercial bank in China to adopt the Equator Principles, a risk-management framework adopted by financial institutions globally for determining, assessing and managing environmental and social risk in lending activities.
“Bank of Jiangsu’s adoption of the Equator Principles and joining the family of Equator Banks reflects not only our resolution to embrace green concepts and develop green finance, but also our expectation to help our clients realize their sustainable development goals through a more scientific and reasonable approach,” says Xia Ping, chairman of Bank of Jiangsu.
The second-largest provincial economy, Jiangsu has one of the most vibrant industrial sectors in China and offers vast potential for Bank of Jiangsu in terms of green lending. By engaging the environment protection department of Jiangsu provincial government as a strategic partner, the bank has set out to launch green-finance investment funds, as well as green loans backed by carbon credits of industrial enterprises.
Best green Chinese bank in overseas markets: Agricultural Bank of China
After embracing green finance with great enthusiasm a few years ago, Agricultural Bank of China, a 65-year-old state-owned bank in
China, has emerged as a big green-credit provider in the domestic market. What is equally impressive is that ABC has also become a leader among Chinese banks to tap the global financial market to support its green lending at home and to establish cross-border green investment funds with international financial institutions.
In October 2015, ABC issued its first green bonds in London and raised about $1 billion. The dual currency bonds – a batch of Rmb600 million in yuan-denominated bonds and $900 million in dollar-denominated bonds – were listed on the London Stock Exchange and were several times oversubscribed thanks to their attractive coupon rates.
It was the first time a Chinese bank had placed green bonds in London. After issuing the bonds, ABC was highly efficient in allocating the raised capital. By the end of September, it had funnelled all the proceeds into 14 renewable energy and energy efficiency projects in China.
In November 2015, ABC signed a memorandum of understanding with Crédit Agricole’s asset management arm to set up a green-investment fund. The two parties plan to engage Chinese and French energy companies to contribute capital to the fund. Under the MOU, the fund will initially finance renewable energy development projects in China and France. In the second stage, it will also provide funding for energy efficiency and renewable energy projects in other countries. Once established, the fund will be the first cross-border green-investment fund structured by a Chinese bank and an international financial institution.
In 2016, ABC and Crédit Agricole’s asset management firm made steady progress towards launching the fund. They completed the drafting of a business plan and reached a consensus on where to incorporate a company to manage the fund and on the ownership structure of the new company.
Best green bond bank: Shanghai Pudong Development Bank
Shanghai Pudong Development Bank is one of the second-tier national commercial banks in China. There is no way for the Shanghai-based bank to match the country’s big four state-owned commercial banks in terms of green lending, but it has established itself as a leading player in the domestic green-bond market.
In 2014, as a lead underwriter, SPDB organized the issuance of corporate green bonds for the wind power generation unit of China General Nuclear Power Corp, China’s largest nuclear power generator. The bonds, backed by the unit’s green credits, were the first green bonds ever floated on the domestic interbank market. Their proceeds, Rmb1 billion ($146 million) in total, were used to support the unit’s five wind power farms in northwest China.
SPDB strengthened its position as a leading green-bond bank by floating three batches of green bonds totalling Rmb50 billion on China’s interbank market in the first seven months of 2016. The bond proceeds were to be invested in a wide array of projects across the country, including energy saving, renewable energies, alternative energy vehicles and environmental protection.
That was the largest green-bond issue ever made by a Chinese bank. But what impressed participants in China’s green-bond market most last year is not the bond issue itself, but the efficiency and transparency it demonstrated in allocating the proceeds of the green bonds. SPDB regularly disclosed the progress in its use of the bond proceeds, and by the end of the year, just five months after it had completed the placement of the bonds, it had allocated more than 90% of the proceeds for projects it had previously announced.
Last year, banks in China placed 39% of the green bonds issued worldwide. Many Chinese banks tapped the green-bond market to finance various projects, but they were not as efficient as SPDB in making use of the bond proceeds. There were often long delays between their green-bond issues and the allocation of proceeds, leading industry observers to question whether or not the proceeds were put to other, undisclosed uses in the intervening period.
As a result, an important criterion in gauging a bank’s commitment to promoting green finance is its efficiency and transparency in allocating the proceeds of green-bond issues. On that front, SPDB, whose general manager is Zhen Guangming, has served as a role model for its domestic peers.
Best green securities house: China Securities
As the lead underwriter, China Securities underwrote 13 batches of green bonds valued at Rmb46 billion ($6.7 billion) in total, between April 2016 and March 2017. The borrowers were six large domestic companies, including China Three Gorges Corp, China’s largest hydropower generator, and Bank of Communications, a leading domestic commercial bank. The number of tranches and the total value of the green bonds it underwrote were both by far the largest among securities houses in China during the period.
Last year, China Securities, as the lead underwriter, also organized a Rmb4.04 billion corporate green-bond issue for Longfor Properties, a big real estate developer in China. Proceeds of the bonds would be used to help Longfor develop energy saving properties. The move made Longfor the first green-bond issuer among Chinese real estate developers.
As an enthusiastic green-bond underwriter, China Securities has also demonstrated strong expertise in structuring cost-effective deals for green-bond issuers. Longfor Properties’ green bonds provide a good example. The interest rate range for the three tranches was 4.40% to 4.75%, well below the average level for corporate bonds issued by real estate developers in China last year.
As a leading securities house, China Securities currently operates a network of 245 business outlets across the country and has more than 6 million clients. Leveraging its nationwide business network and the rich experience it has in underwriting green bonds, the securities house is on track to play a more important role in aiding the development of the green-bond market in China.
Best green-finance verification agency: EY
Capitalizing on its abundant experience in green-finance verification globally and the unrivalled expertise of its Climate Change and Sustainability Services team on the ground, EY is recognized as a pioneer and leader in China when it comes to providing verification services and safeguarding the development of the local green-finance sector. Judy Li is its green finance leader in China.
The leading accounting and business advisory firm certified nearly all of the first batches of green bonds issued by banks and companies. Last year, EY also provided verification services for the $3 billion of green bonds that Bank of China issued overseas and the Rmb3 billion ($437 million) of green bonds that New Development Bank floated on China’s interbank market.
By March 2017, EY had already certified Rmb100 billion of green bonds for financial institutions in China, as well as Rmb20 billion of green bonds, other green debt financing products and green asset-backed securities for Chinese companies.
As green finance takes off across China, the firm’s local client base for green-finance verification is expanding: EY is certifying up to Rmb300 billion of green bonds from Chinese financial institutions and nearly Rmb50 billion of green corporate bonds, other debt financing products and green asset-backed securities from local enterprises.
Several other firms offering certification services have sprung up in China over the last couple of years, sowing some confusion with their use of different standards.
Drawing on its experience in applying globally recognized green-bond verification standards, EY is working with Chinese government agencies such as the central bank and banking regulatory body to come up with unified standards for green-bond verification, as well as other relevant rules and regulations to ensure the sustainable growth of the local market.
Best green credit rating agency: CCXI
China Cheng Xin International Credit Rating Co, established in 1992 in Beijing, is not only China’s largest domestic credit-rating agency, but also a clear leader in serving the domestic green-finance market.
CCXI, under chairman Yan Yan, is a pioneer in providing credit-rating services for green finance. It was the first of the agencies to give credit ratings for a wide range of green-finance products including green bonds, green asset-backed securities, green private placement notes (PPN) and green medium-term notes. Its green-finance clients include domestic financial institutions and companies, as well as international financial institutions such as New Development Bank.
CCXI is by far the largest credit-rating service provider for green bonds in China. Between April 2016 and March 2017, it rated 18 of the 59 green-bond issues launched on the domestic market. The green bonds were placed by 40 financial institutions and companies, 15 of which were CCXI’s clients.
While China’s green-bond market has taken off since 2015, the country lacks nationally recognized methodologies on how to rate green bonds. To plug the regulatory hole, CCXI became the first domestic credit agency to release its own complete set of methodologies on green-bonds’ credit ratings in August 2016.
These take into consideration the nature of the industries where green-bond proceeds are invested, the use of the proceeds in specific projects, the potential environmental benefits of projects funded by green bonds and the disclosure of information by the recipients of the bond proceeds.
CCXI’s methodologies for rating green bonds have won praise from China’s Ministry of Environment Protection and recognition from the most authoritative green-finance research organization in China – the green-finance committee of the China Society for Finance and Banking.
The agency has made a continuous effort to adopt international best practices. Last year, it signed the United Nations-supported Principles for Responsible Investment (PRI), becoming a member of a global network for investors and financial industry participants committed to integrating environmental, social and governance (ESG) considerations into their practices. It also became one of the first credit rating agency signatories to the PRI’s statement on ESG in Credit Ratings to advocate a more systematic and transparent incorporation of ESG into credit ratings and analysis.
Best green-finance region/province: Huzhou City/Zhejiang province
Last year, 79% of bank loans provided locally were recognized as green credit. By the end of the year, the balance of green credit from banks operating in the city reached Rmb45.5 billion ($6.6 billion), up 69% from a year earlier. These banks also issued up to Rmb20 billion of green bonds for local projects last year.
By subsidizing interest payments of green credit and providing green-loan guarantees for local small and medium-sized companies, Huzhou has also become a hotbed for the development of innovative products such as green credit with carbon credits as collaterals, and green insurance for local agricultural products.
To create a sustainable green financing model for local companies, Huzhou has also led other Chinese cities in establishing a carbon-trading mechanism. Fifteen local industrial companies participated in the trading of carbon credits last year.
Huzhou’s booming green finance has much to do with the strong support it has received from the Zhejiang provincial government.
The government launched an IT system in 2014 to track local companies’ behaviour in complying with environmental rules and regulations. It shares the information with local banks and encourages them to lend to energy-efficient and environmentally friendly companies.
As a sound regulatory framework for green credit is still in the making in China, the government has coordinated local banks to collectively institute a regulatory system. That way they can track the performance of green finance-funded projects and assess associated risks.
Aided by favourable local government policies, the balance of green credit provided by banks in Zhejiang has shown double-digit growth in the past several years, and reached Rmb744 billion by the end of 2016.
Meanwhile, Quzhou, another city in Zhejiang, has won national acclaim for using a wide array of green-finance products, including green credit, green bonds, green investment funds and insurance, to fund the disposal of toxic waste from local chemical plants and waste from local animal husbandry.
Outstanding contribution to the development of green finance in China: Jun Ma
Jun Ma is known as ‘Chief Ma’ in China’s green-finance sector in recognition of the dual role he has played in the last three years, both as the chief economist of the People’s Bank of China (PBoC) and as the leading proponent for green finance in China as chair of the green finance committee of the China Society for Finance and Banking.
Ma has a unique mix of experience working for Chinese government agencies and global financial organizations. After graduating from university in 1988, he started his first job as a researcher at the Development and Research Center of China’s State Council. From 1992 to 2000, he worked as an economist, first for the World Bank and later for the IMF. After that, he joined Deutsche Bank as its chief economist for Greater China.
In April 2014, he was hired by PBoC as chief economist of its research bureau. Shortly after that, with the support of the central bank, he and his research team embarked on a mission to promote green finance in a bid to ensure green and sustainable development of the economy.
From then on, as the central bank’s chief economist, Ma has successfully mobilized the central bank’s nationwide branches, China’s banking regulatory body, related ministries, universities and research institutes, and larger domestic banks to draft incentive policies, guidelines and regulations on green-credit provision and green-bond issuances.
In the last few years, Ma has made numerous speeches at economic and industry forums and visited a large number of domestic cities to promote green finance. He has also published dozens of books and research reports on the achievements of domestic financial institutions in the field of green finance, as well as the constraints facing the sector.
Using his own experience of working with financial institutions inside and outside China, Ma has encouraged domestic government agencies and banks to work with global organizations such as the IFC and Climate Bonds Initiative to adopt international best practices in green finance.
As chairman of the Group of 20’s newly formed green-finance study group, he spoke at the G20 summit in the eastern city of Hangzhou last year about China’s experience in embracing green finance and the challenges it faces globally, in a bid to drum up support at home and abroad for this exciting new field.
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