Green bank of the year: Industrial Bank
Industrial Bank of China is known as the bank of green finance in its homeland because it was the first to begin operating by the Equator Principles, a globally accepted risk-management framework used by financial institutions for determining, assessing and managing environmental and social risk in projects.
The bank took on the green initiative with gusto, and since then has lent out Rmb1.5 trillion ($234 billion) in the form of bonds and commercial loans, the largest portfolio among Chinese financial institutions.
“We grew from a little crack, as if a green sprout would grow in search of livelihood and survival,” says Luo Shiyi, the bank’s general manager in charge of green finance. “Green finance is a key strategy for our development as an institution.”
Founded in 1988 in Fuzhou, the provincial capital of Fujian, the bank has become one of China’s largest commercial banks. Its green finance department has been so active that China’s central bank has asked its senior executives to lead a wide range of education efforts to help society understand the need to be environmentally friendly. In 2018, the bank published a book, ‘From green to gold’, that has become popular among green finance advocates in China.
The Green Finance Committee of the China Society for Finance and Banking, a think tank affiliated with Tsinghua University and the People’s Bank of China, recently asked the bank to lead seminars teaching green finance to bankers, not only in China, but in other markets that Chinese banks are entering as part of the nation’s Belt and Road Initiative.
“We are quite willing to share our experience with local banks and local governments not only in China, but in other Belt and Road nations,” says Luo.
Best green national commercial bank: Industrial and Commercial Bank of China
Yin Hong leads post-doctoral, dissertation students and talks like an academic. She is, in fact, a senior banking executive and is deputy head of Industrial and Commercial Bank of China’s Urban Finance Research Institute.
“Most banks only look at customer needs, which may include green finance, but we at ICBC look far deeper at green finance, and that includes taking a serious scholarly approach to understanding how green finance impacts society,” Yin says at the Urban Finance Research Institute offices in Beijing. “We look across the spectrum, including energy needs, emission and technology standards and we conduct research that in the end helps not only our customer relations managers but all of China’s green finance sector as a whole.”
Though her research is focused on the theoretical, it has produced very practical and tangible results, including helping ICBC set standards for determining what type of applicants qualify for green finance.
“As a result of our research, ICBC has made green standards a part of the entire process of loan applications, and they are now an integral part of our entire group strategy,” she says.
Her team has used social science research methodology to set up mathematical modelling of risk and credit. Such research has helped the bank to dramatically reduce risk associated with green finance loans.
“What we found is a transparent and scientific approach for all commercial banks to follow for financing green projects,” Yin says, adding that ICBC’s top management have remained highly supportive of her research institute despite the fact that she and her dozens of research staff have not produced a single renminbi in profits for the group.
ICBC’s commitment, under chair Huiman Yi, to Yin and her research group shows its high level of commitment to setting green finance standards not only for the group but for the entire industry.
Best green regional bank: Bank of Nanjing
Of the regional banks in China, Bank of Nanjing in the capital of Jiangsu province stands out from the crowd. The bank has lent Rmb23.7 billion ($3.7 billion) in green finance to support enterprises in their efforts to promote energy conservation, environmental protection and to reduce emissions of pollutants. Its chair is Hu Shengrong.
The bank issued the largest green bond in Jiangsu in April 2017, raising Rmb5 billion through the interbank bond market. It subsequently financed a number of projects that dramatically reduced pollution emission, cutting 874 tons of ammonia, 16,700 tons of dust, 17,938 tons of carbon dioxide and 1,069 tons of sulphur dioxide since April 2017.
The bank has led the charge into solar energy in the province. In 2017, it introduced photovoltaic power generation project loans specifically to encourage the building of photovoltaic power plants. It provided medium-term and long-term loans to solve the funding gap in the construction process. So far, it has invested Rmb210 million in supporting the construction of a number of photovoltaic power plants.
The bank has also introduced a number of products that support local regulators in their efforts to fight pollution. It recently introduced a mortgage credit for emission rights, using financial instruments to encourage companies to actively implement lower emission programmes.
At a regional level, the bank is working with regulators not only in Jiangsu, but also in other provinces to promote green finance.
The bank has also introduced products that make it an active player in the national unified carbon market, established by the central government last year. It helped client enterprises revitalize stock assets and tailored carbon quota pledged products that can be resold in the open carbon market. Currently, it is cooperating with local environmental exchanges such as the Shanghai Environment Exchange and the Beijing Environment Exchange on the carbon credit pledge business.
Best green investment bank/securities house: CITIC Securities
Among Chinese brokerage houses, CITIC Securities is not only the largest in the field, but also stands out as the leader of the green finance pack. The brokerage firm has a commanding share of the green bond market among brokers and has underwritten a large number of green finance projects that are directly issued by companies themselves.
From April 2017 to March 2018, CITIC Securities, led by Choanan Wang, underwrote Rmb56 billion ($8.7 billion)-worth of green financial instruments, accounting for 27% of the total market value. CITIC counts among its clients the leading hydropower company China Three Gorges, and last year helped the company to issue Rmb7.5 billion-worth of bonds to fund three hydropower plants.
Unlike banks, which issue bonds through the interbank market and then lend the proceeds to enterprises, Citic helps corporate clients to directly issue their own green bonds.
Though more complex to issue, Chinese regulators are making it more worthwhile for companies to issue green bonds, notes Nie Lei, an executive director in charge of green finance at CITIC Securities. He adds that chief among the new regulatory reforms is allowing investors to use their green bond assets as collateral for financing.
“The new reforms make green bonds more attractive as investments,” he says.
CITIC is participating in several highly innovative green financial initiatives. So far, it is the only securities company to participate in the study of non-fixed-term capital supplementary bonds.
Best green bond bank: Bank of Communications
The Bank of Communications was founded 110 years ago under the last imperial government specifically for the purpose of issuing bonds.
Its first bond was sold to raise funds to help the Qing Dynasty government purchase a rail line built by foreigners in China. Today, the bank is well known as one of the top bond issuers in China, including in green bonds, where it is a leader, both onshore and offshore.
At the end of 2017, the bank has issued a total of Rmb50 billion ($7.8 billion) of green bonds in the domestic interbank market.
The first batch was in November 2016, when the bank successfully issued the first phase of Rmb30 billion, with a coupon rate of 2.94%. In October 2017, the bank issued the second phase of Rmb20 billion of green bonds, with a coupon of 4.29%. The bonds attracted a diverse group of investors, including state-owned banks, joint-stock commercial banks, insurers, securities houses and fund companies.
Offshore, the bank has helped state-owned China Development Bank issue the €1 billion Green Silk Road Bond in euro-denominated green bonds. It is the first quasi-sovereign bond in the international green bond market, and it will be used to finance green projects related to the Belt and Road Initiative, including clean fuels, public transportation and water management projects. This issuance has attracted attention from investors world wide, including European and Middle Eastern central banks, and was oversubscribed by €2.25 billion.
Best green Chinese bank in overseas markets: Bank of China
When it comes to an overseas presence, no Chinese rival can beat Bank of China. Since 2012, green credit financing, both onshore and offshore at the bank, has increased year by year. At the end of 2017, the bank’s green credit portfolio stood at Rmb727 billion ($113.6 billion), an increase of 11.5% year on year. The growth rate was higher than the average growth rate of the bank’s overall corporate credit balance.
The bank has issued three phases of green bonds in the international markets, totalling $5 billion and lending to companies engaged in building clean transport systems and technology, clean energy technology, and waste water treatment technology.
Chief among the foreign issues is a $1.5 billion issuance through the Paris branch, which includes fixed- and floating-interest rate varieties covering three currencies: the dollar, euro and renminbi, with tenors of three years and five years. That issuance, which is tied to an onshore emission reduction project, not only complied with the latest standards of the global Green Bond Principles guidelines, but was also certified by globally recognized Climate Bond Initiative’s labelling certification system. The issuance was the first three-currency green bond certified by the CBI organization.
In 2016, BoC branches in Luxembourg and New York issued green bonds at the same time, with a total issue size of roughly $3 billion and comprising a $2.25 billion issue, €500 million issue and Rmb1.5 billion issue. They were a credit-type green bond and are the largest for any offshore issuance to date in the global green bond market. The bonds were accredited by Ernst & Young’s green finance team and received its best GB-AAA ‘dark green’ rating. The issuance was incorporated into multiple mainstream green bond indices.
Moreover, the bank has been promoting green bond issues among non-Chinese issuers. Chief among the offshore successes is the bank’s cooperation with developers of the Indonesian Donggi-Senoro LNG project, a $2.9 natural gas liquefaction plant near Luwuk in Central Sulawesi, Indonesia, that has a capacity for two million tons of LNG and condensate a year. The bank has been a lead financier of syndicated loans to the project, which was partially funded through green bonds.
Most innovative green bank: Agricultural Bank of China
Agricultural Bank of China wins the green innovation award for becoming the first in China to successfully issue a green credit asset-backed securitization, or ABS, product.
The ABS helped the bank to issue Rmb60 billion ($9.4 billion) in financing for a provincial government-led project that cleaned up heavily polluted waste water in industrial parts of Zhejiang province. Through the successful issuance of this bond, the bank has created a new financing model that uses investment banking tools such as asset securitization to promote the development of green industries across China, says Liu Zhaoying, a senior director with ABC’s investment banking unit in Beijing.
“The successful issuance of this project fully demonstrates the active exploration of ABC’s use of credit asset securitization to proactively manage assets and liabilities,” says Liu. He adds that the bank is exploring more ways to use its investment banking tools to promote green finance.
“Green finance has always been an important part of our bank,” says Liu, adding that the bank’s roots go back to funding China’s agricultural and forestry industries. “You can see even our logo is green.”
The bank recently helped China Resources Capital Holdings to issue Rmb1.35 billion-worth of asset-backed notes, with the proceeds to help the firm finance several wind and green energy projects initiated by small and medium-sized enterprises, Liu notes.
The bank has issued Rmb35 billion-worth in total of green bonds and various other instruments to help non-financial institutions to raise funds for green projects, he says.
ABC also recently began a three-year strategic review exploring other possible forms of innovation that may help to expand the green finance business, says Liu, adding that the strategic review goes all the way down to every one of the bank’s 23,000 branches.
“Our ultimate goal is to make every product green,” he says.
The bank recently brought in the Beijing Environmental Exchange to train staff on developing products using carbon credits.
Best green credit rating agency: Lianhe Ratings
Beijing-headquartered China Lianhe Credit Rating (or Lianhe Ratings) is one of the market leaders in setting the criteria and standards for China’s green finance industry. As a council member of the Green Finance Committee affiliated to the People’s Bank of China, Lianhe Ratings has promoted the development of the green bond market in China.
From April 2017 to March 2018, Lianhe Ratings provided ratings for 28 green bonds from 17 issuers with a total offering size of Rmb56 billion ($8.7 billion), accounting for roughly a third of the proceeds raised through green bonds during the period.
Facing the rapid development of China’s green bond market, Lianhe Ratings published its ‘Green bond credit rating methodology’ to enhance market transparency and ensure open access for all agencies involved in credit risk analysis.
The company has rated a number of high-profile green bonds, including the 2017 Yunnan water green bond, which raised Rmb550 million for Yunnan Water Investment last year. After a thorough analysis, Lianhe Ratings rated the 10-year bond AA+; the bond was successfully placed at a coupon rate of 6.3%. Yunnan Water used roughly 68% of the proceeds for two environmental protection projects and the rest for replenishing working capital.
With a team of about 300 staff (more than half of these are analysts), Lianhe Ratings is well positioned to cover the ratings of many of China’s future green bond issuers.
“Most of our analysts have master’s or doctorate degrees,” notes managing director Wang Shaobo, adding that the company has worked with more than 2,000 issuers and rated more than 10,000 bonds of all kinds since it was founded in 2000.
Best green finance verification agency: Ernst & Young Hua Ming
When it comes to green finance verification in China, Ernst & Young Hua Ming stands out, and this is in part due to the fact that the global audit firm has invested in talent under managing partner Jack Chan.
Take, for instance, Judy Li, head of green finance verification in the greater China region. She oversees a team of 70 accreditation experts in Beijing, Shanghai, Guangzhou, Shenzhen, Taiwan and Hong Kong and under her direction, Ernst & Young Hua Ming has become the leader in accreditation of green finance issues in China. The firm has a commanding market share of between 60% and 65% of the green bond accreditations.
“Ernst & Young is very committed to green finance and sustainable development,” Li says, adding that she sees “green finance and sustainable development to be a huge opportunity for our growth as a firm in China.”
Of the Rmb2 trillion ($313 billion) of bonds issued annually in China, roughly 2% are green, notes Li. China’s leaders hope the percentage will rise to between 15% and 20% in the coming decade.
The Chinese government is stimulating green bond issues through a variety of measures, including tax incentives, and the future is guaranteed to be bright for green finance participants, both issuers and those who hand out accreditations, says Li.
Best onshore accreditation agency: Beijing Zhongcai Green Financing Consultant
With the rise of green finance in China has come the rise of onshore green accreditation agencies. The leader among the domestic firms is Beijing Zhongcai Green Financing Consultant, which was spun off from the Green Bonds and Research Institute of China Central Political and Law University. Zhongcai’s director of green bond business is Hanke Zhang.
|Hanke Zhang, Beijing|
The firm, which has more than 30 staff, has accredited more than 50 bonds worth Rmb130 billion ($20 billion), including offshore dollar and euro offerings, among them a $2.1 billion bond issue by Industrial and Commercial Bank of China.
The firm works closely with green bond issuing leader Industrial Bank and was a lead accreditation agent for the bank’s Rmb50 billion bond issue in 2016, which remains one of the largest in the market. Only one other firm, Pudong Development Bank, has issued a Rmb50 billion bond so far; Ernst & Young was the verification agency on that issue.
Zhongcai was the first institution to provide green third-party assessment services in China. In addition, it has maintained close contact and cooperation with various international agencies, including Icma, the Climate Bond Initiative, the London Stock Exchange, and several market issuers, investors and underwriters. In 2017, the organization was the main contributor from the Chinese side for the paper ‘Common language for green finance’ jointly issued by the China Green Finance Committee and European Investment Bank and that advocated the global harmonization of green bond standards.
Onshore, Zhongcai is a member of China’s National Association of Financial Market Institutional Investors (NAFMII), a self-regulated industry association that oversees China’s institutional investors.
Best green finance region/zone: Xinjiang
Last year, China’s State Council designated five regions where the central government will work with local authorities to build green finance reform and innovation pilot areas; Xinjiang in western China stands out among these.
In only a year, authorities in Xinjiang – which is famous for its natural environment, as well as its ethnic diversity – have begun building the nation’s first green experimental library. Local authorities have worked with financial institutions to issue Rmb35 billion ($5.5 billion) of green bonds to fund various initiatives, including green policy research think tanks to attract more talent to the region and help with its environmental development.
The local government in Urumqi, the provincial capital, has also begun setting up local green financial reform and innovation pilot zones in Hami City, Changji Prefecture and Karamay City. All three are home to large ethnic Uighur Muslim, or Hui, communities who have at times felt economically left behind.
In January alone, officials in Xinjiang worked with local enterprises – 14 financial institutions and 42 companies – to arrange for 13 cooperation agreements on green projects with a total contract value of nearly Rmb9 billion.
Local authorities are exploring the possibility of setting up a local green bank. They also signed a strategic cooperation agreement with Industrial Bank worth Rmb50 billion to fund the various zones and have signed an agreement with the Manila-based, Japanese-led Asian Development Bank for a $150 million loan to finance green infrastructure in Changji prefecture.
According to local authorities, as of the end of 2017, the balance of green credit in the three pilot areas was Rmb35 billion, accounting for 11.6% of total loans in the three regions.
The loans are concentrated on renewable energy and clean energy, green transportation and natural habitat protection, ecological restoration, and disaster prevention and control projects.
Outstanding contribution to development of green finance in China: Ma Xianfeng
Ma Xianfeng is dedicated to the development of green finance in China. The director of the Research Centre of the China Securities Regulatory Commission has also served tirelessly as the deputy director of the central bank-linked Green Finance Committee.
As a member of the China Financial Institution Green Finance Professional Committee, to give it its formal name, Ma is mainly responsible for promoting the development and application of green stock indices, building green exchanges, researching green initial public offerings, and promoting and assisting the drafting and implementation of relevant laws and regulations.
He graduated with a master’s degree in economics from Northwest University in 1993 and earned a doctorate in economics from the Graduate School of the Chinese Academy of Social Sciences in 1996. He was a postdoctoral fellow at the School of Economics of Peking University from 1996 to 1998, and an associate professor at Peking University in 1998.
Between 1998 and 2004, he served as an assistant researcher, director and member of the Planning Commission of the China Securities Regulatory Commission’s Office of Political Affairs.
From August 2002 to February 2003, he worked in the Financial Services Authority (FSA). From 2004 to 2009, he served as chief economist and senior director of the marketing department, a senior director of the research department and director of the office of the Dalian Commodity Exchange.
From 2009 to 2014, he served as a researcher and research team leader of the China Securities Regulatory Commission Research Centre. He also briefly served in a political role during that time, when he was appointed as the assistant to the chief of Changsha municipality’s Shapingba District in Hunan in 2013. During that period, he had hands-on experience in policy implementation.
At the China Securities and Regulatory Commission, he has long been engaged in the study and implementation of capital market policies that have guided China’s market development. He was the main author of the regulatory commission’s 12th and 13th five-year plans, covering 2011 to 2015 and 2016 to 2020.