Asiamoney China Green Finance Awards 2020
Green bank of the year: Industrial Bank
|Chen Xinjian, Industrial Bank|
Industrial Bank has become the leading green finance bank in China’s domestic market.
The numbers speak for themselves. By the end of 2019, Industrial Bank had 14,764 green finance corporate clients and a Rmb1.01 trillion ($142 billion) outstanding green financing portfolio. It has managed to achieve a compound annual growth rate of more than 30% for both the number of green clients and its green financing portfolio since 2016.
The portfolio includes loans, bonds and equity investments.
The numbers bely the relatively small size of the bank. Consider that Industrial and Commercial Bank of China, the largest bank in the world, had a Rmb1.35 trillion green financing portfolio by the end of 2019. Industrial Bank, whose balance sheet is just under a quarter of the size of that at ICBC, is clearly punching above its weight.
Industrial Bank is also the largest green bond issuer in China. By 2019, the bank had sold Rmb130 billion of green bonds onshore and a dual-currency green bond offshore.
These achievements are the result of the bank’s continued dedication to China’s green finance industry.
Led by vice-president Chen Xinjian, Industrial Bank was the first onshore bank to sign up to the Equator Principles in 2008. It was China’s first ever issuer of a green financial bond, introduced the first green investment product and even launched the first low-carbon credit card.
It had roughly 200 green finance specialists at the end of 2019.
Given its rich experience in the market, Industrial Bank is regularly called upon by Chinese top regulators, including the People’s Bank of China and the China Banking and Insurance Regulatory Commission, to help draft key green finance policies. Index provider MSCI updated the ESG rating of Industrial Bank from triple-B in 2018 to A in 2019.
Industrial Bank serves as an example for its peers that green finance does not just need to be advanced by the country’s biggest banks; smaller, pluckier banks can do just as much to make green finance work for their bottom line – and the world.
Best green regional/provincial bank: Bank of Huzhou
Provincial and regional banks have a huge role to play in boosting the appeal of China’s green finance industry for local governments. No other bank has done this better than the Bank of Huzhou, a local joint-stock commercial firm based in Zhejiang province.
|Wu Jiping, Bank of Huzhou|
By the end of 2019, the bank’s outstanding green loans had reached Rmb4.77 billion ($670 million) – up 28.4% since the beginning of the year – and accounted for 13.3% of its total outstanding loans. Most impressively, the non-performing loan rate for all of Bank of Huzhou’s green loans was zero in 2019, well below the average level of the bank’s total lending.
Under its president Wu Jiping, Bank of Huzhou may be regional, but it is also international. It joined the United Nations Environment Finance Initiative in July 2018 and adopted the Equator Principles a year later, becoming only the third bank in China to do so.
Bank of Huzhou also put green finance provision at the front and centre of its business. It launched its Green Finance Three-Year Strategic Plan in 2016. It also opened a special channel to approve green loans faster and set green loan targets for most of its branches.
The bank is among the first to join the China-UK Climate and Environmental Information Disclosure Pilot Programme, which aims to make information disclosure clearer for small and medium-sized banks.
The bank has issued Rmb1 billion of green bonds so far. The amount was issued in two phases, one in December 2018 and the other in March 2019. By December, all proceeds from the two green bonds had been distributed, going to 17 green projects and enterprises.
Best green bond bank: Agricultural Bank of China
All of the big four Chinese banks – Agricultural Bank of China, Bank of China, China Construction Bank and Industrial and Commercial Bank of China – have bet big on the green bond market. But ABC stands out for beating even its own lofty track record during our awards period.
The bank acted as the lead underwriter for 11 green bonds issued by nine borrowers in 2019; these raised a total of Rmb42.7 billion ($6 billion), or 22% of the market, with the result that the bank ranked first in the interbank bond market in terms of volume.
ABC also set an example that green bonds do not need to stop at the green label. It acted as the lead underwriter for Longyuan Power Group’s Rmb500 million green bond in September 2019. The deal also had a poverty release label, since part of the proceeds went to the clean-energy electronics wind project in Guizhou province, one of the poorest regions in China.
ABC achieved many other firsts during the year. It was the lead underwriter of Jiangsu Financial Leasing’s Rmb1.92 billion green bond in June 2019, the first green securitization issued by a financial leasing company.
It also priced a Rmb1.5 billion green bond for Capital Airport Holding in September, the first green bond by an airport company.
The bank’s subsidiary Agricultural Bank of China Financial Leasing sold a Rmb3 billion green bond in May 2019. The deal managed to attract buyers including the China Clean Development Mechanism Fund, which is known locally as a particularly picky investor when it comes to green bonds.
Green deal of the year: Bank of China’s $960 million Sofr-linked multi-currency green bond
Bank of China’s $960 million Sofr-linked deal, issued in dollars, euros and offshore renminbi, was a landmark deal in more ways than one.
Sofr (Secured Overnight Financing Rate) is one of the top candidates to replace Libor after the end of 2021. The rate has been published daily by the Federal Reserve Bank of New York since April 2018, but so far, there has been little issuance. Until Bank of China’s deal, not a single Asian issuer had linked a bond to the rate.
It was a sign of the growing maturity of the green-bond market that the issuer did not opt to sell a conventional deal to test demand for Sofr-linked notes. Instead, it pushed ahead with a deal that advanced the green-bond and the wider market.
As if that wasn’t enough, Bank of China scored another first: this was the first green bond sold in Macau.
Although Sofr-linked bonds were an innovation in the market and many banks were not ready to buy the deal, the transaction still attracted a total of 59 investors.
The proceeds will be used to provide green loans to Chinese domestic corporations in areas of green transportation, green energy and sewage handling systems. The bond is also verified green by EY and the Climate Bond Initiative.
Best green credit rating agency: China Chengxin International Credit Rating
|Yan Yan, China Chengxin International Credit Rating|
China Chengxin International Credit Rating (CCXI), which has over 27 years of experience in rating domestic bonds, has long had a dominant market share in the wider onshore bond market. That now applies to the green bond market, too.
The firm, led by president Yan Yan, rated 72 green bonds last year, covering 53.7% of all green bonds issued, worth a total of Rmb107.8 billion ($15.1 billion), or 52.2% of the total volume, putting it well ahead of its closest competitor.
As a member of the council of China Green Finance Committee and a founding member of its working group on rating green bonds, CCXI published the first systematic rating methodology for green bonds in 2016.
It became a signatory of the United Nations Principles for Responsible Investment in 2016 and a member of the International Capital Market Association in 2017.
CCXI has solidified its leading position in the onshore green-bond market over the years. It will take time – and considerable effort – for other credit rating agencies to catch up.
Best green finance verification agency: Ernst & Young
|Jack Chan, Ernst & Young|
It was a particularly tough year to pick the winner of this award. With China’s domestic green finance industry fast developing, multiple verification agencies have sprung up in recent years.
Local competitors such as Lianhe Equator Environmental Impact Assessment Co are catching up. But for now, Ernst & Young still leads the crowd, thanks in large part to its reputation for professionalism.
The firm, led by Jack Chan, regional managing partner of EY Greater China, insists on conducting physical site investigations for green projects even though it is expensive to do so, making it one of the very few verification agencies that maintain the practice.
It follows international standards for verification.
It was also the first among the big four international accounting firms to gain membership of the council of China Green Finance Committee, as well as having a third-party verification qualification from the Climate Bond Initiative.
Since the beginning of 2016, Chinese issuers have sold roughly Rmb1.1 trillion ($154 billion) of green bonds in both the onshore and offshore markets. Ernst & Young verified nearly half of those.
During the process, it scored many firsts, including the first Sofr-linked green bond by Bank of China, the first sustainability themed and Bond Connect-eligible green financial bond by China Development Bank and the first green bond issued by a multilateral bank in the domestic market.
Thanks to its expertise both in the international and domestic markets, the firm has been called upon by Chinese regulators to provide input for green finance policies and to conduct green finance policy research.
At a time when China’s green finance market needs to earn the trust of international investors, Ernst & Young appears a crucial bridge between local credits and international investors.
Best in sustainable investment: China Southern Asset Management
Sustainable investment is still in its infancy in the Chinese onshore market. Many funds have not yet set up any environment, social and governance (ESG) -themed or green products. But China Southern Asset Management, led by general manager Yang Xiaosong, has integrated ESG principles into its own business operation as well as its investment decisions.
|Yang Xiaosong, China Southern Asset Management|
The fund became a signatory to the United Nations Principles for Responsible Investment in June 2018. Since then, it has been exploring domestic applications for ESG principles.
It set up the China Southern ESG Theme Equity Fund in the fourth quarter of last year. By the end of March, the fund had grown to Rmb2.07 billion ($290 million) in asset size.
Other than the newly developed ESG fund, the company also structured investment products focusing on the education industry and pension protection.
On top of those, as a council member of the China ESG Leaders Association, China Southern has worked with other banks and companies to create an ESG evaluation framework for China and, in turn, promote ESG investment in the country.
The company actively participated in more than 10 conferences and keynote speeches in 2019 on the topic of ESG investment in China.
To integrate ESG principles into its own investment decisions, the fund has built an ESG rating database and monitors public opinion regarding listed companies’ ESG awareness.
Best green finance product: ‘Lv Chuang Dai’ Industrial Bank
Many Chinese banks have rolled out financial products to facilitate green finance transactions. But Industrial Bank’s ‘Lv Chuang Dai’ – which literally translates as ‘green innovative loan’ – stood out because of its ability to tap a huge pool of government funding.
In September last year, Industrial Bank signed an agreement with the China Clean Development Mechanism Fund (CCDMF), one of the most selective but also one of the biggest green-focused funds onshore.
The ‘Lv Chuang Dai’ product was designed to bring in the CCDMF as a seed investor in green projects selected by Industrial Bank.
Deals tend to happen at a provincial level. The usual approach is for Industrial Bank, after identifying a lending opportunity, to approach the CCDMF and the local finance ministry. All three then sign a loan with the borrower, typically a green project. Industrial Bank and the CCDMF will provide the money, while the finance ministry will often provide subsidies to the borrower to improve its creditworthiness.
This helps the CCDMF clear an important hurdle. China’s large and disparate economy has created millions of potential lending opportunities for the fund. But most are too small to warrant the CCDMF doing its own credit analysis.
The ultimate lending decision still rests with the CCDMF. But by convincing the fund to invest alongside it, Industrial Bank has helped ensure a national fund can be used to solve local problems.
It is still early days for the scheme. By the end of 2019, 32 ‘Lv Chuang Dai’ projects had been selected by Industrial Bank and were being evaluated by the CCDMF.
Industrial Bank reckons a total of Rmb2.38 billion ($333 million) of CCDMF funding will go to these projects. The bank will provide more than Rmb4 billion of low-cost funding alongside it.
Best green belt and road project: Societe Generale’s guarantees for Xinjiang Goldwind’s wind turbines in Vietnam
Many Chinese green companies find it hard to finance their overseas Belt and Road projects, even with the guarantee of their parent firms.
This is because their parent companies are registered and located in mainland China but they often hope to directly secure funding overseas.
The location mismatch complicates funding.
In December 2019, Societe Generale provided advance payment and performance guarantees for Xinjiang Goldwind’s wind turbines project at Vietnam’s Khai Long-Bac Lieu Wind Power Plant.
The French bank has been keen to serve Chinese companies along the new Silk Road.
It also signed on to the Green Investment Principles for the Belt and Road jointly developed by the City of London Green Finance Initiative and the Chinese Green Finance Committee.
The relationship between SocGen and Goldwind goes back many years.
In 2015, the bank acted as one of the joint global coordinators on the company’s $300 million green bond, which was the first green bond by a Chinese issuer.
Outstanding green finance research in China: ‘Constructing a financial services system to support green technical innovations’ The Institute of Finance and Banking and the Chinese Academy of Social Sciences
There is plenty of green finance research done by banks and credit rating agencies in China.
But the Institute of Finance and Banking, under the Chinese Academy of Social Sciences (CASS), has distinguished itself by both the depth and practicality of its research on financing green technical innovations in China.
The research paper that most impressed Asiamoney is called ‘Constructing a financial services system to support green technical innovations’ and was published in the journal Financial Theory and Practice, an academic journal founded by the Zhengzhou branch of the People’s Bank of China.
The paper is supported by official statistics, in-depth analysis and well-thought-out arguments. Most importantly, it presented an honest picture of the funding barriers facing Chinese green technology companies.
The researchers give a diagnosis of the key reasons green technology companies face barriers in securing funding from green bond investors, or from banks with green loan targets.
They identify three main problems. First, the difficulty of securing a bank guarantee, which would help drive bond demand. Second, a maturity mismatch between their long-term projects and the short-termism of many investors. Third, the relatively limited understanding of green technologies among China’s investor base.
The authors urge China’s government to provide more incentives for green technology investors and to nurture long-term green investment in the market.
They also call for a better evaluation system of the environmental impacts of green technologies. These are not vague proposals: at the end of the paper, the researchers provide 10 actionable policy suggestions.
Ma Jun, the first-named author of the research paper, is the chairman of the China Green Finance Committee.
An Guojun, an associate researcher at CASS, and Liu Jialong, a research at the Research Centre for Green Finance Development at Tsinghua University, are the second and third authors, respectively.