China’s slow move to green banking
China’s government has made a lot of noise about green banking, but where does the nation really stand in its initiative to improve the environmental and social impact of the banking industry. The following report gives a man-on-the-street analysis of green banking in China:
Source: CSR Asia
The public is starting to show an interest in the financial ramifications companies face because of poor environmental standards and/or due to causing severe environmental degradation. For example, Zijin Mining Company was fined 30 million Yuan in May 2011 due to serious pollution caused in July 2010. Five senior executives, including Chen Jianhong, former vice-president of Zijin, were arrested. However, there are few voices questioning the financial institutions that provided loans to Zijin. Banks including the China Merchant Bank have not being affected by the incident. The fine given to Zijin seems to have provided no actual deterrent to Zijin or the banks that financially support the mining company’s operations. Considering this scenario, we are interested in how the so-called “Green Banking” is developing in China.
Green Banking is a Chinese government driven initiative and has been around for several years. In 2007, the Chinese government introduced the green credit policy as part of the Green Banking initiative. Green credit involves monitoring of listed companies, green financial management, green tax and green insurance. In 2007, the State Environmental Protection Administration, the People’s Bank of China and China Banking Regulatory Commission jointly issued “The opinion of implementation of environmental policies and regulations to prevent credit risk” (《关于落实环保政策法规防范信贷风险的意见》) which is regarded as the beginning of the green credit policy. The People’s Bank of China also issued in 2007 “The Method of Information Disclosure by the Commercial Bank” (《商业银行信息披露办法》), requiring commercial banks to disclose information relating to risks. In 2008 the Environmental Protection department also started to encourage listed companies to disclose information relating to the environment. In the following few years, the People’s Bank of China and China Banking Regulatory Commission have repeatedly issued guidance documents to make credit performance of energy-saving and emission reduction industries an important aspect of the bank agency ratings. The government wants to expand and support environmental protection through a series of bank policies to reduce environmental pollution by business.
At present, the practice of green credit by the Chinese banking industry can be explained through two broad ratings – “an entry, an exit”. ‘Exiting’ is to provide a loan to “too high” industries (high pollution and high energy-consuming) and ‘entering’ industries relate to energy saving and environmental protection. However, there is not a comprehensive legal framework for these environmental policies. Further, there are many loopholes that reduce the effective implementation of green credit. For example, the government does not have a clear statistical standard on the “too high” industries, which affects the comparability and accuracy of data collected from banks. More importantly, the government does not have standardised requirements and regulations on information disclosure for banks that provide loans to companies in the “too high” industries. At present, the environmental protection department and all levels of financial departments share environmental information. But the communication mechanism is only one-way, i.e. the environmental protection department provides information around non-compliance by companies on environmental laws to financial institutions, but it does not require banks to provide information of business loans to the environmental protection department. The result of this one-way communication flow is that once a serious pollution incident happens, the environmental protection department may find it difficult to know which financial institution financed the company.
There are NGOs in China working together on the advocacy of green credit and green banking. Nine local NGOs formed an alliance to work on various initiatives such as training and research on raising the public awareness of green credit. One of the most interesting works this alliance is working on is to publish the “Chinese banking sector’s environmental record” (《中国银行业环境记录》) starting from 2010. They pay close attention to the 14 listed commercial banks in China, and these banks are currently providing nearly 3,000 billion RMB to business. The alliance looks at publicly available information from listed companies, such as annual CSR report and other various reports. Based on this information the alliance ranks the performance of the banks and reports are sent to the banks for response. At this stage, less than 6 banks responded to the report. There is still a long road ahead when it comes to green banking in China