China’s largest bank introduces environmental criteria for lending

Signal of change / China’s largest bank introduces environmental criteria for lending

By Sheryl Foo / 17 May 2016

China’s largest bank, ICBC, has announced plans to introduce environmental criteria to its lending policies by examining the environmental impact of companies. This comes hot on the heels of the CCP’s recent release of China’s 13th Five Year Plan.

ICBC’s green finance move flags the rapid transition to green growth that is cascading through all sectors of the Chinese economy. For instance the demand for safe and healthy food has burgeoned catalysing change in agricultural production practices. The government has also made a push to increase energy efficiency, diversify its energy mix, and pursue aggressive adoption of clean and renewable energy in order to meet China’s 2030 peak carbon emissions target.

China's development is increasingly driven by environmental considerations as the country accelerates its transition to the “New Normal” – a slowdown of industrial economic growth and a greater focus on better quality growth, including greater awareness of the environmental costs of traditional economic growth. This is being driven in part by a national vision of China as an “Ecological Civilization”.

So what?

ICBC’s move will have implications for the ways companies approach their environmental impact. By sending a strong signal to companies through financial pressure to go green or risk losing access to capital, green finance mechanisms and other green financial policies provide a hard incentive for companies to seriously consider adopting sustainability measures to reduce carbon emissions and manage their environmental impact.

By moving private capital towards public and green investments, green finance fosters public-private partnerships that will be crucial to countries’ management of environmental challenges and the overall transition to a green growth model.  Green banks could be an important source of capital for developing countries struggling for to fund sustainability projects.

In China, there have been other green finance trends that bode well for the possibility of a green finance ecosystem in China. In August 2015, China’s Xinjiang Goldwind Science and Technology, a state-owned manufacturer of wind turbine generators, issued a US$300m green bond, sending a strong signal that Chinese renewable energy sector is an attractive investment.

Edited by: Jacob Park

Image credit: Christina B Castro

Sources

China Dialogue "Major Chinese bank says new green policies have consequences for its lending decisions"

Bloomberg "China's $230 Billion Green Bond Thirst to Supercharge Market"

Premier of the State Council "Report on the Work of the Government"

What might the implications of this be? What related signals of change have you seen?

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