Asiamoney China Green Finance Awards 2019
Which banks and other service providers continue to lead the charge in China green finance?
Best green bank: ICBC
|Chen Siqing, ICBC|
Industrial and Commercial Bank of China is not only the leading provider of green loans in China, but also the top issuer among Chinese banks of green bonds in the international markets, and the most active of the Chinese banks in collaborating with domestic and international agencies to advance the development of green finance, both at home and abroad.
Thanks to its systematic approach to improving the process of generating loans and encouraging product innovation, ICBC continues to beat domestic rivals in offering green loans for projects across the country.
By the end of 2018, its total outstanding green loans exceeded Rmb1.2 trillion ($174 billion), putting it ahead of every other domestic bank. That marked an increase of 12.6% from a year earlier – and 6.6 percentage points above the growth in ICBC’s total outstanding loans to corporate clients.
Among China’s domestic banks, ICBC is the largest issuer of green bonds in overseas markets, selling a total of $2.33 billion of such debt in London and Hong Kong last year to fund projects in China’s Belt and Road Initiative.
ICBC is in a strong position to advance the green finance agenda. Last year, management issued guidelines on seizing opportunities where green finance can be used to support strategic government initiatives such as BRI, regional economic development in the north China region, covering Beijing, Tianjin and Hebei, as well as economic integration in regions along the Yangtze River.
At home ICBC has been active, working with domestic government agencies and institutions to ensure the growth of the domestic green finance sector. In December 2018, it joined China Securities Index Co, a financial data provider affiliated with the stock exchanges of Shanghai and Shenzhen, to launch an environmental, social and governance index for socially conscious investors to screen listed companies. It has also worked with several international organizations to promote social responsibility in the global banking sector and sustainable investments for China’s BRI.
Best green national commercial bank: Industrial Bank
Industrial Bank is a pioneer in China’s green finance sector. It started making green loans in 2006 and was the first Chinese bank to adopt the Equator Principles, an internationally recognized, risk-management framework for financial institutions to determine, assess and manage environmental and social risks in projects.
The bank stood out last year for its strong commitment to expanding the supply of green finance and its leadership in advocating international best practice in this field.
Industrial Bank was the largest issuer of green bonds overall in 2018, with total issuance of Rmb60 billion ($8.7 billion) in the domestic market and two batches of green bonds overseas – one for $600 million, the other for €300 million.
Even though it is a second-tier national commercial bank in China, it is a big provider of green loans in the domestic banking sector. In 2016, the bank set itself the target of funding more than 10,000 projects with green finance by 2020: by the end of February 2019, it had already provided more than Rmb1.8 trillion in total to as many as 17,276 projects in a wide range of industries by tapping into its green loans and green bond proceeds, while the balance of its green loans exceeded Rmb864 billion.
Industrial Bank has stuck firmly to the Equator Principles: as of February 2019, it had examined 1,075 potential green finance projects; of these, only 403 (a total investment of Rmb1.7 trillion) were deemed compliant. Using those same principles, the bank has signed partnership agreements with 20 city and rural commercial banks to jointly develop green finance in China and help them improve risk management for investments in projects funded by green finance.
Best green regional/provincial bank: Bank of Huzhou
Bank of Huzhou was established in 1997 in the eponymous economically vibrant, medium-sized city in east China’s Zhejiang province. With total assets of Rmb52 billion ($7.5 billion) at the end of 2018, it is a small bank by Chinese standards. Yet it has emerged as a leader (at least among the numerous regional commercial banks in China) on multiple fronts in green finance.
Bank of Huzhou considered green finance a priority from early on. Among the domestic city commercial banks, it was the first to create a separate green finance division and it established a green finance working committee under the direct control of its president. It was also the first to open outlets dedicated to supporting small and micro businesses with green finance.
What is even more impressive is that it was the first city commercial bank to hammer out an asset classification system for green credit. In this system, loan applicants are colour-coded according to their environmental friendliness (green, blue, yellow or red), allowing the bank to provide green finance to applicants and to control the associated credit risks more effectively.
With support from its leaders and an effective management system, the bank boosted the share of green loans in its total lending to more than 13% by the end of 2018. Meanwhile, the non-performing ratio for green loans is well below the average level of 0.66% for the bank’s total lending.
Bank of Huzhou stands out because of its pursuit of international best practices in green finance. In 2018, it formed a strategic partnership with the IFC in preparation for adopting the Equator Principles. The move will make it the third Chinese bank to apply the principles, following Industrial Bank and Bank of Jiangsu.
Last year, Bank of Huzhou became a member of the United Nations Environment Programme – Finance Initiative (UNEP FI) as a demonstration of its commitment to sustainable finance.
Best green bond bank: Industrial Bank
|Gao Jianping, Industrial Bank|
Industrial Bank was the largest issuer of green bonds among Chinese banks in 2018, domestically and abroad. Its guidelines and standards set out for its own green bond issues have also won recognition from international agencies.
Last year, Industrial Bank floated Rmb60 billion ($8.7 billion) in green bonds in the domestic market, making it the leading issuing bank.
That also brought the cumulative amount of green bonds it has issued in China in the last three years to Rmb110 billion, an impressive achievement for a Chinese bank in the domestic bond market.
Industrial Bank’s green bonds have helped to cultivate a community of socially and environmentally responsible investors in China, and have provided financial support for various environment-friendly domestic projects.
Last year, Industrial Bank achieved a breakthrough in terms of green bond issuance when it gained access to the international bond markets. On November 13, the bank issued $600 million in green bonds in Hong Kong and €3 million worth of green bonds in Luxembourg. The proceeds will be used to finance six overseas projects in areas including renewable energy development, emission control in transportation, energy efficiency and sustainable water resources management.
Equally impressive is Industrial Bank’s Green Bond Framework, which was drafted in line with relevant Chinese policies and international standards on green-bond issuance and associated investments.
The framework was rated as Dark Green by the Center for International Climate Research (Cicero), a Norwegian institute for interdisciplinary climate research, for providing a clear and sound framework for climate-friendly investments. It also won certification from both the London-based Climate Bond Initiative and the Hong Kong Quality Assurance Agency.
Most innovative in green finance: Ernst & Young
With the robust growth of the green finance sector in China, local financial institutions and their regulators need to improve the collection and analysis of data on the environmental benefits of green finance projects.
An innovative online management system for green finance developed by Ernst & Young, the largest green finance verification agency in China, promises to address this.
The system is a complete suite of software developed to automatically and intelligently help Chinese financial institutions verify their green loans. It features an embedded green credit standard model to establish the relationship between the 1,381 sub-sectors under the Chinese government’s industry classification system and the green credit statistics systems of China’s central bank and the China Banking and Insurance Regulatory Commission.
That enables real-time automatic data processing to verify green credit. The system also uses web crawler technology to capture information on projects that violate China’s environmental safety rules.
The online green finance management system can also accurately and efficiently calculate the environmental benefits of green credit for banks and other financial institutions. It collects supporting materials for these projects and uses human judgement to complement the results.
Compared with manual data filing, the system has greatly improved the accuracy and reliability of the green credit data that financial institutions report to their regulators.
It automatically generates and reports green credit data in the formats required by the People’s Bank of China and the CBIRC, allowing regulators to closely track green finance developments in domestic industries.
Best green Chinese bank in overseas markets: ICBC
ICBC was not only the largest issuer of green bonds overseas among the Chinese banks last year, but also a clear leader in promoting the development of green finance outside China.
ICBC issued a total of $2.33 billion in green bonds in London and Hong Kong in 2018 to fund projects that are part of China’s Belt and Road Initiative, an ambitious programme launched by the Chinese government to link Asia with Africa and Europe via land and maritime networks to boost trade and investment.
In June 2018, ICBC’s London branch placed $1.6 billion of green bonds on the London Stock Exchange – the largest ever green bond issue on the bourse.
A few days later, its Hong Kong subsidiary, ICBC (Asia), issued $730 million of green bonds on the Hong Kong Stock Exchange. It was the first green bond issuance there by a locally incorporated bank in Hong Kong.
Another big event for the bank last year was its decision to join international agencies and foreign institutions to advance green finance outside China. In April 2018, ICBC was the only Chinese bank out of 27 international firms selected by the United Nations Environment Programme – Finance Initiative (UNEP FI) to draft ‘principles on responsible banks’ to promote sustainable finance globally. The principles are due to take effect in September.
ICBC collaborated with Oxford Economics last year to develop an index system to support its Green Investment Principles, which were drafted with the green finance committee of the People’s Bank of China and the City of London for China’s Belt and Road Initiative. This index system is due to come online in 2019.
Best international green finance verification agency: Ernst & Young
|Jack Chan, Ernst & Young|
In China’s green finance sector, Ernst & Young is an admired player because of its position as the largest green finance verifier and its role in promoting sustainable green finance development with expertise and innovative services.
EY has been the largest finance verification agency in China for three consecutive years. In 2018, it verified more than 25% of the green bonds issued by Chinese banks at home and abroad.
By March 2019, the cumulative amount of green bonds the agency had verified for Chinese banks approached Rmb256 billion ($37 billion). At the same time, the total amount of green corporate bonds and other green debt financing facilities it had serviced for Chinese companies as a verification agency reached Rmb28 billion.
EY is ahead of the pack in verifying green bonds issued by Chinese entities, including banks, private equity firms, energy companies or pilot green finance zones. It insists on on-site inspections to evaluate environmental benefits and social impacts.
EY holds itself to high standards. It applies the same green-bond verification methodologies in China as it does elsewhere, in strict accordance with Icma’s Green Bond Principles and the Climate Bonds Initiative’s Climate Bonds Standard.
Best domestic green finance verification agency: China Chengxin Credit Management
|Shen Shuangbo, CCX|
China Chengxin Credit Management, incorporated in Beijing in 1992, is China’s largest credit rating agency. It has also established itself as a leading domestic green finance verification agency.
The company, known as CCX for short, has been instrumental in establishing an institutional framework for green finance in China. It is one of the first members of the green finance committee of the China Society for Finance and Banking as well as one of the earliest members of the Green Finance Standards Working Group under the China Finance Standardization Technical Committee.
CCX has also demonstrated strong commitment to adopting international standards and best practices in its services. It is an approved green bond verifier of the Climate Bond Initiative, a signatory of the United Nation’s Principles for Responsible Investment (UN PRI) and an observer of ICMA’s Green Bond Principles.
The agency stands out for its strong research and development capability. In 2016, it became the first Chinese green bond verification agency to release its methodologies, which are recognised by the Green Finance Committee of China Society for Finance and Banking and China’s Ministry of Environment Protection.
The methodologies were praised in the domestic finance sector for their clear structure and rigorous criteria.
Currently, its case studies, data and research reports on green bonds are widely used by financial institutions, regulators, regional governments and corporate bond issuers.
Backed by its research and development capability, CCX has also led domestic peers in verifying new and innovative green finance products such as green asset-backed notes, green panda bonds and green bonds issued by micro businesses and financial leasing companies.
Best green finance zone/region: Huzhou
Huzhou city was chosen by the central Chinese government in June 2017 as “a pilot green finance reform and innovation zone”. The city quickly took a top-down approach to accelerating the development of green finance, which has proved to very effective.
Shortly after Huzhou became a pilot green finance zone, the municipal government formulated a strategic plan for green finance development. Huzhou is ahead of other pilot green finance zones by virtue of its set of standards to evaluate green finance applicants, gauge risks and returns of green finance projects and review the performance of local banks in green finance provision.
In particular, the Huzhou city government office overseeing local financial institutions has developed its own information system that deploys big data analysis to discover projects in need of green funding; the office also gives out subsidies for green finance projects based on the system’s projection of potential social and environmental benefits.
To date, the Huzhou government has set up 52 investment funds with a total of Rmb30.4 billion ($4.4 billion) to finance green projects. It has also won the support of the local offices of China’s central bank and banking regulatory bodies.
Thanks to that work, Huzhou has achieved fast, high-quality growth in green finance. At the end of 2018, the total amount of outstanding green loans provided by local banks had risen 23.3% from a year earlier, yet the non-performing loan ratio of their green loans was kept at 0.04%.
Outstanding contribution to development of green finance in China: Wang Yao
Wang Yao, professor and director general of the International Institute of Green Finance (IIGF) at Beijing-based Central University of Finance and Economics (CUFE), has won international fame not only for her outstanding green finance research, but also for the prominent role she has played in promoting green finance development in China. Wang started research on green finance while working in the banking sector at the start of the millennium. There, she gained first-hand experience of how green finance worked in the real world and why it was urgently needed in China.
She joined the faculty of CUFE in 2006. She also did her post-doctorate at Bank of Beijing from 2008 to 2010. Wang has become a respected scholar in the area of green finance; while leading the green finance research institute at her university, she also serves as fellow at the University of Cambridge Institute for Sustainability Leadership (CISL), and as adviser to the Sustainable Finance Programme at the Smith School of Enterprise and the Environment at the University of Oxford.
She is the author of several publications on climate finance and green finance, such as ‘Carbon finance: Global vision and distribution in China’ and ‘Climate finance’. Led by Wang, IIGF has become a leading research institute for green finance in China. But her contribution to green finance in China goes beyond the academic world.
She has played a crucial role in advising government agencies and financial regulators in China on the drafting of green finance policies by serving as deputy secretary general of the green finance committee of the China Society for Finance and Banking, and as secretary general of the green securities committee of the Securities Association of China. She is also an opinion leader and a leading advocate for green finance development in the Chinese media and on public occasions such as business forums and industry conferences.
Outstanding green finance research in China: Industrial Bank's research on China's green bond market
There are many reasons why Industrial Bank beats the big state-owned banks to become the largest bank issuer of green bonds in China, but one contributing factor is its outstanding research capability.
Last year, the bank’s research team, known as Industrial Economic Research and Consulting, produced a series of reports on the domestic green bond market that are of immense value to the market’s participants and regulators alike. The research was clearly structured and succinctly presented in four documents. In the main report in the series, Industrial Bank’s green finance researchers surveyed the overall domestic green bond market to highlight new opportunities and challenges emerging on the market.
After briefly summarizing the new opportunities, such as fresh policy incentives for market participants and a policy arrangement to allow investors in mainland China to invest in Hong Kong’s bond market and vice versa, the report pinpoints the challenges facing the domestic green bond market, such as hidden costs in green bond issuance, incongruity between domestic and international standards and the lack of a large community of responsible investors.
What is even more valuable here is that the report offers specific proposals to address each of the main challenges. For example, it proposes that regional governments in China roll out more subsidies or offer tax incentives to lower overall costs for green bond issuers. It also urges financial regulators to encourage domestic banks, securities firms, insurance companies and fund management companies to sign up for the United Nation’s Principles for Responsible Investment (UN PRI) to cultivate more responsible institutional investors.
The main report was published in China Banking Industry, a highly influential monthly magazine sponsored by the China Banking and Insurance Regulatory Commission. In the other three reports which Industrial Bank published for its clients, the research team analyzed three segments of the domestic green bond market – the market for bonds issued by financial institutions, the market for asset-backed securities and the corporate bond market – to help clients navigate changing market conditions.
The research reports were co-authored by Qian Lihua, senior green finance researcher at Industrial Bank’s research unit, Lu Zhengwei, Industrial Bank’s chief economist, and Fang Qi, green finance researcher at Industrial Bank’s research unit.