Industrial Bank: First-mover advantage
The first Chinese bank to sign the Equator Principles, Industrial Bank has led the development of the green financing market.
Markets develop best when they attract a diverse range of actors, all joining the fray for their own, distinct reasons. This is certainly true in China’s green financing market. Some banks have attempted to develop green financing because they are following their clients, others because their sheer size demands they participate in almost every deal. Some are committed to green finance only because it is now clear that the government is committed, which in China means everything.
But a few were committed to green finance before it became the flavour of the moment. They saw an opportunity to develop a reputation and a business model that few rivals were trying to emulate. Industrial Bank is one such institution. In 2008, it became the first Chinese bank to sign the Equator Principles, a set of green standards for global lenders. It has led the development of the domestic market ever since.
The bank’s commitment to green finance – and the head start it had over its competition – means Industrial Bank has been able to embed the asset class everywhere from the boardroom to the branch.
“Green finance is a way for us to differentiate ourselves from other financial institutions,” says Luo Shiyi, general manager of Industrial Bank’s green finance department. “We have a green finance department at the top level but we also have green finance teams in every major branch. We’re making a coordinated attempt to make green finance a central part of our business at every level.”
Industrial Bank had Rmb844.9 billion ($118.2 billion) of green financing to its customers outstanding by the end of 2018, a 24% rise on the previous year. Those loans were extended to 12,143 customers. But it is not just a green lender. The bank has made green borrowing a crucial part of its funding strategy.
In 2008, it was the second-largest green bond issuer in the world, selling $9.6 billion of green debt, according to the Climate Bonds Initiative (CBI).
The bank’s commitment to green finance – and the head start it had over its competition – means Industrial Bank has been able to embed the asset class everywhere from the boardroom to the branch
It is clear that Chinese banks are leading the way among Asian financial institutions when it comes to green finance. China was the second-largest green bond market in the world in 2018, behind only the US, according to the CBI. But the market has not escaped criticism.
One of the most common criticisms of China’s green bond market is that the standards are lower than those elsewhere. In 2018, about 26% of onshore green bonds were below international standards, says the CBI. Luo acknowledges that there is still progress to be made but says Industrial Bank tries to balance the needs of the offshore and domestic markets.
“Most banks in China, including Industrial Bank, follow the definitions of ‘green’ which have been put in place by the regulators,” he says. “These standards are well maintained and receive updates periodically, based on policy guidance, research, and feedback from stakeholders.”
He says that when the bank goes to the offshore bond market, it always makes sure to align with international standards. It most recently tapped the offshore market in November 2018, when its Hong Kong subsidiary sold a dual-tranche dollar and euro bond.
When the People’s Bank of China, the Ministry of Finance and other government agencies published guidelines on developing green finance in China in 2016, it was clear that the country’s banks were soon going to be putting new emphasis on the market.
That has proved to be the case, but Luo still thinks Industrial Bank’s head start will prove a lasting advantage.
“The government is calling for Chinese banks to allocate more resources to green, so we know competition is going to increase,” he says. “We’re feeling some pressure from our rivals. But we will keep making the effort to do the best we are capable of in green finance, and still believe that we’ll be able to lead the way. We’ve got a long history with green finance – and we’re still developing our platform all the time.”