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Credit where it’s due (1)

Since groundbreaking green finance laws were launched in China three years ago, the country’s banks have made admirable efforts to clean up lending practices. But, says Adina Matisoff, transparency remains weak.

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Three years ago this July, the Chinese government introduced unprecedented financial regulations as a means to harness the power of China’s commercial banks to curb the country’s severe environmental degradation. The Green Credit Policy, created by the China Banking Regulatory Commission (CBRC), The People’s Bank of China and State Environmental Protection Administration (now the Ministry of Environmental Protection or MEP), was a bold idea to prohibit lending to dirty companies; and one that few governments internationally have had the power or will to pull off.

With this tool, Chinese banks have made strides in the development of their environmental policies and have started to see the green results of their implementation measures. And yet poor transparency of lending policies and practices at Chinese banks is holding the sector back from meeting the environmental-protection demands of government and society.

In 2008, I co-authored a report for Friends of the Earth and BankTrack, the international network of NGOs monitoring the operations of the private financial sector, examining the state of environmental policy and practice in China’s banking industry. We noted that the Green Credit Policy was “an entirely new way of addressing environmental degradation in China” that was “proving to be the most powerful factor spurring and influencing sustainable finance in China today”. 

Since that time, Chinese NGOs have taken up the issue of sustainable banking in China,
adjudicating the first-ever “Green Banking Innovation Award” as part of the Economic Observer magazine’s annual banking awards in 2008 and 2009. In March this year, Green Watershed and eight other groups collectively issued the first Chinese NGO benchmarks of the Chinese banking sector. Their Chinese Banking Sector Environmental Record (NGO Analysis)examines the environmental performance of 14 Chinese banks listed on Chinese stock markets in 2008 (complete 2009 data is still unavailable).

Yu Xiaogang, the report’s lead author, explains that the study takes into consideration “national conditions” as well as the fact that the concept of sustainable banking is relatively novel in China. The report highlights the growth of green finance education within the banks, which, Yu notes, is key to creating a corporate culture of sustainability among lenders and clients. For example, Industrial Bank brought in a green finance trainer from WWF before adopting the Equator Principles (EPs), a voluntary standard for project finance modelled on the International Finance Corporation’s (IFC’s) environmental and social policies. And Industrial and Commercial Bank of China conducted research on the EPs in cooperation with the CBRC and MEP. However, many of the banks polled for the study did not disclose what, if any, learning activities they had carried out on green finance, making it difficult to tell how deeply awareness of the subject has penetrated staff and client networks. 

The report gives recognition to banks that have stepped up lending to energy-saving projects, such as a biomass power generation project in Shandong, east China, financed by Industrial Bank, and a waste heat generation project in Hunan, south China, which was backed by Bank of Beijing and named as one of the country’s top ten green credit projects by the 21st Century Business Herald. The NGOs also saw progress in the development of measures to cut lending to environmentally harmful projects. Some of the banks assessed had introduced procedures before and after loans are disbursed to better monitor or restrict lending to China’s dirtiest companies, such as those active in construction or chemical production. ICBC and a handful of other banks adopted the “one-ballot veto”, which is a catchy name for making environmental compliance a prerequisite for credit.

Unfortunately, the report found that these measures were not yet advanced enough to prevent lending to risky projects. China Merchants Bank, China Everbright Bank and others still lined up to finance the Xianglu Group in its plans to build a petrochemical plant in Xiamen that would produce 800,000 tonnes of highly carcinogenic chemicals each year within a stone's throw of residential areas. ICBC and several of its peers still lent to Huaneng Group and Huadian Corporation, both of which are involved in large, controversial hydropower projects on the middle reaches of the Jinsha River in northern Yunnan. Huaneng and Huadian were sanctioned by the MEP in June 2009 for severe violations of national environmental-protection standards, including constructing dams without MEP-approved environmental impact assessments. Without more information from these institutions on how they implement the “one-ballot veto” and other policies, we are left scratching our heads as to how Xianglu, Huaneng and Huadian slipped passed the banks’ checks.

But some banks are eager to point out that they have had success in reducing lending to energy-intensive and polluting projects and companies, and are demonstrating that with hard numbers. China Construction Bank, for example, exceeded its own expectations by cutting lending to companies in the cement, steel and other energy-intensive and polluting industries by 120% on the figure planned for 2008 and its year-on-year reductions far surpassed those of any of its peer banks in China. ICBC cut almost 50 billion yuan (US$7.4 billion) in loans to dirty industries in 2008, which was 70% better than the previous year. Again, however, disclosure was sparse. More than half the banks included in the study failed to provide any data to demonstrate their efforts to cut lending to dirty industries. And those that did supply the relevant figures seldom did so as a percentage of their total lending. 

This stark absence of data highlights the need for better disclosure of information on policies, bank-wide performance trends and projects. Yu Xiaogang notes that, “Information disclosure from China’s banking sector is a recent phenomenon, and the content of disclosed information is still very limited… key information may be hidden, especially the environmental and social impacts of specific projects of special concern to the public.” As Chinese citizens pay the price for projects such as the Xiamen petrochemical plant and Jinsha hydropower dam, society is demanding greater scrutiny of, and transparency around, corporate behaviour.

In comparison, the availability of environmental and social information is a decisive factor in the assessment of international banks. BankTrack’s “Close the Gap” benchmarking report of 50 leading global banks, released in April 2010, only rated publicly available bank policies in recognition of the importance of making open commitments and accepting societal supervision. Of the four Chinese banks included in that report – ICBC, Bank of China, China Construction Bank and Industrial Bank – only the last provided publicly available data on which it could be ranked.
As a result, the cumulative showing of Chinese banks was feeble amid the field of international competitors. Commenting on the results, Jora Wolterink, coordinator of the report said, “The overall quality of policies still leaves a lot to be desired. We hope this report encourages banks to continue this process, and to disclose more information on their policies.”

The Chinese banking sector has, however, shown its potential as a sustainability leader. In December 2009, Industrial Bank – the first bank to adopt the Equator Principles in China – disclosed information on its first Equator project in a manner no other Equator bank has ever done. The issuance of this public notice acknowledged that the lending decisions of Industrial Bank are important to society and that Industrial Bank is committed to promoting good environmental governance in this project.

Three years after the introduction of the Green Credit Policy, Chinese banks should be commended for their efforts to implement the national policy. These are their first steps towards the transformation of the country’s economic development model in the interests of a cleaner environment. Now it is up to these banks to take the next step towards meeting the environmental-protection goals of the government and the expectations of society by publicly disclosing information about their environmental commitments and lending practices.

 

NEXT: Turning China's attention abroad

Adina Matisoff is
the China sustainable finance analyst for Friends of the Earth in the United States. 

Homepage image by Track01 shows a protest against Xianglu Group’s petrochemical plant in Xiamen.

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Default avatar
匿名 | Anonymous

讨论

银行公布贷款记录对您来说是重要的吗?您认为这些数据值得信任吗?

中外对话团队

Discussion

Is it important to you that banks publish data on their lending practices? Do you think this data would be trustworthy?

From: chinadialogue team

Default avatar
匿名 | Anonymous

这些只是象征性的措施吗?

恐怕这篇文章给我的印象是,银行至今采取的大多数措施几乎都还是象征性的(比如出台条例,进行教育等)。最有可能产生重大意义的具体活动(暂时这么说吧),是中国建设银行对污染行业的贷款消减量。但是,考虑到时间框架,这些机会很大程度上取决于2008-2009年全球经济危机带来的绿色产业新承诺。很高兴看到关于真实贷款形式标杆管理的讨论。这是我们唯一的方式来评判,随着时间的变化,银行在行为上是否发生了显著的差异。

美国华盛顿特区

Are these steps just symbolic?

Reading this article, I'm afraid, gives me the impression that most of the steps taken so far are mostly symbolic (adoption of principles, education, etc.). The potentially most significant concrete actions (so to speak), are the Construction Bank's figures about lending to "dirty industries." But, given the time frame, there's a good possibility that those changes were due at least as much to the global economic crisis in 2008-2009 as to a new commitment to green industry. Good to see the talk about benchmarking real lending patterns. That's the only way we'll be able to tell whether there is a significant difference in behavior over time.

Washington, DC, USA.

Default avatar
匿名 | Anonymous

很棒的文章

Adina,祝贺你对不太关注的问题深入研究,写出了实用的文章。希望你每年都会有更新。
peggy liu
JUCCCE, 沙发

Excellent article

Adina, congrats on a helpful, well-researched article on something not well covered.
I hope you will give us an update in a year.

Peggy Liu
JUCCCE, Chairperson

Default avatar
匿名 | Anonymous

监管部门还需要对银行信息披露出更细的指引和规制

中国的商业银行能自愿披露信息的太少,很大程度上是因为客户和投资者的意识不到位,进而没有设定对这方面的要求或者要求设得不高。
推动银行业信息披露还得由监管方(政府)来领头。既然银行监管部门和环保监管部门已经实现企业环境违法信息共享,在要求银行业披露信息的规制(regulation)方面,政府显然还能大有作为。
本文有一个遗憾:没有说清楚“缺失的透明度”的根源是:在中国,银行贷款信息披露标准是缺失的。不容忽视的事实是,“绿色信贷政策”的确没有明确提出对银行贷款信息披露的要求。这导致各商业银行对“绿色信贷政策”在执行方面的反应都太初级或者太困惑。除非商业银行都自愿地、严格地采纳国际标准(如赤道原则),否则各家银行各执一辞,符合各种标准(有些还是部分银行自创的标准)的信息满天飞,公众和决策者也会不知所措的。

倪欢 

More Regulations Needed in Banking Information Transparency

There are too few Chinese commercial banks that voluntarily disclose information. This is because most clients and investors are not aware of the extent of the issue, and thus their requirements are either not set or not high enough.

The disclosure of information in banks needs to be led by regulators (the government). Since the banking and environmental regulators have already brought about sharing information on businesses that violate environmental law, the government is obviously capable of accomplishing more.

Regrettably, the article has failed to point out the fundamental reason for the "lack of information transparency": in China, information standards on bank loans are missing. The fact that cannot be ignored is that the "Green Credit Policy" has not mentioned any clear requirements on bank loans. This leads to confused or naive reactions from commercial banks in implementing the "Green Credit Policy." Unless all commercial banks are willing to voluntarily and strictly adopt the international standards (such as the Equator Principles), each bank will have a variety of things to say about policies and follow all kinds of standards (some even create their own standards), with information all over the place and it would be confusing for the public as well as the policy makers.

Ni Huan

(Translated by 荆华Hua Jing-Legrand)

Default avatar
匿名 | Anonymous

作者回应

感谢大家的评论。

作为对华盛顿特区所提出的问题的应答,“绿色流域”组织和其它NGO的作者们在《中国银行基准报告》表示,中国银行界需要做出更多努力来提高环境和社会标准。

但是从中国的银行在最近的金融危机中受到的影响情况,包括银行们绿色信贷努力受到种种冲击的状况来看,其与美国及欧洲银行所面临的状况截然不同。

这一时期内,中国政府鼓励银行增加贷款,并以此作为国家5860亿美元的经济刺激计划的一部分。结果所有的银行公布的数据都显示了他们在这一时期内对基础设施和其它部门贷款数额的大幅增加。虽然环保部声称对环境有害的项目仍将受到严厉的管制,但是没有银行提供证据来证明(例如,提供数据证明对污染行业发放的贷款比重下降等等)。

艾迪娜·马蒂索芙 (作者)

Translated by Fang Imogen Liu.

Reply

Thanks for the comments.

In answer to the question from Washington, DC, Green Watershed and the other NGO authors of the Chinese bank benchmarking report agree that a great deal more needs to be done to improve environmental and social standards at Chinese banks.

As far as how the recent global economic crisis affected Chinese banks and their efforts to green their lending, it was quite different from how it impacted US and European banks.

The Chinese government encouraged banks to increase lending during this time as part of the country's US$ 586 billion stimulus package. As a result, all the major banks reported substantial increases in lending for projects in the infrastructure and some other sectors. Although the Ministry of Environmental Protection made assurances that environmentally harmful projects would still be strictly regulated, few banks provided information to verify that (for example, by providing data about reductions in lending to dirty industries as a proportion of their total loans).

Adina Matisoff (author)