At the end of April, Chinese environmentalist Yu Xiaogang sent the freshly published NGO report “Environmental record of Chinese banks” by express delivery to China’s major banks, including the Commercial Bank of China, the China Construction Bank and 12 other publicly listed finance giants.
Two days later, Yu, who is director of the Yunnan-based environmental NGO Green Watershed, received a notice of failed delivery: at Shenzhen Development Bank, there had been “no one to sign” for it.
The package Yu was trying to send was a report, jointly produced by Green Watershed and nine other domestic NGOs in China, about the state of green credit in China’s banking sector, which includes a ranking of the performance of China’s 14 listed banks. Yu Xiaogang was one of the report’s main authors and it is the second time this year that he has published a report on “green credit” in the banking sector. In short, green credit is when a bank restricts loans to projects that negatively impact the environment and boosts loans to environmentally friendly schemes.
In this year’s green credit rankings – the first of their kind in China – Shenzhen Development Bank came last, falling far behind other banks in several of the selection criteria, including disclosure of environmental information, existence of a dedicated environmental department, loans to high polluting and energy-consuming projects and adoption of national environmental protection standards.
Obviously, its poor ranking is an embarrassment for Shenzhen Development Bank. “This talk that the report was ‘rejected’ has no basis,” Bai Yun, the bank’s public relations manager, told Southern Weekend. “It is possible the address or the recipient name was written down wrong”. In fact, during the following month or more, Yu Xiaogang sent the report to the bank’s headquarters with three different recipient names – it went from the chairman of the board, to the secretary of the board and then to the bank director’s office. In all cases, it was rejected.
This “rejection” actually started a year ago. Over the past 12 months, during the process of gathering information on the bank’s environmental policy, Green Watershed constantly tried to contact Shenzhen Development Bank, sending questionnaires and a draft version of its report. But it received no feedback.
In order to gather information on the environmental policies of Chinese banks and their loans to high energy-consuming and high polluting industries, as well as green credit, the NGOs sent a survey to the 14 listed banks. Yet in the end, only China Merchants Bank, Industrial Bank and Shanghai Pudong Development Bank completed the questionnaire. The Bank of China and China CITIC Bank only provided part of the requested information, while the rest did not reply at all. “It is expected that the request from the NGOs would be ignored by the banks,” said Guo Peiyuan, co-founder of SynTao, a corporate social responsibility research organisation.
Even though in 2007 the People’s Bank of China announced its “Measures on Information Disclosure of Commercial Banks”, requiring commercial banks to disclose risk-related information, and in 2008 the Ministry of Environmental Protection urged listed companies to share environmental information with the public, “it is not a legal requirement for listed companies to disclose their environmental data” – as the representative of Shenzhen Development Bank told me.
Shenzhen Development Bank did not publicly disclose its environmental information in its 2009 annual report, merely reporting its green credit record as a “special topic” to the senior regulatory department.
In the absence of complete data from the survey questionnaires, Yu Xiaogang and other NGOs were left to base their report primarily on corporate social responsibility reports, annual reports and other related publications released by the banks.
Today, the progress of green credit in China’s banking sector is mixed – some banks are withdrawing credit from high-polluting and energy-consuming industries and increasing loans to “energy efficient and environmentally friendly” industries. From the data collected by the NGOs, 11 out of the 14 banks mentioned above appear to show notable growth in loans to greener projects, as well as an intention to disclose information.
But from 2008 to 2009, there was no marked increase in the withdrawal of support for high-polluting and energy consuming industries. For example, in 2008, China Construction Bank withdrew loans totalling 64.5 billion yuan (US$10 billion) from such industries; in 2009, the number was 76.7 billion yuan (US$11.9 billion). That year, only five out of 11 banks targeted provided data on their loans. The majority not only failed to disclose whether or not they had provided credit to environmentally risky projects, but also refused to reveal the total amount of loans made.
What also worries the NGOs who participated in this research is that overall credit to energy-intensive and polluting industries still appears to be increasing. Yu Xiaogang confirmed this point with the China Banking Regulatory Commission (CBRC). (Though, as most banks have not yet revealed specific information about their loans, there is a lack of concrete data.)
On this issue, a banking-sector analyst frankly said: “The culprit is 4 trillion yuan [US$621 billion] of investment.” At the end of 2008, the push to stimulate the economy through a massive investment programme allowed many banks to give the green light to energy intensive and polluting projects.
Guo Peiyuan said: “Although the rankings have seen some adjustment [since 2008], and the specific behaviours of each bank have changed a little, the development of green credit has actually made little progress in the last two years.”
Back in 2007, the State Environmental Protection Agency (now the Ministry of Environmental Protection), the People’s Bank of China and CBRC jointly published their “Opinions on Implementing Environmental Protection Policies and Rules and Preventing Credit Risk”. This is considered the starting point of China’s green credit policy. In the following few years, the CBRC and the People’s Bank of China released a string of guidance documents, in a bid to make loans to energy efficient and low-emissions industries an important factor in the rating of banking institutions. However, as Wang Canfa, professor of environmental law at China University of Political Science and Law, said: “These environmental and economic policies are not a complete legal protection system.”
One problem is that the voluntary nature of the green credit scheme creates problems when it comes to implementation. Take the disclosure of statistical data for the energy intensive and polluting industries as an example. Su Tingting from Industrial Bank’s sustainable finance office told Southern Weekend that China’s statistical standards as regards polluting industries are unclear and inconsistent and that this affects the comparability and accuracy of banking data.
More important, at present, state transparency requirements do not include a single standard for the banking sector on disclosure of data on loans to energy intensive and polluting industries. “Currently the environmental protection departments share corporate environmental information with every level of the financial sector. This is a one-way system of communication. The environmental protection departments provide the financial institutions with information regarding the environmental transgressions of corporations. But there is no requirement in turn for the banking sector to provide environmental protection departments with information on corporate loans,” explained Ma Jun, director of the Institute of Public & Environmental Affairs.
“The direct result of this is that, when there is a major environmental pollution incident, nobody in the Ministry of Environmental Protection knows which financial institution backed the company involved, and therefore who should be beaten with the responsibility stick,” added Guo Peiyuan.
“When people attack a mining company that pollutes a river, they tend not to think of the creditors or shareholders hiding in the shadows. But it is precisely these investors who provide the mining company’s illegal activities with financial support,” Guo Peiyuan continued. “The issue of hidden investment behind pollution incidents is an issue of environmental ethics that has a profound influence on our society and economy.”
For example, Zijin Mining’s toxic copper spill in July last year led to a 30 million yuan (US$4.7 million) fine for the company and the detention of its former vice president Chen Jiahong plus four other company executives. But so far, little attention has been given to the bank chiefs in the shadows of this incident. Financial institutions such as China Merchants Bank that gave key support to Zijin Mining have felt almost no impact from the event, or even condemnation from the public. And the 30 million yuan fine is unlikely to act as any sort of deterrent for Zijin Mining or the banks behind it.
“If so many fish had not died, we would never have known they were exceeding pollution standards,” said the head of a bank that used to finance Zijin Mining. “The state will not allow Zijin Mining to go bankrupt. A fine will not bring them down.”
“Currently, the banks believe that green credit means investing in green industries. According to the Equator Principles or the concept of international green investment, the test of green credit is whether, during the process of determining, evaluating and managing project finance, a bank has the capacity to respond to environmental and social risks,” said professor Wang Xiao of the finance institute at Hebei University of Economics.
This kind of lax system and shallow understanding of green credit has shrouded the overseas activities of Chinese banks in controversy. In May 2010, the US$420 million (2.7 billion yuan) financing of the Gibe III dam in Ethiopia by the Commercial Bank of China elicited a strong response from the international community. According to Yu Xiaogang, when other banks withdrew from the project on account of the environmental risks, international NGO International Rivers sent an open letter to the Commercial Bank of China, but has not yet received a response.
Paul Clements-Hunt is head of the United Nations Environment Program Finance Initiative. He explained that overseas investment is always subject to rigorous examination at local level, including assessment of its environmental and social impact. “This is the inevitable result of international capital flows,” he said. As the overseas investment of Chinese banks grows, the environmental risks and controversies they encounter will also increase.
The Commercial Bank of China, China Construction Bank, Bank of China and the Bank of Communications have provided billions of dollars in financing to China National Petroleum Corporation (CNPC), Sinopec and the China Investment Corporation for their Canadian oil sands mining project. Not only has the project attracted pressure from international environmental organisations, at the same time, the Canadian government is rectifying or putting a stop to the controversial oil sands project.
“If ensuring the right to enjoy natural resources is a priority concern for the Chinese government, then protecting its international reputation is also extremely important,” said Michelle Chan-Fisher, US manager of Friends of the Earth’s green investments project. “While Chinese banking institutions may disdain the appeals from the international community, in the end they will realise that adopting a lending policy that takes into account world class protection of the natural and social environment is in their best interests.”
Yuan Ying is a reporter at Southern Weekend and winner of the “biggest impact” category at the 2011 China Environment Press Awards, run by chinadialogue and The Guardian.
This article was first published in Southern Weekend.
Homepage image by Stuck in Customs shows the central business/finance district in Beijing.