China may be one of the world’s largest sources of greenhouse gas emissions. But it has taken a landmark step toward finding a solution.
Its banking and environmental regulators’ Green Credit Policy encourages local banks to lend less to enterprises with high levels of pollution and energy consumption and more to those favoring energy efficiency and emissions reduction.
The policy is part of the government’s response to problems of pollution and unsustainable energy use that it saw potentially threatening the country’s economic and social development and global reputation. To flesh it out, the government and leading Chinese banks looked for internationally recognized good practices in environmental policies and implementation standards.
IFC has collaborated in the initiative since late 2007, helping regulators and banks devise and implement the policy by sharing experience with IFC’s Performance Standards, guidelines that define IFC clients’ roles and responsibilities for managing projects and their requirements for receiving and retaining our support. IFC also advised on the Equator Principles, a set of principles for social and environmental risk management in project finance that more than 70 financial institutions have adopted worldwide and that are based on IFC’s Performance Standards.
China Banking Association’s data show that in 2009 all major Chinese banks reduced their credit for high energy consumption and pollution industries while increasing investments related to energy efficiency and emissions reductions. Around 2,300 companies from high energy consumption and polluting industries were turned down, a more than 50 percent increase from 2008. Green credit loans worth 856 billion Chinese renminbi were extended, accounting for around 9 percent of total bank lending in China for the year.
One of the most actively engaged bank is IFC’s client Industrial Bank, which in October 2008 became the first Chinese bank to adopt the Equator Principles and was recognized by the Financial Times with a regional Sustainable Banking Award. Another IFC client, Bank of Beijing, is moving in the same direction. The successful model of China-IFC cooperation is also being expanded within the region as IFC enters into similar partnerships with Vietnam and Bangladesh, facilitating South-to-South cooperation to build on China’s expertise and experience.