Shanghai’s Bund skyline with solar panels. © ArtisticPhoto/Shutterstock.com
China’s status as the world’s largest energy consumer means that it also has the world’s largest pollution problem—a challenge the country has been moving aggressively to address.
The 65-year-old Agricultural Bank of China (ABC)—the world’s third-largest bank by asset size—wanted to be part of the solution. Although ABC is a national powerhouse in finance, until recently it was the least advanced in terms of green finance among China’s four state-owned banks.
So it sought out IFC’s expertise. This year ABC signed an agreement under which IFC will advise the bank on developing an innovative program to build a green-finance portfolio of up to $23 billion. The program is expected to reduce greenhouse emissions by 50 million metric tons a year over the next three years—equivalent to taking more than 10 million cars off the road.
Under the program, IFC will initially work with ABC to develop a multi-million-dollar pool of high-quality loans for energy efficiency and renewable energy. IFC and ABC will then partner with the China Clean Development Mechanism Fund—the green-finance arm of China’s Finance Ministry—to securitize the loans, thereby expanding the secondary market for such loans. As ABC builds this robust green finance system, it will become a market leader in originating loans that underpin green asset-backed securities.
Such moves were possible because China has already established a leading role on the global climate stage. It was one of the first countries to issue green credit policy guidance. It requires its top 21 banks to report regularly on its green lending and impact on greenhouse emissions.
This year, China also became the world’s largest issuer of green bonds. China’s first guideline on green bonds, the Green Financial Bond Directive, issued late last year, underscored the idea that banks have a “central role” in solving China’s pollution problem.
IFC’s Climate Finance Advisory Program, launched in 2006 as the China Energy Efficiency finance program (CHUEE), continues to support China’s multitude of efforts toward sustainability.
In the last decade, the Climate Finance Advisory Program has worked with seven banks to deliver $2.3 billion in financing for energy-efficiency and renewable energy, which has helped avoid 22 million metric tons of greenhouse emissions a year. These banks have since brought green financing into the mainstream of their activities. Today they have a combined portfolio of more than $100 billion.
But the newest IFC-ABC collaboration does more than promise pollution reduction. It supports China’s efforts to rapidly scale up climate-smart business approaches. It also helps move green asset-backed securities to the next level of innovation in China—and it reinforces the nation’s political commitment to the global climate agenda.
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Published in August 2016