OREANDA-NEWS. November 28, 2012. Among all listed joint-stock commercial banks, Industrial Bank (IB) is the only one based in a second-tier city. The bank comes to the fore suddenly as a new force thanks to its operation concept of developing distinctive businesses through differentiated competition, for instance, its loans which accounting for 38.05% of its total assets by the end of June, advantageous capital business and retail banking business developing at a high rate, reported the press-centre of IB. 

IB is also the first Equator bank in China. In 2006, the bank began to release energy-efficient financing product, exerting itself to develop and practice green finance. While performing its social responsibilities, IB has also improved its own commercial value, “obtaining reasonable profits while bringing benefits to the stakeholders on a green-to-gold road”.

From launching the first energy-efficient financing program, carbon finance, and low-carbon theme credit card, to taking the lead in promising to follow the Equator Principles and to setting up a specialized institution, IB has promoted green finance in a course of over six years. In the “Reputation Ranking of Listed Chinese Companies” released by National Business Daily in the last year, IB won the prize of “Best Listed Company for Contribution in Social Responsibility”.

Now, IB secures itself in the “first echelon of domestic commercial banks” in terms of green finance, covering such aspects as market concept, social influence, product development, technical regulations, service fields and organizational guarantee, building a “green-to-gold” sustainable finance road through exploration. Before the appraisal of “2012 Reputation Ranking of Listed Chinese Companies”, National Business Daily interviewed with IB again.

Social benefits containing broad market
In May 2006, IB partnered with International Finance Corporation (IFC) to design the energy conservation and emission reduction financing program and released the innovative energy-efficient financing product initiating the green finance service in China.

In retrospect, Li Renjie said: “When launching cooperation with IFC regarding energy-efficient financing projects in 2005, we only had a hazy understanding generally, more based on the intuition to the market and consideration of performing corporate social responsibilities.

Then, with the vigorous growth of relevant businesses, we have understood the business in greater depth.”

Why did IB engaged in green finance? The energy-efficient financing product was initially released, President Li Renjie of IB indicated, against the backdrop that the world addressing climate changes and China pushes forward the course of energy conservation and emission reduction, to integrate the performance of social responsibilities into the provision of products and services

Apart from the “righteousness” (social and environmental responsibility), which seem insubstantial, “profits” (broad market and considerable commercial interests) are also an important reason that IB thinks highly of green finance.

In a previous interview with National Business Daily, President Li said:“The water quality in 40% rivers in China fails to reach the given standard and most cities are confronted with the problem of water shortage, so there are great market for the treatment and recycling of sewage, desalination of sea water in coastal cities as well as carbon trade.”

Therefore, the bank put forward the way to perform corporate social responsibilities through “obtaining reasonable profits while bringing benefits to the stakeholders”, exploring innovation in the business model to perform its social responsibilities with a view to achieving the harmonious development of commercial interests and social and environmental benefits.

In the opinion of President Li, commercial banks are the main player for the distribution of domestic financial resources. To develop green finance business vigorously is not only the unavoidable requirement for performing the corporate social responsibilities, but also favorable to improve the commercial values of banks and push forward their transformation and reform.

Li has said to the reporter of National Business Daily:“During the “12th Five-year Planning” period, the state will need to invest RMB 6-7 trillion in energy conservation, emission reduction, and renewable energy. If government gives support, green finance is an enormous market for commercial banks.”

“Stopping running 70,000 taxis for 124 years”
With the concept being established, the internal system construction caught up: In collaboration with International Finance Corporation, IB began to get involved in the field of energy-efficient financing formally in 2005, and it released the first innovative green credit product–energy conservation and emission reduction loan–at home in 2006.

In July 2007, the bank set up a work leading group for social responsibilities headed by Board Chairman Gao Jianping. It is a sign, Li believed, that the sustainable development of green finance has become an important part of IB's development strategy and that the bank has made a major reform in its business concept.

In 2008, IB committed to adopt the Equator Principles to the public, becoming the first “Equator bank” and the only one in China up to now, and it further extended its green credit business into green finance business. In 2009, it established the Sustainable Finance Center in Beijing, the first institution specialized in sustainable finance in China, entering a more specialized stage in developing and exploring green finance business. In 2010, it released the first low-carbon credit card in China, thus extending the green finance business from corporate customers to personal customers. In 2012, it established the Sustainable Finance Department, a Class I department of the Head Office.

Since the first energy-efficient financing project was implemented in 2006, IB has built up a group of green finance customers preliminarily with a variety of financial tools by the end of the first quarter of 2012. With the total amount reaching RMB 129.008 billion, the financing balance reached RMB 84.731 billion, of which the credit balance hit RMB 65.037 billion and the non-credit financing balance amounted to RMB 19.694 billion, growing at a rate of 200% on average each year.

At the Green Credit Forum of Emerging Market sponsored by China Banking Regulatory Commission (CBRC) held on May 16, Li indicated in his speech: “the emission reduced in these years is equivalent to shutting off 412 thermal power plants of 100 MW or stopping running 70,000 taxis in Beijing for 124 years.”

The development of green finance service has also pushed forward the evolvement of emerging businesses including underwriting and issuance of bonds, structured financing, financial lease, and trust, etc. In recent years, the non-loan financing has accounted for a big proportion in the green financing handled by IB. For instance, various green financing projects handled by the bank have totaled RMB 87.1 billion since 2011, with the non-loan financing accounting for 30%.
Proposal: differentiated regulatory and incentive policies

In 2011, IB implemented the first project following the Equator Principles voluntarily – the Integrated Utilization Project of Xilan Liquefied Natural Gas (LNG) Co., Ltd. in Jingbian County. Following the Equator Principles voluntarily indicates the change that Chinese enterprises seek to control risks with the Equator Principles rather than by following the principles in a passive way. In the future, how to make more banks and enterprises to follow the Equator Principles on their own initiatives?

Now, the CBRC has issued the Guidelines of Green Credit, putting forward relevant requirements for the banking sector to develop green finance. Nonetheless, IB believes that it is a systemic project to develop green finance. In addition to efforts made by commercial banks in system construction and personnel allocation, the government should construct a good policy environment to encourage banks and other finance institutions to develop green finance.

Therefore, in terms of policy, IB suggests enacting differentiated regulatory and incentives policies over the green finance business of banks. For instance, the green finance loan can be listed separated and green finance projects can be excluded from the restriction of current credit scale; banks can be encouraged to issue financial bonds exclusively for green finance business so as to enhance the enthusiasm of banks to invest their resources in the field of green finance.

It suggests releasing the rules for the certification of green finance projects to provide guidance for commercial banks to get involved in green finance projects. For example, some of loans to energy conservation and emission reduction projects extended by banks are distributed among enterprises with the potential to save energy, reduce emission and lower consumption in the industries featuring “heavy pollution, high energy consumption and resource dependence”. After they receive the loans for their key energy conservation and emission reduction projects encouraged by the state such as utilization of excess heat and pressure, improvement of energy system and transformation of boiler and kiln, the loans are usually counted as loans for the industries featuring “heavy pollution, high energy consumption and resource dependence”, facing the admittance restrictions. In order to change this situation, government should enact the rules for the certification of green finance projects to unify the statistical standard for green credit and encourage banks to list these loans separately and carry out classified assessment.

Meanwhile, IB suggests giving financial and tax-related support, reducing the business tax rate of commercial banks in handling green finance business and relevant income tax rates, allowing pre-tax deduction of the provision for green finance loans, and discounting for the loans extended by banks to green finance projects.

Additionally, the bank also suggests that the local government establish green development fund or guarantee company and cooperate with banks and provide support for them to carry out energy conservation and emission reduction projects targeting SMEs.