h d lChina’s Green Credit Policy: Building Sustainability in the Financial Sector

For Asian Development Bank EventpManila, April 19, 2012

The views in this presentation are the views of the author and do not necessarily reflect the views or policies of the AsianDevelopment Bank (ADB) or its Board of Governors or the government they represent ADB does not guarantee the

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Development Bank (ADB), or its Board of Governors, or the government they represent. ADB does not guarantee theaccuracy of the data included in this presentation and accepts no responsibility for any consequence of their use.Terminology used may not necessarily be consistent with ADB official terms.

Outline

• China Green Credit Policy

• IFC Partnership with Chinese Government on Green Credit Policy

• IFC Support for Financial Institutions in Asia: Strategy in Next 5 years

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The Green Credit Policy - the Domestic ContextP tt f id i th h t i d b• Pattern of rapid economic growth characterized by: High consumption of energy and natural resources Environmental pollution & biodiversity loss

Gro ing social tension and ineq alit Growing social tension and inequality

• Recognition that administrative measures don’t work that effectively

• Turning to the power of the market: Environmental economic policies Environmental Tax Ecological Compensation Mechanism Green Trade Policy Green Government Procurement Green Insurance Green Securities

Green Credit Policy

China’s Green Credit Policy

• Context: Banks provide 80-90% of funding to Chinese enterprises

• Dual Purposes: Direct credits away from highly polluting and high energy consuming Direct credits away from highly polluting and high energy-consuming

enterprises and projects Direct credits toward energy conservation and emission reduction at

preferential terms

• Launched in July 2007 by three agencies: Ministry of Environmental Protection (MEP) China Banking Regulatory Commission (CBRC) People’s Bank of China (PBOC)

• New feature: Inter-agency collaboration with clear implementation responsibilities Based on lessons learned from the 1995 policy experience

IFC Partnership with Chinese Government on Green Credit

• Formal Collaboration Framework established with MEP and CBRC

• Policy dialogue and implementation guidance MEP/IFC Green Credit Handbook on sector guidelines CBRC/IFC Green Credit Guidelines (implementation and M&E)( p )

• Awareness raising and capacity building

• Multi-stakeholder engagement• Access to Equator Principles network

• Partnership with international community

• Encourage south-south collaboration

IFC SUSTAINABILITY FRAMEWORK

IFC PERFORMANCE STANDARDS

PS1: Assessment and PS2: Labor and Working PS3: Resource Efficiency and PS4: Community Health, Management of E&S Risks and Impacts

PS2: Labor and Working Conditions

PS3: Resource Efficiency and Pollution Prevention

y ,Safety and Security

PS5: Land Acquisition and Involuntary Resettlement

PS6: Biodiversity Conservation and Sustainable Management

f Li i N t l R

PS7: Indigenous Peoples PS8: Cultural Heritage

of Living Natural Resources

Equator Principles Overview

• First announced in June 2003 with ten banks

•Based on IFC’s Performance Standards and Environmental, Health d S f G id liand Safety Guidelines

•Voluntary set of principles for financial industry to manage Environment & Social risks in project finance in non-OECD countries p j

•Apply to project financing with total project cost of $10 million or more

T d 74 E t Fi i l I tit ti ith 18 f OECD •Today 74 Equator Financial Institutions with 18 from non-OECD countries – One EPFI from China

•“We will not provide loans to projects where the borrower will not or unable to comply with our respective social and environmental policies and procedures that implement the Equator Principles.”

Green Credit Policy - Progress To Date

• Enhanced accessibility of environmental compliance data

• Active participation of provincial and local governments

• Active participation of the financial sector

• Partnership with the international community

Green Credit Policy - Progress To Date

• Leading banks build E&S risk management systems • The first Chinese EPFI; several others to follow

• ICBC runs a 12 category environmental and social risks systemICBC runs a 12 category environmental and social risks system

• Reduced credits to projects and enterprises cause pollution and high energy consumptionhigh energy consumption

• Increased credits to “green” projects and enterprisesg p j p

• South-South knowledge sharing on Green Credit Policy: Vi t Ni i Th il d I d i t Vietnam, Nigeria, Thailand, Indonesia, etc.

Green Credit Policy – Latest Development y p

• CBRC launched the Green Credit

Guidelines on Feb 24, 2012.

• IFC acted as the key advisor to CBRC • IFC acted as the key advisor to CBRC

in developing the Guidelines

• The Guidelines are benchmarked

against International standards

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Green Credit Guidelines – Key Characteristics

• Request banks build Green Credit Strategy in three-pillar approach:• stringent E&S risk management

increased investment in Green Credit projects• increased investment in Green Credit projects

• improved banks’ own E&S footprint in operation

• Scope: apply to all types of commercial bank lending

• Specific guidance on • defined roles and responsibilities at the Board and top management level

• how to integrate E&S considerations into entire lending circle

• robust Monitoring and Evaluation mechanism

• Specific requirement on banks' disclosure of E&S performances

• Require banks to adopt international standards in overseas • Require banks to adopt international standards in overseas financing

Green Credit Policy – Next Steps

• Support CBRC to develop Key Performance Indicators (KPIs) for the Green Credit Guidelines

• Support MEP to develop sector-specific guidelines for high-risk sectors

• Capacity Building for banks, help more banks adopt Equator Principles

• Further facilitate south-south partnership and knowledge sharing Policy dialogue Policy dialogue

Knowledge events including upcoming International Green Credit Forum in May in Beijing

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IFC Support for Financial Institutions: Strategy in Next 5 years

FI regulatory environment

Policy or regulatory push to promote

responsible lending/investmentiv

ers

Strengthening the market and regulatory drivers

FI Industry Associations

lending/investment

Awareness raising and promotionM

arke

t D

r

1

g y

Consultants

Associations and promotionMac

ity2

Training P t

Consultants Direct technical support for FIs in

training and consultancy

services

arke

t Ca

paStrengthening the market capacity

PartnersMa

ua

l FI

city

3

Pilots with FIs

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FI FI FIFI

Indi

vidu

Capa

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Contact Information

• Ms. Rong Zhang

Program Manager, Environment and Social Risk Management for Financial Insitutions

East Asia & Pacific, IFC

• Email: rzhang@ifc.org

• Telephone: (Beijing) 86- 10 – 58603276

THANK YOU!THANK YOU!