The Chinese Green Credit Guidelines Go back »
2012-05-04 | Nanjing
Last February, China Banking Regulatory Commission (the "CBRC") issued theGreen Credit Guidelines (the "Guidelines"), to implement the macro adjustment policies provided for in the Integrated Working Plan of the State Council for Energy Conservation and Emission Reduction during the 12th Five-year Period and the Comments of the State Council on Strengthening Environmental Protection Priorities, to encourage banking financial institutions to, by focusing on green credit, actively adjust credit structure, effectively fend off environmental and social risks, better serve the real economy, and boost the transformation of economic growth mode and adjustment of economic structure.
The environmental and social risks is defined by the Guidelines as the hazards and risks on the environment and society that may be brought about by the construction, production and operating activities of banking institutions’ clients and key affiliated parties thereof, including environmental and social issues related to energy consumption, pollution, land, health, safety, resettlement of people, ecological protection, climate change, etc. (art. 4 of the Guidelines).
The Guidelines apply to domestic policy banks, commercial banks, rural cooperation banks and rural credit cooperatives. In addition, village banks, loan companies, rural funding cooperatives and non-banking financial institutions shall also adopt the Guidelines to the extent applicable.
China’s banking regulator said “green credit” is the banking sector implementation of national energy-saving emission reduction strategies, major initiatives to promote energy-saving emission reduction and environmental protection. Under the guidelines, the banks will invest more in the green economy, low carbon economy, support of recycling economy, controlling the backward production capacity credit, protection against environmental and social risks.
China’s “Twelve-Five” program put forward the energy-saving emission reduction as a constraint to national economic and social development indicators.
The Guidelines introduced some specific requirements.
Regarding the organization and management, the Guidelines require the board of directors or the supervisory board of the banking institutions to build and promote green credit concepts concerning energy saving, environmental protection and sustainable development, be committed to giving play to the functions of facilitating holistic, coordinated and sustainable economic and social development, and establish a sustainable development model that will benefit the society at the same time (art. 6).
The senior management of a banking institution is responsible to, pursuant to the resolutions of the board of directors or supervisory board, develop the green credit objectives, have in place relevant mechanisms and processes, define clearly the roles and responsibilities, conduct internal checks and appraisal, annually provide report to the board of directors or supervisory board on the development of green credit, and timely submit relevant reports to competent supervisory authorities (art. 8).
Regarding policy, system and capacity building, the Guidelines prescribes banking institutions to establish and constantly improve the policies, systems and processes for environmental and social risk management and identify the directions and priority areas for green credit support (art. 10).
As for industries falling within the national "restricted" category and industries associated with major environmental and social risks, banking institutions shall customize credit granting guidelines, adopt differentiated and dynamic credit granting policies, and implement the risk exposure management system.
They shall also develop client environmental and social risk assessment criteria, dynamically assess and classify client environmental and social risks, and consider the results as important basis for credit rating, access, management and exit; adopt differentiated risks management measures concerning loan investigation, review and inspection, loan pricing, and economic capital allocation (art. 11).
In addition to that, banking institutions are prescribed to prepare a list of clients currently faced with major environmental and social risks, and require these clients to take risk mitigation actions, including developing and having in place major risk response plans, establishing sufficient, effective stakeholder communication mechanisms, and finding a third party to share such risks.
As for the internal controls and information disclosure, banking institutions are required to conduct internal audit on green credit regularly and fully disclose its green credit development progress (artt. 22-24)
Finally, regarding monitoring and examination, banking institutions shall, at least once in two years, conduct full scope evaluation on green credit, and submit its self-evaluation report to the CBRC (art. 26).
The CBRC will conduct off-site and on-site inspection, and take the result as an important factor of rating, granting institution and business licenses and evaluating the performance of senior officers of Banks.
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