Raising standards in project finance

With climate change rising up the global agenda, more and more organisations have established frameworks to encourage businesses to follow sustainable practices. Launched under the auspices of the International Finance Corporation, a company of the World Bank group involved in development projects worldwide, the Equator Principles were among the first to outline responsible risk-taking criteria with respect to society and the environment for project finance. Currently, over 120 Equator Principles Financial Institutions (EPFIs) in nearly 40 countries have adopted the principles, pledging not to provide financing to projects which violate the voluntary code. Greenhouse gas emissions reports and annual disclosure are required by participating financial institutions. 

In 2008, Industrial Bank Co., Ltd was the first bank in China to sign up, well ahead of its compatriots and one of only six Chinese banks adhering to the principles as of September 2021. Even before the bank signed up, in 2006 it collaborated with the IFC to launch the first energy efficient project financing product in China. Since then, the bank's green financing business has grown. By the end of 2020, Industrial Bank Co., Ltd had funded over 600 projects under the EP framework. Besides this, by April 2021 the bank had supported a total of more than 30,000 green finance projects since 2006 in sectors such as clean energy, energy conservation and waste management.

Commitment to the cause

Interestingly, Shanghai Stock Exchange-listed Industrial Bank Co., Ltd made its early pledge to adhere to the Equator Principles despite knowing that the move would come with costs. Increased scrutiny of deals to ensure they matched the benchmarks could compromise its ability to compete for domestic business while increasing complexity in its operations and occasionally creating conflict with local standards. However, the bank felt that the longer-term rewards in terms of brand image, customer quality and, most importantly, a meaningful reduction in the environmental and social risk of funded projects—in turn reducing the bank's own financial risk—were worth these costs. 

The bank has further cemented its commitment to the Equator Principles, along with the UN's Sustainable Development Goals, by ensuring that responsibility for green strategy sits at the highest levels of the board and management. To facilitate dissemination across the business, the bank has enshrined the Equator Principles in documentation to guide internal processes, with training also a critical factor to ensure staff adhere to and understand the guidelines—as well as the benefits they bring of enhanced risk management and better-quality growth.

Far reaching effects

The impact of this focus on sustainable development has reached well beyond the bank's own business. By championing stringent standards, Industrial Bank Co., Ltd has prompted clients to look more carefully at the environmental risks in their investments, enhancing a broader awareness of the impact of commercial activity and promoting more sustainable behaviour. This has not only been an organic process through its funding decisions. The bank has proactively held seminars to educate clients in the advantages of following Equator Principles and pursuing a more sustainable form of growth.

Early entrance into green finance has positioned the bank uniquely well to embrace China's goals of peak carbon by 2030 and neutrality by 2060—commitments voiced in 2020 that will stimulate huge growth in the sector. It has already made a significant contribution to those goals. Industrial Bank Co., Ltd's financing activities to the end of April 2021 had underpinned effective saving of more than 30m tonnes of coal as well as substantial reductions in emissions from carbon dioxide, sulphur dioxide and nitrogen oxides. 

Green growth

Industrial Bank Co., Ltd has ambitions to achieve more, through focusing on projects in areas such as combating air pollution, waste management, and green energy and transport. As a pioneer in the carbon finance sector, with products such as carbon credits, carbon asset pledge loans and pollution rights mortgage loans, it has enabled companies to access liquidity based on prudent emissions management. With financial institutions well placed to direct capital responsibly, as China's industries work to achieve carbon neutrality, the bank offers a roadmap for others to follow.