Thursday, 28 September 2023

CCB's Tian: "We issued $180 billion green loan, grown 11.5% in past year"

5 min read

China Construction Bank has identified green and sustainable finance as a foundation of its long-term development. Its chairman and executive director, Tian Guoli, outlines the bank’s strategies, initiatives and achievements in this important pillar of growth and proposes the important changes that have to be made to embed the concept in all aspects of the financial services industry

State-owned financial enterprises are the engines of economic development and the bedrocks of social harmony in China. As a big state-owned and global systemically important bank, China Construction Bank (CCB) has been for years actively undertaking the social responsibility for environmental, social and governance (ESG) development. It boldly shoulders this responsibility, takes initiative and actively innovates in the field of green and sustainable finance, and thus has achieved positive results.

Reinforcing the top-level design of green finance

CCB has widely promoted the concept of green finance, profoundly pressed forward with a development strategy, designed an institutional framework for its development and established a sound brand image in this regard. In 2015, CCB set up the Green Credit Committee in support the development of green credit business. In 2016, it formulated the Green Credit Development Strategy and the Guiding Opinions on the Development of Green Credit Business.

In 2018, it convened a work conference on promotion of green credit, and made adjustments to set up the Green Finance Committee. In 2019, a green finance work forum was held, where the task of fostering new advantages in green finance was put forth for the first time. The same year, it officially signed the Green Investment Principles for the Belt and Road, indicating the strategic position of green finance has been greatly raised.

The bank continuously refines its policy for green finance. In terms of resource inputs, it included green credit into special strategic allocations of economic capital and loans and granted favourable support to economic capital utilisation of newly extended green loan projects. It effectively expanded the scale of green credit. The bank refined green finance assessment system for its branches, included green credit into the comprehensive operation plan and key performance indicator (KPI) appraisal, and increased incentives. In terms of customer selection, customer ESG risk has been included into the credit business process, and the capability of differentiating and selecting customers has been enhanced.

As at the end of 2019, CCB recorded a balance of RMB 1.18 trillion ($179.4 billion) in green loans, representing a growth of RMB 135.5 billion ($20.6 billion) over the beginning of the year; the balance of non-performing green loans was RMB 10.3 billion ($1.56 billion), with a nonperforming loan (NPL) ratio of 0.88%, 1.55 percentage points lower than the average NPL ratio of the bank. Green credit has become an important means to improving asset quality. In 2019, green credit projects supported by the whole bank saved 31.97 million tons of standard coals, a year-on-year increase of 1.85 million tons; carbon dioxide emission reduced by 72.33 million tons, representing an increase of 3.07 million tons over the previous year. The bank’s green credit business has provided a strong boost to green economic and social transformation.

Innovating green finance development models

By tapping into its advantages in financial technology (fintech), CCB used modern information technology to explore new measures and models of green finance development. For instance, its head office built the “Zhi Hui (smart) ecology” green finance service platform for the efficient matching of projects in emerging fields such as energy-saving construction and targeted alignment of demands of banks, governments and enterprises. Targeted at “green travel”, Guangdong branch launched “Green e-Xiao Tong”, financing for green charging stations and guarantee for green financial lease, etc.. To address the difficulties in water conservation in Northwest China which has a dry climate, its Xinjiang branch set up the “cloud platform for industrial supply chain for agriculture” in an attempt to explore ecologically friendly development paths.

Seizing opportunities brought by the trend of “environmental rights becoming real rights”, the Zhejiang branch introduced the “Emission Rights Loan” with a view to spurring transformation and upgrading of traditional industries. Guizhou branch supported the building of multi-energy distribution centres and the exploration of intelligent allocation of clean energy with financial instruments such as green asset-backed securities.

Improving green finance services

Making the most of its full financial service licence, CCB combined banking services, as the core, with various financial services, including securities, fund, trust, leasing and insurance to foster investment and financing solutions, and develop a multi-level mix of green financial products. Historic breakthroughs have been made in the issuance of green financial bonds, green credit asset-backed securities and other similar products.

In 2019, CCB issued EUR 500 million ($598.18 million) of green bonds and $1 billion of sustainable development bonds overseas, both for the purpose of managing global climate change. It underwrote the first panda bond for green construction on the interbank market; issued green credit asset-backed securities worth RMB 4.4 billion ($668.9 million). It was the first of its kind to introduce the “Bond Connect” mechanism; and set up a national green development fund as the founding shareholder. The subsidiaries of CCB also actively created innovative customised green products. CCB Financial Leasing. boosted new energy auto leasing through the “chained leasing” model, with 26% of green leasing assets.

CCB Wealth Management allocated RMB13.6 billion ($2.06 billion) for 120 green bonds since 2020; CCB Trust actively made equity investments in green projects and has been engaged in green asset-backed securities worth RMB 1.33 billion ($202.21 million).

Reinforcing the bottom line of green finance risks

CCB has actively studied ESG risk stress testing technologies and methods, and maintained systematic, proactive and intelligent control of ESG risk through early prediction, planning and mitigation measures.

First, systematic ESG risk control was deepened. CCB integrated external environmental monitoring information and data on its own asset portfolio. It kept a close eye on regions and industries with severe pollution and prominent issues of violation of environmental laws and regulations, and accurately identified “black swans” of environmental issues.

Second, proactive ESG risk control was optimised. The bank actively applied new results of environmental information technologies, stepped up the identification of environmentally sensitive regions and industries, took initiative to adjust the credit structure and strictly implemented a veto system on credit projects falling short of environmental requirements.

Third, intelligent ESG risk control was strengthened. The bank made full use of big data tools to identify hidden hazards through the risk alert platform. It feeds risk information to specific targets, and applied a tiered warning and management system. By making early identification and alert of such risks, CCB is able to optimise its risk threshold.

CCB will take green finance as an important orientation of business development and speed up the building of new advantages in this area. First, medium- and long-term plans on green finance development will be formulated to define priorities, quantify targets and tasks, and enhance its strategic position. Second, ecological scenarios of green finance will be built. The bank will step up innovation efforts in regions with a high concentration of green industrial clusters, a sophisticated market mechanism for environmental rights and undertake the arduous tasks of pollution control, and focus on pilot programmes in Huzhou, Zhejiang province; Huadu, Guangdong province; and Wanzhou, Chongqing.

Third, comprehensive services will be provided. In addition to making traditional green credit business bigger and stronger, the bank will tap into its advantages in comprehensive, diversified and group-oriented operations to enrich content and practice. Fourth, digital operation capability will be enhanced. It will keep close track of developments of green industrial supply chain and new green technologies, lock in green customers with growth potential, and drive the development of green sectors with respect to new infrastructure, new urbanisation initiatives and major projects.

History has proven time and again that in the face of disasters and pandemics, only reformers advance, innovators get stronger and those that reform and innovate will prevail. CCB will boldly take on its social responsibility as a large state-owned bank, accumulate and gather strength, strategise its moves, identify opportunities for change, seek to respond to changes. Through seizing new opportunities for developing green finance, the bank will actively explore innovative new modes of green finance development, vigorously support green economic and social development.

Deeply embedding the concept of ESG investing

ESG is an investment principle and enterprise assessment criteria where environmental, social and governance factors are included into investment assessment and decision-making process. At present, ESG is widely promoted and applied across the globe, and has become an important component of the green finance system. But the concept is still in its infancy in China.

Accelerating the awareness and knowledge of ESG investing is of great importance to enhancing the quality and efficiency of listed companies, China’s integration into the world economy and realising high-quality economic development.

First, ESG assessments can be used to promote the healthy development of green finance. The concept of ESG advocates the evaluation and seeking of quality enterprises from a longterm perspective of value investing. It advocates the design and management of investment portfolios through early warning and elimination of medium- and long-term risks to achieve higher and safer returns on investment.

Deepening the concept of ESG investing can guide financial institutions to enlarge the proportion of green assets, support green industries, investments, customers, and promote green economic and social development. Second, the ESG can advance regulated development of green finance. ESG management covers an all-round, standardised risk control system. In a corporate governance structure, there is a special ESG committee under the board of directors, responsible for materialising the green business philosophy; setting out green development plans; and scientifically identifying, assessing and controlling environmental, social and governance risks.

Third, exchanges on and cooperation in ESG promote the opening up and development of green finance. Since the United Nations (UN) introduced the ESG initiatives in the UN Global Compact in 2004, the global systemically important banks have actively responded and participated. With the increased pace of two-way opening up of financial markets, Chinese large-scale financial institutions should continue to actively participate in the UN framework, take part in the formulation of international green finance standards, infrastructure construction, promote the Green Investment Principles for the Belt and Road and enhance their international influence in the field of green finance.

Accelerating the promulgation of laws and regulations on green finance

CCB proposes that green finance be included into the rule of law, and institutionalised in the legal system to drive the quality of its development. First, at the legislation level, it should be a combination of central and local legislations. It is necessary to accelerate the refinement of top-level design, press for legislation by the National People’s Congress and issue the Green Finance Act as soon as possible.

Meanwhile, local governments should be encouraged to stipulate regulations regarding promotion of green finance based on local conditions. Second, as for the legislation path, legislation on green finance should be in conjunction with basic finance law. The current policies and regulations should be systematically combed through and integrated so as to be upgraded into laws.

At the same time, articles regarding green credit, securities and insurance should be refreshed and refined in the Law on Commercial Banks, the Securities Law and the Insurance Law, so as to push forward green, ecological transformation of the basic finance laws. Third, as to the content of legislation, restrictive norms should be combined with developmental rules.

In terms of restrictive norms, it is imperative to provide for the contents and scope of green finance as well as the rights and obligations of all participants, give impetus to financial institutions to become the direct taker of environmental risk and set up a market-oriented, diversified green finance control mechanism. In terms of encouraging rules, incentive policies with respect to fiscal and tax policy, interest rate and credit extension should be issued to channel capital flows to green industries and enhance the market regulation capability.

Accelerating the refinement of the green finance standard system.

At present, China’s green finance standard system is fragmented, incomplete and falls behind the requirement of business development, so the country is badly in need of a common and unified standard system. First, the harmonisation of the standard system should be improved. China needs to enhance the top-level design of the green finance standard system, issue defining rules of green finance, develop green finance product standards for green fund, securities, insurance, environmental rights and so on, and regulate green certification and rating agencies.

Second, international cooperation and mutual recognition should be promoted. In 2016, China put green finance on the agenda of G20 Summit for the first time, providing a strategic framework and policy guidance for global green investments. CCB recommends the active participation in the formulation of international standards and evaluation rules through various important international organisations to promote in-depth integration of Chinese green finance market and the world market. Third, an information sharing platform should be built.

Through establishing a green industry information sharing platform for the unified release of lists of project standards and certification catalogues, China can guide market entities to disclose green information and accurately match green industries with green finance business. Fourth, supervision and guidance on financial institutions should be strengthened.

It is important to formulate green finance supervision measures in line with the unified standards for green industries and green finance, step up efforts in the certification and statistics of green finance business, establish a quantified assessment system and refine the incentive and restraint mechanism.

Scientifically developing supportive fiscal and tax policies for green finance

CCB proposes the design of a fiscal and tax policy framework and operating mechanism to support the development of green finance to provide systematic, refined and differentiated policy and institutional guarantees in terms of fiscal support, preferential tax treatment and financial supervision. First, green financial institutions should be incentivised. The government should incentivise innovation-active financial institutions with big volumes and high growth rates of green finance business in the forms of government funds, risk compensation, fiscal subsidy, tax reduction or exemption, so as to guide them to push forward rapid development of green finance.

Efforts in green finance development by financial institutions should be evaluated and assessed. Good performers should be subjected to refined regulatory policy and differential management treatments in terms of required deposit reserve, supplementary capital and economic capital measurement. More practical and flexible policies regarding profit assessment, provisions, risk mitigation and disposal of non-performing assets should be adopted. Second, the green finance market should be activated. Local governments at various levels should be encouraged to employ such policy means as guarantees to provide credit enhancement, subsidised loan interests, joint initiation of funds and risk loss compensation, set up a risk sharing mechanism for green finance and set out to address the asymmetry of green finance development risk.

Attaching importance to the building of talent and supporting entities for green finance

Green finance involves various disciplines such as economics, finance, environmental protection, chemistry, engineering and law. Thus, it is urgently required to strengthen the professional team and the development of supporting entities. First, the professional team of green finance should be enlarged and strengthened. Financial institutions can set up departments at the headquarters level specialising in green finance and expedite the building of a professional team in order to achieve dedicated management and full coverage of green finance business.

Besides, it is also important that financial institutions should deepen cooperation with financial regulators, trade associations, scientific research institutes, energy conservation and environmental protection bodies, third-party think tanks and so on, build a high-end financial professional training and exchange platform featuring an integration of industry, education and research, and develop green finance talents who are conversant with financial capital operation and have international visions. Second, a better environment should be in place for training green finance practitioners. It is advisable to formulate high-level policies for attracting and nurturing high-end green finance talents, and build green finance personnel service and exchange platforms.

Institutions of higher learning, scientific research institutes and specialised research agencies should play a main role in training green finance practitioners, and green finance research institutes should be founded for pooling of talents and meeting of minds. Third, the market intermediary system for green finance should be refined. China-foreign cooperation and exchange platforms should be established to spread ideas about green finance. Green finance intermediaries should be nurtured; institutions specialising in credit rating, third-party certification, asset assessment, information counseling, environmental risk assessment, etc. should be encouraged to offer supporting services for green finance; and nongovernment organisations (NGOs) in civil society should be given full play

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