Banks buying in to China’s growing energy efficiency revolution

China’s intensified focus on greening its economy and developing an “ecological civilization” is powering the growth of energy efficiency and green bonds in the country and the world.

This year, China has taken the opportunity of its G20 Presidency to focus world attention on energy efficiency and its financing, both at the international and domestic levels. The country put green finance on the G20 agenda and proposed a new G20 energy efficiency long-term strategy, the Energy Efficiency Leading Program, which was adopted by G20 energy ministers and highlighted in the Leaders’ Communiqué in September 2016.

And the private sector is taking notice. The Chinese financial sector sent a strong signal of its intentions to support growth in energy efficiency when six financial institutions endorsed the Statement by Financial Institutions on Energy Efficiency, led by UN Environment’s Finance Initiative (UNEP FI), a global partnership between the United Nations and the financial sector. In so doing, these six Chinese banks— Agricultural Development Bank of China, Bank of Jiangsu, Huaxia Bank, ICBC, Industrial Bank, Zhujiang Financial Leasing— have joined a large community of committed financial institutions among which they can share experiences and best practices. That includes the 117 banks from over 40 countries and 40 investors managing US$4 trillion that are part of this unprecedented mobilization led by UNEP FI.

China faces acute air pollution and other environmental issues alongside the challenge of having to meet the high energy demands of industry and population. According to a study by Peking University’s Guanghua School of Management in March 2016, only half of all days in Beijing fell in the “good” or “light pollution” category for measures of PM2.5, or very fine particulate pollution. Eight of China’s cities placed within the top 50 most polluted cities on the World Health Organisation’s latest (May 2016) global list based on average yearly air pollution. Energy efficiency has been an important measure in Chinese policies to tackle these issues, but there is still much potential efficiency gain in the non-energy intensive sectors of buildings or small and medium enterprises.

At the heart of this challenge is the need to increase the availability of finance for energy efficiency solutions. The People’s Bank of China has said that the national environmental targets set by China’s 13th Five-Year Plan (2016-2020), which sets a cap on total energy consumption and targets a 15 per cent increase in energy intensity, will require annual investment of at least $600 billion in green projects, including energy efficiency and renewable energy.

Much of the money needed to reach this investment level will need to come from private sources, which is why the six Chinese banks endorsing the statement is so significant. The six banks’ intentions to further integrate energy efficiency into their products and services and to increasingly engage with their clients on the topic is a strong signal that they see energy efficiency as a sound business opportunity.

“I believe the statement will actively guide financial institutions to scale up investment in energy efficiency and to cope with global climate change,” said Mr. Yiping Tao, President of Industrial Bank, the first bank to endorse the statement. “In any case, Industrial Bank strives to become a world class green finance integrated service provider.” Industrial Bank was also the first bank in China to adopt the Equator Principles and launched the country’s first energy efficiency finance product in 2006.

In fact, energy efficiency and sustainability considerations have grown tremendously in the financial sector. One sign has been an upsurge in the issuance of green bonds by Chinese banks. In the first half of 2016, China became the fastest growing and world’s largest green bond market with a total issuance of US$11 billion, accounting for 33 per cent of the global total, according to the chief economist of the research bureau of China’s central bank. China is also the first country to have issued official rules on green bonds, in which energy conservation appears as the first area eligible for green bonds financing.

ICBC, China’s largest commercial bank and signatory of the energy efficiency statement, started its green credit business in 2007. According to Mr. Bairon Wang, Chief Risk Officer at ICBC, its outstanding lending to energy conservation and environment protection projects stood at 976.8 billion RMB in June 2016, 13.9 per cent of outstanding enterprise loan. This was an increase of 62.2 billion RMB from the start of the year.

“Green credit has been integrated into the bank's vision and strategy and ICBC has developed a long-term mechanism to support its development at all levels, including credit policy and systems management process and product innovation,” he said. 

“Our endorsement of the Statement will help us to spread sustainable ideas on the international stage and learn from international experience,” he added. “It will boost ICBC’s energy efficiency finance. ICBC will keep following sustainable principles, adhering to green bank strategy and promoting the coherent development of green economy and environmental protection.”  

Building on this global mobilization, UNEP FI is launching a survey to all signatories to understand how banks are putting their commitment into practice.

The engagement of UNEP FI with Chinese banks was supported by SWITCH-Asia, an EU program promoting the shift towards resource efficiency and more sustainable consumption and production patterns.