Industrial Bank: Equator Principles Provide A Solution System for Sustainable Development of Ba...

When other domestic banks are seeking for the path to sustainable development, there is a bank that announced a standardized solution system coming from the Equator Principles that has been applied for more than 8 years.

'In the future, the business mode of banks will transform from heavy asset and capital to light asset and capital and the Equator Principles just provide a set of standardized solutions. With more reasonable and scientific screening tools, the quality of assets is increased to facilitate the transform of business mode and enhance the efficiency of resource allocation.' said by Hua Bing, the General Manager of Law and Compliance Department of Industrial Bank, in the 2017 National Finance and Development (Kunming) International Summit when delivering a speech on March 30.

Industrial Bank (IB) announced to apply the Equator Principles in October 2008 and is the first equator bank in China.

Standardized Solution to Sustainable Development

In the ten ecological safety shields of China including the 'Two Shields and Three Belts', Yunnan is responsible for constructing the three major ecological safety shields, i.e. the Western Plateau, Yangtze River Basin and Zhujiang River Basin. The central government has clearly instructed that Yunnan Province must become a vanguard in the national ecological civilization construction. Themed at 'constructing green financial ecology and building a healthy city of China', this Summit aims at facilitating Kunming to be involved in the national 'Belt and Road' and 'Massive Health' strategies, promoting the construction of a regional international financial service center, blending the green finance ecology into the financial reform and innovation of Kunming, and forming financial powers for the development of green finance and massive health industry in Kunming.

'This is in line with the sustainable development concept that stresses harmonious development of economy, nature and society.' Hua Bing said that sustainable development is a society-wide issue and IB has been exploring and practicing a way in which IB can blend its own sustainable development into the sustainable development of the society and make contributions.

'Sustainable development is positively correlated to the performance of financial institutions. 'Green to Gold' is the best practice of sustainable development based on Equator Principles' said Hua Bing.

Taking the example of IB's history and practice of sustainable finance, Hua Bing explained the connotation of sustainable development of banks based on the Equator Principles and indicated that IB regards Equator Principles as the breach point into sustainable development and a powerful tool to make differentiated advantages and find new business opportunities.

Equator Principles can drive the transformation of business modes of banks and improve the efficiency of resource allocation. Hua Bing indicated that the business mode of banks in the future will be transformed from heavy asset and capital to light asset and capital and minimize capital consumption in business development. The foundation of this transformation lies in the change of business mode and Equator Principles just provide a set of standardized solutions. By forcing banks to normalize project management procedures and applying more reasonable and rational screening tools to eliminate potentially risky financing projects, bank capitals will flow to advantageous projects and asset quality will be improved, so as to optimize the business structure, gradually achieve the transition to sectors with relatively low social and environmental risks. As a result, the direction and efficiency of resource allocation will be optimized and the output will be enhanced.

Sound management of risks is a must for banks to run sustainably and core of Equator Principles is to manage social and environmental risks. It, for the first time, defines and embodies unclear social and environmental standards in financing projects, and makes the risk evaluation system and risk mitigation measures more operable so as to increase risk management of banks.

In terms of internal control and compliance, the Equator Principles can increase accuracy and expand the range. Hua Bing indicated that the Equator Principles require to execute the whole Action Plan and include it into contracts and legalize it. In this way, enterprises may be able to dynamically manage environmental and social risks in the whole life circle. Banks restrain themselves by voluntarily applying the Equator Principles which, as a result, will inevitably impose higher requirements on internal control, so as to avoid the environmental and social risks caused by the failure of implementing environmental protection measures as required by the environment evaluation report and relevant replies after the financing project has been operated for a period of time.

In addition, Equator Principles is remarkably useful in creating differentiated advantages. In the financing for large project, equator banks have unique management capability against environmental and social risks and can reduce the negative influence on the environment and society as much as possible. As a result, these projects will be recognized by the society to the maximum extent and will not be 'denied'. The intangible credibility formed by standardized management is also one of the differentiated advantages of equator banks.

Equator Principles Have Great Power of Sustainable Development

The truth has proved that IB has walked an increasingly broad way since it announced to apply the Equator Principles in China in October 2008.

Hua Bing recalled that IB learned the advanced ideas and experience of international banks when it was introducing overseas strategic investors in 2003, and then started its way of exploring sustainable development. In 2006, IB cooperated with International Finance Corporation (IFC) to launch the first energy efficiency financing project in China. 'This cooperation opened up a window for IB and both companies made more attempts in sustainable finance.'

In 2007, IB signed the Statement of Financial Institutions on Environment and Sustainable Development with the United Nations Environment Program. In the same year, Gao Jianping, the chairman of IB, held a round table conference in Guangzhou with Robert Zoellick, the president of the World Bank. They discussed about the significance and feasibility of applying the Equator Principles. Since IB agreed with the idea of the Equator Principles, it actively studied and evaluated the influence of the Equator Principles on business development and the feasibility of implementation, which led IB to the way of equator bank.

As the pioneer and leader of green finance, IB is the first bank of China to set up a professional green finance team. After ten years of development, the company has made continuous exploration into corporate governance, system construction, reconstruction of core business procedure, management and product innovation and etc. The corporate governance now focuses on both shareholders and stakeholders instead of shareholders only. The company has witnessed three-step evolution and leap of sustainable development. By applying the idea and methodology of the Equator Principles, the management system of environmental and social risks is redefined and the business procedure is remade. As a result, the management becomes more systematic, professional and operable. An operation mode and business procedure is created, in which the strategic planning fits with the governance idea.

By relying on the Equator Principles and the concept of sustainable development, IB keeps innovating and has now developed an array of green finance product portfolio instead of just one single product. It is now a flag and leader in the green finance industry in China. A growing number of enterprises are becoming the beneficiaries of IB's comprehensive green financial services and enjoy a package of green financial services including green financing, green leasing, green trust, green fund as well as green investment.

As of the end of 2016, IB had accumulatively carried out 307 projects suitable for the Equator Principles, with the total investment amount of 1145.847 billion yuan, 272 clients and less than 0.1% of bad loans. In the meantime, IB had accumulatively provided green credit financing for over ten thousand environmental protection enterprises or projects, totaling over 1 trillion yuan. The projects supported by IB's green credit financing can save 26.47 million tons of standard coal, reduce 74.08 million of CO₂ emission and save 304 million tons of water each year, thus profiting banks, enterprises, the environment and the society.

A series of useful attempts of the Equator Principles and sustainable development have been widely recognized by both domestic and global peers. The State Council has listed the application of the Equator Principles by IB as one of results of the fifth strategic and economic dialog between China and the US. In 2009, IB was rated as the winner of 'Annual Asian Sustainable Bank Prize' jointly granted by Financial Times and IFC, making it the only financial institution of China that is awarded this honor.

This 2017 National Finance and Development (Kunming) International Summit was attended by Cheng Liaoyuan, the Member of Standing Committee of CPC Provincial Committee of Yunnan Province and the Municipal Party Secretary of Kunming City, Li Yang, the former vice president of Chinese Academy of Social Sciences and the chairman of National Finance and Development Laboratory, Zhu Jinan, the president of the Insurance Association of China, as well as representatives of financial institutions and entities inside and outside Yunnan Province.

TOP