What Are Green Loans?

Green credit is the "green-credit policy". It is a new credit policy jointly proposed by the Environmental Protection Administration, the People's Bank of China and the China Banking Regulatory Commission to curb the blind expansion of high-energy-consuming and high-polluting industries Opinions on Implementing Environmental Protection Policies and Regulations to Prevent Credit Risk

Green loan

The "Opinions" stipulates that for credit control of enterprises and projects that do not comply with industrial policies and environmental violations, commercial banks should take the situation of corporate environmental protection law as one of the necessary conditions for approving loans.

The "Opinions" stipulates that environmental protection departments at all levels should investigate and deal with illegal projects that have not been approved beforehand or have been upgraded, environmental protection facilities have not been completed at the same time as the main project, and have been put into production without environmental protection acceptance. That is, the environmental information of the enterprise must be notified to the financial institution. And financial institutions should strictly review, approve, issue and supervise and manage loans based on environmental protection notifications, and financial institutions must not add any form of credit support for new projects that have not passed the environmental assessment approval or environmental protection facility acceptance.

At the same time, the Opinions also designed more detailed regulations for loan types. For established projects investigated and dealt with by the environmental protection departments at all levels, those that have not obtained permits, or have not completed the time-limited governance tasks, financial institutions should strictly control loans when reviewing their affiliated enterprises' working capital loan applications.

The essence of green credit is to properly handle the relationship between the financial industry and sustainable development. Its main manifestations are: building a new financial system and improving financial instruments for ecological protection, ecological construction, and green industry financing.

The State Environmental Protection Administration, the People's Bank of China, and the China Banking Regulatory Commission jointly issued regulatory policies based on the following three reasons:

First, the situation of energy conservation and emission reduction facing China is becoming increasingly severe. After the release of various economic indicators in the first half of 2007, whether it is a meeting of the Political Bureau of the Central Committee of the Communist Party of China, an executive meeting of the State Council, a press conference of the National Development and Reform Commission, or a press conference of the State Council Information Office, it is mentioned that the situation of energy conservation and emission reduction is quite severe. The 4% energy-saving target and 2% emission reduction target set last year have not been completed and have been repeatedly mentioned. According to statistics, in the first half of 2007, the industrial added value increased by 18.5%, and the added value of the six high energy-consuming industries, including petrochemicals, chemicals, building materials, iron and steel, nonferrous metals and electricity, increased by 20.1%, 1.6 percentage points higher than that of industry. How to stop the blind expansion of these high energy-consuming and polluting industries?

Secondly, as environmental violations of construction projects and enterprises in some areas become more prominent, as the government's increasingly stricter accountability of enterprises for environmental pollution, the credit risk caused by the shutdown of polluting enterprises has also begun to increase.

Third, the single-sector regulatory policies of environmental protection agencies in the past were constrained by issues such as limited regulatory scope, inadequate regulatory efforts, and inadequate regulatory measures. The "Green GOP Report" ended without problems, and the limited effects of four large-scale environmental enforcement actions since 2005. All of them fully reflect the embarrassing state of "more than enough heart".

"Green Credit" is the embodiment of financial leverage in the field of environmental protection

The introduction of the "green credit" is to implement environmental control measures through financial leverage. By establishing environmental access thresholds in the field of financial credit, credit support shall not be provided for new projects of restricted and eliminated types; for eliminated projects, various forms of new credit support shall be stopped, and measures shall be taken to recover loans already issued. Cut off the economic lifeline of high energy consumption, disorderly development and blind expansion of high-pollution industries at the source, effectively cut off the capital chain of serious offenders, curb their investment impulse, solve environmental problems, and adjust industrial structure through credit distribution.

Compared with some administrative means, market economy means such as green credit are often very effective. Since the beginning of this year, under the guidance of the central bank and the China Banking Regulatory Commission, the banking industry has been consciously shrinking loans to the "two highs" industries. On July 12, the relevant person in charge of the CBRC notified the CBRC to urge the banking industry to strengthen the "three investigations" of loans and carefully review the "two highs" loan issuance. As of the end of May 2007, major national banking financial institutions had issued 1.5 trillion yuan of medium and long-term loans to "high energy-consuming and high-polluting" industries, a decrease of 9 percentage points from the end of the previous year. The relevant measures of the CBRC have begun to bear fruit.

Person in charge of the State Environmental Protection Administration: The role of green credit has been shown to force companies to bear economic losses for environmental violations. The current law allows environmental protection departments to fine fines of polluting enterprises only 100,000 yuan. Such a penalty is a small sum compared with the cost of stealing balances, and green credit has to a certain extent enriched the enforcement measures of environmental protection departments.

"Green Credit" is a test and an opportunity for the banking industry

"Green credit" is a challenge for China's banking industry. The more "two high" industries, such as steel and cement, the greater the demand for loans. If the environmental risk management of the company is not strengthened in the future, in the event of a pollution incident in the loan company, it will not only affect the social image of the bank, but also damage its debt recovery. The implementation of "green credit" is also an opportunity for China's banking industry. Banking institutions should make efforts to study and innovate green financial products and tools. Such as the issuance of green financial bonds, the launch of green mortgage and other environmental financial products. In addition, banks should gradually implement good management practices such as green procurement, energy efficiency, and waste management.

(References for this entry: Rongdao.com.cn financing channels in China)