Chinese banks report on sustainability in 2011

kristy Reforming Global Finance, SRI/ESG News

SUSTAINABILITY IN CHINA’S FINANCIAL SECTOR
1. Chinese banks report on sustainability in 2011

As of mid-April, at least ten major Chinese banks had issued corporate social responsibility reports for 2011. These include Bank of China, Industrial and Commercial Bank of China, China Merchants Bank, Bank of Communications, Hua Xia Bank, China Construction Bank, Agricultural Bank of China, China Minsheng Bank, Shanghai Pudong Development Bank and Shenzhen Development Bank. For an analysis of the progress major Chinese listed banks have made toward sustainability, see #6, below.

2. CDB lending to renewable energy companies

In 2012, China Development Bank (CDB) continued its massive lending to renewable energy companies. Notably, the policy bank signed a RMB 35 billion (USD 5.5 billion) financial agreement with Xinjiang Goldwind Science Technology and Co., China’s second-largest wind-turbine maker in January and a USD 324 million framework agreement with Yingli Green Energy Holding Co., another Chinese solar equipment maker, to facilitate the company’s imports of raw materials in April.

CDB’s lines of credit to wind energy companies in 2011 helped China become the leader in debt financing to the industry that year, accounting for USD 6.8 billion of the USD 11 billion total offered worldwide, according to market research firm Mercom Capital Group. Denmark and Spain had USD 1.9 billion and USD 1.7 billion in debt respectively, and the US came in fifth with USD 201 million. The single largest deal in 2011 was CDB’s USD 5 billion credit facility to Guandong Ming Yang Wind Power Industry Group Co. However, the European Investment Bank was reportedly the biggest funder, with involvement in eight major transactions, followed by the International Finance Corporation with seven transactions.

3. New report highlights Chinese lending to unsustainable extractive projects in Latin America

A March report from Tufts University Global Development and Environment Institute found that between 2005 and 2011, the China Development Bank and China Export-Import Bank loaned roughly USD 75 billion to Latin American governments, which was greater than World Bank and Inter-American Development Bank lending in the region. The report found that more than half of loan commitments from the Chinese policy banks were backed by the sale of oil or minerals to Chinese companies, however, contrary to popular belief, Chinese policy banks are not forcing Latin American governments to sell their resources at low prices. In the long run, the report pointed out, the prominence of resource-backed loans was unsustainable for Latin Americans because of the high environmental impacts of resource extraction and underdeveloped environmental standards offered by Chinese banks.

POLICY DEVELOPMENTS
4. CBRC releases Green Credit Guidelines

In February 2012 the China Banking Regulatory Commission (CBRC) released the Green Credit Guideline (??????). Building from the foundation of 2007’s Green Credit Policy, the seven-chapter and 30-provision directive for the first time spells out in detail how banks should fulfill their environmental and social responsibilities, including green credit policies and management systems, capacity building, monitoring and supervision, information disclosure, and more. The guideline applies to Chinese policy banks, commercial banks, rural cooperative banks, and rural credit cooperatives. Notably, the document:

– Emphasizes the effective management of both environmental and social risks;

– Makes specific reference to greater transparency and disclosure of information; and

– Makes specific reference to Chinese commercial banks’ overseas investments and activities, and the incorporation of international standards.

In March 2012, nine Chinese NGOs published comments on the new CBRC Green Credit Guidelines, available in Chinese and English.

5. CSRC moves to improve information disclosure

In February, China’s security regulator for the first time published a full list of companies looking to list shares on the country’s stock markets in an effort to promote greater transparency of the initial public offering (IPO) application process. The list, published on the China Securities Regulatory Commission (CSRC) website, is updated weekly. Companies applying for an IPO on the Shanghai or Shenzhen stock exchanges are listed by name, industry, sponsoring organization and other data. However, no application date is provided, making it unclear when many of the share listings would take place.

Other means to improve the monitoring of China’s IPO process include the Green IPO Policy, for which companies within certain highly polluting and energy intensive industries must obtain permission from the Ministry of Environmental Protection in order to list shares on China’s stock markets. This process entails a 10-day public comment period during which citizens may voice concerns to MEP about the companies’ behavior. The MEP’s 2009 approval of the IPO of Gold East Paper, a subsidiary of Asia Pulp & Paper that was found to have violated several water pollution laws and illegally harvested old growth forests in China, illustrated that the government still had some ways to go to provide adequate environmental safeguards during the IPO process.

CIVIL SOCIETY ACTIVITIES
6. Chinese NGOs release third annual benchmarking of Chinese listed banks

In April, eight Chinese NGO led by Green Watershed released their third annual report benchmarking the environmental policies and performance of Chinese listed banks. The Environmental Record of China’s Banking Sector 2011 (?????????2011) tracks 16 major Chinese commercial banks, including the Industrial and Commercial Bank of China, China Construction Bank and Bank of China, which are among the largest publicly listed banks in the world. Like the previous reports, the 2011 edition assessed each bank’s environmental policies, implementation measures, reductions in lending to energy-intensive and polluting sectors, information disclosure, overseas lending, etc. Previously, the NGOs had used the banks’ awards and philanthropy as performance indicators, which were eliminated in this year’s report. Also new this year was the inclusion of two more banks than the previous years ? the Agricultural Bank of China and China Everbright Bank.

The full report (Chinese), as well as an executive summary (Chinese and English) highlighting the key findings of the report are available here.

7. BankTrack welcomes new network member from China

In March, Beijing-based NGO Greenovation Hub (?? ??) became the newest member of BankTrack’s network of civil society organizations monitoring the global financial sector. Greenovation Hub is the second Chinese NGO to join the network, following Kunming-based Green Watershed. The organization focuses on green finance and China’s overseas investments, among other projects, through innovative public awareness raising and capacity building projects. For example, Greenovation Hub recently held a forum on “Understanding the resource curse in Africa and its implications for Chinese investments” in Beijing. The workshop, part of the organization’s newly developed learning and sharing scheme, hoped to stimulate discussion among a Chinese audience, including reflections on China’s investments in Africa to date, and prospects for the future. Speakers included Zhang Chunyu, Research Fellow at the Institute of World Economics and Politics of the Chinese Academy of Science and Grace Mang, China Program Director at International Rivers. Contact Ms. BAI Yunwen or Ms. YU Yin for more information.

8. Friends of the Earth-US holds investor briefings on the ESG risks of CNPC

In February and April, Friends of the Earth-US briefed investors on the environmental and social risks associated with NYSE-listed PetroChina and its parent company, the China National Petroleum Corporation (CNPC). Members of the International Working Group of the US-SIF (social investment forum) and the Sudan Engagement Group of the United Nations Principles for Responsible Investments heard an overview of Friends of the Earth’s report, Crude Beginnings: An assessment of China National Petroleum Corporation’s environmental and social performance abroad, detailing the state of CNPC’s environmental and social policies and practices across its global portfolio. The report describes CNPC’s global expansion, including the growing overseas activities of CNPC subsidiary PetroChina; provides information about the company’s internal social and environmental governance systems; and describes the influence of the Chinese government and other stakeholders (including investors) over the firm. It also reviews the company’s overseas performance across a range of ESG issues, and includes specific case studies from Burma, Kazakhstan, Iraq, Peru, Russia and Sudan.

The research was based on official company sources, as well on personal interviews with researchers affiliated with the company itself, Chinese academics, corporate social responsibility consultants in China, and representatives from non-governmental organizations and multi-stakeholder initiatives. A copy of the investor brief is available on the FOE-US website.

INTERNATIONAL COOPERATION AND DEVELOPMENTS IN SUSTAINABILITY

9. China Social Investment Forum launched with help of ASrIA and TruCost

In February, Syntao Co. Ltd., a Chinese CSR consultancy, and the CSR Research Center of the Securities Times, an official publication affiliated with the China Securities Regulatory Commission (CSRC), launched the China Social Investment Forum. In the tradition of similar forums in the United States, United Kingdom and Europe, the China SIF will provide a platform to discuss socially responsible investing within Chinese stock markets by inviting domestic and foreign industry experts to make presentations. During the inaugural event, experts from ASrIA (the Association for Sustainable & Responsible Investment in Asia) and Trucost shared their opinions on a Chinese medicine company seeking an initial public offering on the Shenzhen Stock Exchange. The company, Guizhentang Pharmaceutical Co. Ltd., sells tonics made with bear bile and has been accused by animal rights groups of cruelty against bears as a result. More information about China SIF is available from Syntao Co. Ltd.

10. CCICED makes recommendations to the State Council on investment and trade

The Task Force on Investment, Trade and Environment of the China Council for International Cooperation on Environment and Development (CCICED), a panel of international experts providing advice to the State Council on China’s development, released the findings of its 2011 annual general meeting and research on the impact of China’s trade and investment overseas. The research project sought to “describe the current state of Chinese international trade and investment activities, and understand how they affect the drive toward China’s sustainable development and green shift goals.” The executive summary of the report is available here.