On February 24, 2012, the China Banking Regulatory Commission (“CBRC”) introduced a new Green Credit Guideline (“Guideline”) in order to encourage commercial lenders to facilitate loans to “green” enterprises. The CBRC, China’s top banking regulator, ordered commercial lenders to cut loans to industries with high-energy consumption and high levels of pollution or excessive capacity, and to strengthen financial support for environmentally friendly industries and projects.
The CBRC encouraged banks and financial institutions to evaluate, classify and rate the environmental and social risks in their clients’ businesses and to take such results as a key reference in their ratings and access to credit. It has been reported that the CBRC will, as a next step, establish key indexes in order to make the Guideline more specific.
The Chinese government has made efforts to employ green lending practices in recent years. In 2007, the CBRC, the People’s Bank of China and the State Environmental Protection Administration (“SEPA”) (now the Ministry of Environmental Protection), introduced the Green Credit Policy requiring SEPA to provide a list of heavy polluters to the CBRC and the People’s Bank of China. The companies on the list that failed to pass environmental assessments or to implement environmental protection regulations became disqualified from receiving loans from banks and financial institutions.
The Guideline emphasizes the role and ability of banks and financial institutions to promote an environmentally sustainable economy. Specifically, given the influence of commercial lenders on businesses through credit controls, the Guideline is expected to generate greater environmental awareness among businesses. Further, the Guideline underscores the economic risks inherent in activities that are detrimental to the environment, as environmental risks can be closely tied to the credit risks of a bank or financial institution, and can lead to operational losses.
Authored By:
Amin Amirkia
86.10.5706.7517
aamirkia@smrh.com
