In 2009, a group of Chinese NGOs came together to create the Green Banking Innovation Award. The award has since been presented to the Bank of China, China Merchant’s Bank and Industrial Bank for their dedication to “green banking”. It sounds admirable, but what exactly is “green banking” and are China’s banks really doing anything different than British, American or other foreign financial institutions? It turns out that China’s newly proposed Green Bank is modelled on the UK’s Green Investment Bank, founded in 2012.
According to The Green Bank Report, green banking is the act of supporting and “promoting environmentally-friendly practices and reducing your carbon footprint from your banking activities”. Many activities - from using paperless account statements to issuing loans to environmental groups - can be classified as a form of green banking. Financial institutions such as Ulster Bank, Bank of Cyprus and Scotia Bank are offering mortgages and building loans to people who already have installed, or plan to install mechanisms like solar panels, better roofing and wall insulation, or upgraded boilers. HSBC made internal changes that stopped 2.1m kg of carbon dioxide from being released for electrical use.
Bloomberg Business listed its top 20 green banks for 2012, which included Lloyds Banking Group, Deutsche Bank, Banco Santander and even Goldman Sachs, but not a single Chinese bank.
So the pertinent question is, how do the Bank of China and other Chinese financial establishments merit the Green Banking Innovation Award? Will the country’s upcoming Green Bank policies help turn the tide of environmental degradation China’s people are currently experiencing all the way from Urumqi to Shenyang?
“Made in China” at the expense of air quality
China’s banking history has traditionally been closely tied to foreign banks, specifically British-owned banks. After becoming a republic, however, the People’s Republic of China completely socialised the banking system and eventually established many centralised financial institutions. Today, the People’s Bank of China acts as the country’s central bank, while the China Construction Bank, the Agricultural Bank of China, the Industrial and Commercial Bank of China and the Bank of China remain under state control. Each of these institutions performs a specific financial function within China’s economy.
In terms of assets, the People’s Bank of China (PBC) holds more than US$2tn, second only to the United States Federal Reserve.
This massive amount of wealth has been created through several industries, including agriculture, industry, and manufacturing – the latter of which has largely characterised the Chinese economy for the last few decades.
In 2011, Chinese workers produced more than 90% of the world’s computers, 80% of the world’s air conditioners, 70% of the world’s cellular phones, 60% of the world’s cement and 48% of the world’s coal.
China is the undisputed manufacturing capital of the world, with many products contributing to its GDP; however, it’s that last statistic that’s causing problems. In 2011, China burned 3.8bn tonnes of coal, rivalling the rest of the world’s usage at 4.3bn tonnes. To combat air pollution, people have taken to wearing face masks on a regular basis; in fact, these have become a normal part of the Chinese cityscape. The catastrophic use of coal to heat homes and power industrial and manufacturing plants has inspired China’s central bank to embrace “green banking”.
What does banking have to do with pollution?
The National Environmental Analysis that was released by Tsinghua University and the Asian Development Bank in 2013 states that of the 10 most air-polluted cities in the world, seven are in China: Taiyuan, Beijing, Urumqi, Lanzhou, Chongqing, Jinan and Shijiazhuang. Nearby Hong Kong is suffering as well, with airborne pollutants nitrogen oxide and fine suspended particulates reaching higher levels than ever before. Hong Kong-based bank, Hang Seng, has committed to increasing its support of environmentally friendly efforts that could bring pollutant levels down in both Hong Kong and China.
The strategy is based on several principles. Hang Seng will provide its clients with all-inclusive e-statements in place of paper statements, it has issued debit and other account cards manufactured from a form of plastic that is prone to natural biodegradation (PETG) and the bank has begun to take environmental perspectives into account during the lending and investment processes. For example, Hang Seng has made a concerted effort to reduce its carbon emissions and in 2007 became carbon neutral. By reaching out to impoverished populations in both Hong Kong and China, Hang Seng hopes to connect more people to green banking services than ever before.
The next major player on the Chinese green banking scene is the Bank of China.
“In recent years, Bank of China has played an important role as a financial institution in… economic restructuring and has made significant achievements in supporting the industries of clean energy, energy conservation and environmental protection in the promotion of green banking.”
Chinese banks such as Bank of China are working with the principles laid out in a 2007 government document titled The Green Credit Policy, which laid out several tools and methods for providing positive environmental and economic change to the country. One of these tools is the Environmental Information Sharing Database (EISD,) which compiles information about companies that do and do not comply with China’s environmental policies.
The effect of the EISD is to give consumers the information they need to make informed choices about the banks they do business with. The hope is that institutions that fail to make changes to their buildings and businesses will become unpopular, and therefore be forced to adapt.
The bank has also called for its entire staff to use less electricity, gas and water. According to the BOC website, staff must keep the thermostat above 26C in the summer months and below 20C in the winter months. In keeping with China’s government-supported “too high” banking policy, BOC has reportedly limited its lines of credit to industries and companies that are considered big polluters. This includes calcium carbide, ferroalloy, and electrolytic aluminium manufacturers.
Meanwhile the People’s Bank of China, in addition to making its own internal changes to curtail waste energy and resources, has proposed the founding of the China Economic Development Bank (CEDB.) The CEDB would offer “low-cost, longer-term financing for low-carbon projects”. Like the UK’s Green Investment Bank, the CEDB’s funds would be used to support environmentally friendly projects. It’s unclear exactly where the 100bn yuan (US$16bn) to finance the bank might come from, but suggestions have included China’s Finance Ministry, pension investments and the Chinese private sector as well as international investors.
The goals of the CEDB would be to fund China’s various industries as they attempt to clean up their sites and bring in new technologies to replace coal-burning furnaces and power plants. Environmental organisations throughout China have complained about a lack of consistent support from various government ministries in tearing down old, polluting edifices and starting again; this is because of a fear among industrialists and economic ministries that major changes in factories and manufacturing methods will lead to huge financial losses. As a state-supported institution, the CEDB would hopefully be able to change all that.
Why is green banking so important to China?
It’s easy to see why a radically different approach to environmental and human welfare is needed in China. Footage from major cities like Xingtai and Langfang in Hebei, the country’s most polluted province, shows a constant haze of smog that reduces visibility drastically and threatens the health of residents. As the world’s number one producer of carbon dioxide, and home to 16 of the planet’s 20 most polluted cities, China needs an environmental revolution both to support its existing industries and build new, sustainable factories and businesses.
Shenyang, a Chinese city often referred to as the “big brother of Chinese industry”, has already proven that restructuring the local industry can be profitable as well as healthy for the environment. Once full of smog and grey on a daily basis, Shenyang has completely turned itself around, now shining as a clean, smog-free beacon to the rest of China’s polluted cities.
Fortunately for the city of Shenyang, whose economy is still making the shift from heavy industry to transport, agriculture and manufacturing, the old 1950s-era factories were not only outdated but unprofitable as well. Seeing the demise of what used to be China’s leader in industry, several government ministries stepped in to finance the demolition and reconstruction of much of the city.
Today, the sky is blue and the brand-new factories have been fitted with desulphurisation equipment. The city is so clean it’s “almost like it’s not China”, says the vice-president of BioHaven, an environmental consulting agency in Shenyang.
Cleaning up the main heavy industry area in Shenyang alone cost US$20m, an amount of money that not every city in China can hope to win from the government. With restructured “green” banks reaching out to more citizens, and the government asking that these banks focus on funding low-carbon and low-pollution projects, maybe the next generation of Chinese won’t grow up breathing the wasted gases and particles of their potentially world-leading economy.