Seeding China's Banks with Sustainable Lending - BNP Paribas CIB (2024)

China’s major banks are stepping up their efforts to support the energy transition with the London branch of Industrial and Commercial Bank of China (ICBC), the world’s largest lender by assets, and Agricultural Bank of China (ABC) Singapore branch both establishing green lending frameworks and raising loans that comply with internationally determined Green Loan Principles (GLPs). The move marks a new trend and follows efforts by the Chinese banks to issue green bonds in recent years, signifying a diversification and broadening of green finance options in Asia.

ICBC became the first bank to establish a Green Loan Framework in July through its London branch, while ABC closely followed and secured the first-ever GLPs-compliant loan in September securing $200 million from a syndicate of five banks. ICBC closed a $370 million equivalent green loan in September after establishing the framework several months earlier. BNP Paribas acted as the green structuring advisor to both banks.

For Paul Yang, Head of Corporate and Institutional Banking for Asia Pacific at BNP Paribas, this represents a landmark moment for sustainable finance in Asia Pacific.

“It also demonstrates our ongoing commitment to channelling capital towards tackling the world’s most intractable problems,” he explains. “Chinese banks are recognising the importance of green finance to their own sustainable growth in this region. With the support of the People’s Bank of China, these banks are developing frameworks to guide financing to sectors that can make a big difference to the fight against climate change.”

Both Chinese lenders are members of China’s Big Four banks and have increased their green efforts in recognition of the role they play in funding sectors that can make a major difference to climate change. ICBC is a major funder to the manufacturing, transportation and industry sectors in China, while ABC backs the agricultural sector.

Under the terms of the frameworks, the funds will be designated toward green projects such as:

• Renewable Energy
• Energy Efficiency
• Pollution Prevention and Control
• Environmentally Sustainable Management of Living Natural Resources and Land Use
• Clean Transportation
• Green Buildings
• Access to Essential Services
• Affordable Housing
• Employment Generation including through SME financing/microfinance

The Green Finance Frameworks are intended to comply with the GLPs, jointly established last year by Europe’s Loan Market Association and the Asia Pacific Loan Market Association. ICBC’s new framework also builds on its pre-existing Green Bond Framework, under which ICBC has already issued several high profile sustainable bonds. The projects, all of which will be in line with ICBC’s newly-created Green Loan Framework, could potentially include renewable energy projects such as wind generation and solar power, which will play a pivotal role in driving forward the energy transition to a low-carbon economy.

Chinese banks are recognising the importance of green finance to their own sustainable growth in this region.

The loan also complements ICBC’s existing portfolio of sustainable finance initiatives. Last year ICBC London branch issued its second certified climate bond, which is currently the largest green bond listed on the London Stock Exchange. In 2017, its inaugural climate bond raised capital that was allocated to wind generation and electrified railway projects in China, as well as solar power projects in several other countries worldwide.

ABC Singapore’s loan proceeds will be used to finance green projects that adhere to the green financing principles, guidelines and standards referenced in the Sustainable Financing Framework, which BNP Paribas jointly developed. Sustainalytics, a global environmental, social and corporate governance research and ratings agency, independently reviewed ABC Singapore branch’s Sustainable Financing Framework and confirmed its alignment with the Loan Market Association and Asia Pacific Loan Market Association’s Green Loan Principles; International Capital Market Association’s Green Bond Principles, Social Bond Principles and Sustainability Bond Guidelines; as well as the ASEAN Green Bond Standards, ASEAN Social Bond Standards and ASEAN Sustainability Bond Standards.

Interest in sustainable finance is growing in China, where the government is actively encouraging the development of sustainable principles in its major industries and throughout its economy. This deal marks an important step in building a green finance infrastructure in China, and demonstrates the commitment of China’s banking sector to tackling its environmental responsibilities.

Lift-off for green finance in Asia?

The transactions represent an important step forward for green financing in Asia Pacific, whose growth has not kept pace with other regions. Around $605 million in sustainable loans – which include green loans as well as other types of ESG-compliant financing – have been signed in the region in 2019 so far, according todata from Bloomberg New Energy Finance. In the same period in EMEA and the US, around $15 billion and $5 billion were signed, respectively.

Moreover, it further strengthens the GLPs, which were designed to create a high-level framework of market standards and guidelines. The addition of leading Chinese banks as borrowers of GLP-compliant financing boosts the Principles, reaffirming their status as the accepted, worldwide standard in the wholesale green loan market.