ICBC New Zealand CEO Karen Hou talks to the Herald about green bonds, and the opportunity for Auckland.
Industrial and Commercial Bank of China (ICBC) describes itself as a leader in supporting clean energy and environmental infrastructure, with the bank providing funding globally in projects including hydroelectric, wind, geothermal, and solar.
ICBC was the first Chinese bank with a "Green Bond Framework", aligned to both international and Chinese green standards.
Herald: What is a green bond?
Karen Hou: A green bond is a bond transaction where the issuer takes additional commitments to finance eligible green assets that promote the transition to a low-carbon and sustainable economy, and provide clear environmental sustainability and climate change benefits.
As of the end of 2017, ICBC has under written more than 20 green bonds and raised more than 152.6 billion renminbi, making ICBC the top Chinese bank in terms of issue size.
In September 2017, ICBC Luxembourg issued the first "Belt and Road" green bond, totalling 2.15 billion renminbi.
Earlier this year, ICBC listed a US$1.58 billion equivalent green bond on the London Stock Exchange Group's International Securities Market(ISM), which is being used to finance environmentally sustainable assets.
It is the largest ever green bond listing on London Stock Exchange and the first Chinese issuance on ISM.
Herald: What are ICBC's objectives from issuing green bonds?
Hou: ICBC has deep understanding of green finance— not only pioneering in green lending, but it also actively implemented the idea of green development and green finance by providing consistent help to green project financing.
This includes energy conservation and environmental protection, pollution prevention and control, resource conservation and recycling through direct financing including bond underwriting.
ICBC has been an active advocate of green finance both in China and internationally as a social and environmental commitment. The green bonds issued by ICBC are a further demonstration of the bank's consistent green strategy.
Herald: What opportunity could green bonds provide New Zealand?
Hou: ICBC believes green bonds could be an innovative option of global financing for many counties.
Due to the funding shortage in the New Zealand domestic market, green bonds could be used as a solution for large infrastructure projects which are seeking offshore funding through ICC's global network.
ICBC is the first Chinese bank that established an environmental, social and governance (ESG)-based green ratings system, and one of the leading banks who carried out Environmental Factor Stress Test Research.
Herald: What are examples of the kinds of green assets ICBC look to finance?
Hou:ICBC looks for green assets that promote the transition to a low carbon and sustainable economy, and provide clear environmental sustainability and climate change benefits. Examples include:
Renewable Energy: Generation and transmission of energy from renewable energy sources. Renewable energy sources include offshore and onshore wind, solar, tidal,hydropower subject to conditions, biomass and geothermal.
Low Carbon and Low Emission Transportation: Low energy or emission transportation assets, systems, infrastructure, components and services excluding any infrastructure or rolling stock assets used for the transportation of fossil fuel products. Examples include Rail Tram, Metro, Bus Rapid Transit Systems, Electric Vehicles.
- Development of products or technology and their implementation that reduces energy consumption of underlying asset, technology, product or system(s).
Examples include LED lights, improved chillers, improved lighting technology, and reduced power usage in manufacturing operations.
- Improve deficiency in the delivery of bulk energy services.
Examples include district heating/ cooling systems, smart grids, energy recovery technology, and the storage, transmission and distribution of energy that results in reduced energy losses.
Sustainable Water and Wastewater Management:
Water collection, treatment, recycling, reuse, technologies and related infrastructure.
Examples include water pipes and collection facilities to collect water/ rainwater,dams,treatment plant facilities.
Herald: How does ICBC assess and select eligible green assets?
Hou:ICBC has developed its green bond framework following the below procedures.
Project evaluation and selection:
- Eligible green assets are identified and proposed by ICBC business units globally.They are then reviewed by a dedicated green bond working group who have environmental experience and knowledge at ICBC head office.
- Prior to the green bond issuance, ICBC's green bond working group reviews all eligible green assets to determine their compliance with the ICBC green bond frame work, and forms an eligible green asset list. On an annual basis they review the allocation of the proceeds and facilitate ongoing reporting.
Management of proceeds: A green bond "allocation register" records the allocation of green bond proceeds. The proceeds of each ICBC green bond will be deposited in the general funding accounts and "earmarked" pending allocation.
Reporting: ICBC publishes an annual green bond report which provides information on allocation and impacts.
Over the years, ICBC has been systematically implementing green credit philosophy into its credit policy, credit culture, credit management, process optimisation and product innovation to setup an effective green credit long-term mechanism.