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Financing The Nature

— China’s Banking Sector On The Way

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YAO Jingran

Researcher, the NbS Center, IFS

2022.11.30

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The Global Green Finance Leadership Program (GFLP):

Scaling-up Sustainable Finance in Southeast Asia

Ecological Governance

Mainstreaming Biodiversity Finance

• An important participant, contributor, and trailblazer in global ecological conservation
• Chinese environmental philosophy
• Ecological conservation redlining
• Hold the UN CBD COP 15

• NGFS & INSPIRE
• Consensus: Biodiversity-related Financial Risks’ Identification and Management (Regulators, central banks, financial institutions…)
• Initiative/Partnership/Taskforce/Top-down framework

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One more Year…about the Nature-based Solutions Center, IFS

Taskforce on biodiversity finance of the Green Finance Committee of China Society of Finance and Banking (GFC)�

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Members

(10 financial institutions)

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Study Groups

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Newly-Released Report

• Taxonomy
• Innovative Product and service
• Innovative Mechanism
• Information disclosure
• Biodiversity-related Risk Management Methodologies/Tools
• Case Study

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Key Areas

Taskforce on biodiversity finance of the Green Finance Committee of China Society of Finance and Banking (GFC) -The study on innovation and practice of biodiversity finance initiated by IFS and the Industrial and Commercial Bank of China (ICBC) Huzhou Branch�

• Define the overall framework on biodiversity finance for Chinese banking sectors

Source: The Study Group

• Conduct frontier research and innovative practices from the following four aspects:

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• At project level, propose the biodiversity risk and impact assessment framework and indicators (e.g. five drivers/pressure-state-response during due diligence/preparation/ construction/operation phase…)
• At project level, ecological benefits assessment (e.g. mulberry fish pond )
• At portfolio level, preliminarily exposure assessment of existing loans (dependency and impact on ecosystem services by ENCORE)
• At institution level, analyze/aim to improve the current biodiversity-related risk management policies

Green Finance Supporting Chinese Forestry Industry’s “Going Global” — A Reference Framework for Banking Financial Institutions’ Environmental and Social Risks Management���

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General Situation: Chinese forest resources/forestry industry/overseas financing and investment

• Forest resources: China’ s forest area is 220 million hectares, with a forest coverage rate of 24.02%, ranking fifth in the world.
• Trade status: Since 2014, China's external dependence on timber has exceeded 50 percent.
• Investment destinations: Diversified destinations (Russia, Southeast Asia, Africa, America and some countries and regions in Oceania).
• The development stage of overseas forestry investment and financing: Labor intensive, at a low level.

Why Is Sustainable Overseas Forestry Investment and Financing Important for China?

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2014

2015

2016

2017

2018

2019

2020

2021

2022

Two guidelines on overseas sustainable forestry financing and investment

Define green procurement and green supply chain

environment management for green supply chain

strengthen firms’ sense of social responsibilities, and encourage enterprises to develop green supply chains

elevating Chinese industries’ positions in global value chains

Formulates and releases standards related to Green supply chains

actively supporting green supply chains, construction and striving to build global supply chains

keeping foreign trade stable, ensuring food and energy security, and stable industrial and supply chains

Builds and improves a green agricultural industry system

Builds green supply chains, conducts green supply chain pilot projects

participating in the global supply chains rulemaking and promoting the green development of supply chains

The guidelines for establishing the green financial system

Green credit guidelines

Green Industry Guidance Catalogue

GIP

 statistical system for green credit

Green Bond Endorsed Projects Catalogue

The Guideline of Environment Protection for Overseas Investment and Cooperation

Guides for Green Development of Outbound Investment and Cooperation

Guidelines for Ecological and Environmental Protection of Foreign Investment Cooperation and Construction Projects

Opinions on Promoting the Green development of the Belt and Road Initiative

Green/sustainable supply chain

Overseas sustainable forestry investment

Green finance

Greening the BRI

Before 2014…

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Financing models: long-term investment loans, resource import; A package of financial products and services combining the whole industrial chains

Mainly owned or self-raised

State-owned forestry enterprises

Policy banks

Commercial financial institutions

Private forestry enterprises

Chinese Financial Institutions Involved in Overseas Forestry Financing and Investment

Potential environmental and social risk (upstream/midstream/downstream) : e.g. monoculture, excessive logging, illegal logging, greenhouse gas emissions, air pollution, solid waste, fire, water use/hydrological conditions, soil erosion and loss, land degradation, habitat destruction, biodiversity loss, invasive alien species, chemical use

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The Chinese banking financing institutions’ current environmental and social risk management frameworks/policies: e.g. have embedded in the whole management procedures…but…

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Good practices learning from MDBs and global leading commercial financial Institutions regarding the Forest sector-bases policies

Policy review on safeguard frameworks, policies, sector-based policies

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• Formulation of forestry-related development strategies or prioritization of such businesses (e.g. WB/IFC/ADB/AFD…)

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• Formulation of an exclusion list relating to forest activities (e.g.ADB/IFC/AIIB/KfW/JBIC/EBRD/AFD/UBS/DB/HSBC)

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• Implementation of environmental and social performance standards relating to forest activities

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• Formulation of forest sector-based risk management policy as a supplement to safeguards or sustainability policies.

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The Reference Framework for Chinese Banking Financial Institutions’ Environmental and Social Risks Management regarding overseas forestry financing and investment�

Overall

requirements

Governance

Policies

Operational

management

• general principles
• adopting mandatory industry standards
• determining institutional commitments

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• broad of directors and senior managers’ attention and awareness
• develop detailed management plans
• detailing responsibilities at each internal management level
• external assessment and consultation

• develop exclusion list or redline policy
• taxonomy
• sector-based risk management policy (considering integral, long-term impact, EHS guidelines, voluntarily or mandatory obtain sustainability certification, ESS/PR…)

• initial screening
• due diligence
• E&S management plans
• review, monitor and assessment
• information disclosure
• accountability mechanisms
• capacity building

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Looking forward…and the opportunities for multilateral/bilateral cooperation �

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• Promoting pilot projects or practices

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• Cooperated with policymakers or regulators, take the framework as an example, expand the influence on Chinese enterprises and other practitioners…

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• Take key host countries/regions as pilot practices (e.g. set exclusion lists through bilateral cooperation, cooperated with stakeholders from host countries)

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• Initiate related initiatives/capacity-building seminars

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THANK YOU