ICBC says it’s time to take tougher line on major polluters, citing regulatory pressures linked to air pollution and emission standards

By Ed King

China’s largest bank is to start screening new loans for environmental risks, its vice president told finance leaders in London on Wednesday.

Speaking by video link from China, Zhang Hongli said the Industrial and Commercial Bank of China (ICBC) was aware of the risks posed by climate change and committed to greening its finance flows.

The world’s top bank, based on assets totalling US$3.6 trillion, it holds significant investments in coal, steel, cement and shipbuilding industries.

ICBC to start environmental stress testing of loans says Zhang Hongli #B20 #GreenFinance — Jon Williams (@jonwilliamspwc) March 23, 2016

On Wednesday ICBC released initial findings from a stress-test on investments in thermal coal and cement, covering nearly 500 Chinese companies.

It is the first time any Chinese financial institution has instigated a ‘bottom-up’ review of risk, one financial analyst told Climate Home. That is significant because China hosts this year’s G20, with a specific focus on climate change and green finance.

The study found policy changes concerning pollution control and tougher environmental standards would likely have significant structural impacts on both industries in coming years.

Over 80% of customers from these sectors with AA credit ratings could expect downgrades from now till 2020 under a high stress scenario, it said.

Zhang Hongli $ICBC, world's largest bank, mainstreaming #GreenFinance & publishes 1st ever environmental stress test https://t.co/BFk9i5VKqs — Abyd Karmali (@AbydKarmali1967) March 23, 2016

Firms with effective environmental regimes would be better positioned to win loans in the future, said the study.

“The feasibility of incorporating environmental factors into the bank customer credit rating system will be considered to help research and develop the ‘ICBC Green Index’, so as to prioritise bank loans and investment to green firms and fields,” it added.

ICBC plans to stress test other major polluters including iron and steel, non-ferrous metals, chemical and paper making.

The bank has been one of the worst-hit in China’s financial slump, reporting a 31% increase in bad loans totalling $25.5 billion in 2015.