Green Finance, Better Tomorrow – Industrial Bank's Financial Solutions for Sustainable Development

This project aims to speed up investment in green business. “Green Finance, Better Tomorrow – Industrial Bank's financial solutions for sustainable development” focuses on energy performance contracts, which provide loan money for environmentally friendly projects in exchange for future revenue. The initiative has, for example, already supported the renovation of solar water heating systems in southern China.

Fast facts:

CNY 1 billion (USD 160,000) in financing provided to 70 projects up to the first quarter of 2013
Aims to occupy 20 per cent of the market share
The equivalent of 67 million tons of potential reductions in carbon dioxide

The problem

Although the funding mechanism of energy performance contracts was introduced in China some time ago, it has not yet been taken advantage of at an industrial scale. The main reason is a lack of commercialized financing to support energy-saving service industries in China. Since energy performance contracts loan money in exchange for future revenue, they require a large initial investment of capital. Furthermore the payback period is very long. Due to limited self-owned capital, energy service companies typically cannot conduct successive projects by themselves.

Such companies are usually small- to medium-sized enterprises without enough assets that can be used as collateral for loans. Added to this is the difficulty in quantifying achievements of energy-saving projects, in order to assess project risks and estimate investment return.

The solution

For this project, Industrial Bank has developed financing that works around these issues. The bank proposes both long-term and short-term financing modes with flexible repayment methods, which greatly relieves the financial burdens for energy service companies. The economic profits of energy savings are regarded as the main source of loan repayment.

Furthermore, the bank retains internal and external experts to estimate environmental benefits in a measurable, reportable, and verifiable way. Every project is separately evaluated and quantitatively reported. This provides an empirical basis for credit decisions and risk control.

Helping the planet

Environmental benefits are numerous since the initiative supports projects such as improvement of energy efficiency, renewable energy development and utilization, carbon emissions reduction, recycling, reforestation, and carbon sequestration. In the solar water heater renovation already carried out, dependency on fossil fuels and thus greenhouse gases emissions have been reduced, helping avert further climate change.

Helping people

Supporting green businesses also means creating green jobs. Developing environmentally friendly approaches in the energy, construction, transportation, and industry sectors will also improve the quality of life for the Chinese, and help them save money.

For example, the project has already financed the construction and renovation of 40 water-heating systems in the dormitories of two educational institutions in southern China. These facilities are now supplying affordable hot water for students.

Spillover effect

This project itself has not only grown, but also helped companies increase their scale of work. In the case of the solar water heater renovation, this project helped the company doing the renovations develop from a typical medium-sized enterprise to an industry giant, and it has become the first company in China to carry out large-scale solar water heating system installations.

The financing model can be successfully applied in many different areas. Chinese regulatory agencies have invited the bank to help prepare an operations guide for energy performance contract financing, thus making it a leader in the development of green financial services in China.