Infrastructure: Credit for green credentials

Green finance is an important focus for ICBC. Kevin Xu explains to Tim McCready how the bank is active in global sustainable financial governance, learning from international practical experience, and contributing financial power to serve the sustainable development of the economy, society and environment.

Herald: ICBC’s attention to environmental, social, and governance (ESG) factors is growing. How is this affecting the bank’s involvement in international infrastructure projects?

Kevin Xu: ICBC has fully integrated ESG and green financial management into its investment and financing processes. Our head office has formulated green investment and financing policies for 16 sectors and nearly 50 industries, including infrastructure construction, and has positioned key areas such as green transportation, clean energy, energy conservation and environmental protection as active or moderate entry into the industry.

Environmental, climate and social risks arising from the credit granting process have been brought under classified management. Differentiated credit policies have been implemented in domains such as economic capital occupation, authorisation, pricing, scale, and a “one-vote veto system” is used for environmental protection. Green management requirements are extended to a wide range of investment and financing businesses lines such as bonds, wealth management, leasing.

ICBC New Zealand follows head office’s approach and has been actively involved in local infrastructure projects. More than NZ$300 million in loan commitments has been provided to support NZ renewable energy, sustainable projects in the past 12 months.

Herald: What factors do you take into account when integrating ESG factors into investment decisions?

Xu: We pay close attention to hazards and related risks that financing customers and related parties may bring to the environment and society in construction, production, and business activities. This includes energy consumption, pollution, land, health, safety, resettlement, ecological protection, environmental and social issues related to climate change.

ICBC implemented the “one-vote veto for environmental protection”for the entire investment and financing business process. The customer credit risk rating has embedded ESG factors.

Environmental risk factors are included in the customer rating model, including corporate environmental credit rating and green credit classification index. For corporates that are environmentally unqualified or unfriendly, the rating model will prescribe a limit to the customer’s credit rating.

The customer rating model covers governance risk factors, and incorporates corporate governance and corporate management indicators, including corporate governance structure, shareholder control, and related party transactions.

The inclusion of negative environmental events in the rating and early warning monitoring system, including factors such as environmental violations.

Our head office also clearly requires relationship managers to prudently evaluate the environmental and social risks of customers during the due diligence process and has introduced relevant supporting policies and systems.

Herald: What else does the bank take into consideration for infrastructure projects?

Xu: We also consider credit risks, market risks, country risks and other related factors that may affect investment safety and returns.

ICBC implements a unified credit risk appetite for all types of credit risk exposures across the bank, and implements full-process management of credit risk, covering the entire process from customer investigation, credit rating, loan evaluation, loan review and approval, loan issuance to post-loan monitoring.

For cross-border investment and financing, we also need to pay attention to the country risk of the country or region where the counterparty is located. ICBC uses a series of management tools to manage and control country risk, including country risk assessment and ratings, country risk limits, country risk exposure statistics and monitoring, and stress testing, etc.

Anti-Money Laundering is also the focus of our attention in handling investment and financing business. We strictly abide by relevant Anti-Money Laundering laws and regulations and steadily promote customer identification governance and high-risk areas management.

Herald: What impact has the pandemic had on ICBC’s infrastructure projects?

Xu: The outbreak of the pandemic and its prolonged duration have had varying degrees of impact on many industries, including infrastructure, and some projects are facing a certain degree of difficulties in supply chain operation and capital turnover.

ICBC actively fulfils its responsibilities as a corporate citizen by coordinating the prevention and control of the pandemic, financial security, and operation and management, and actively carrying out special activities to ensure the sustainability of the supply chain of large enterprises and the uninterrupted capital chain of small and medium-sized enterprises.

In the global fight against the pandemic, we will fulfil our responsibility, demonstrate our care and concern, and protect our beautiful home together.

Yangjiang Nanpeng offshore wind farm

ICBC approved a loan of RMB 1.6 billion yuan for the Yangjiang Nanpeng Island offshore wind farm project.

The 401.5MW project features 73 wind turbines and is the first single large capacity offshore wind power project in China. It is also the first offshore wind power project in Guangdong Province that is more than 10 kilometres away from the coastline and more than 10 metres deep.

Completed at the end of last year, the offshore wind farm can generate 1.015 billion kWh of annual on-grid power. This is expected to save 311,500 tons of standard coal and reduce carbon dioxide emissions by 828,800 tons every year.

Dubai solar thermal power plant

ICBC is the lead arranger for the construction of one of the world’s largest and most advanced solar thermal power plants.

The 700MW concentrated solar power and 250MW solar photovoltaic power station in Dubai has been jointly invested by Dubai Electricity and Water Authority (DEWA), ACWA and Silk Road Fund.

With a total investment of US$4.3 billion, the project is the largest new energy project financing in the world and has been highly recognised by the market. As the lead bank, ICBC arranged a US$2.5b senior syndicated loan with members from China, Europe and the UAE.

Concentrated power systems generate solar power by focusing a large area of sunlight into a small area.

The light is converted to heat, which is stored in molten salt to supply electricity on demand during the day and through the night.

This method of power generation makes up for the instability of solar power generation and the impact on power grids and ensure the stability of power supply.

The power plant is an important project under Dubai’s clean energy strategy and is expected to provide clean power to more than 270,000 households in Dubai every year, with zero emissions of carbon and pollutants.

The power plant will reduce carbon dioxide emissions by 1.6 million tons and will create 4000 direct jobs and more than 10,000 indirect jobs, providing local employment and economic development.

Baodi district solid waste power generation

With the increasing volume of municipal solid waste in Baodi District, Tianjin, China, the capacity of the original landfill site was not able to meet the needs of the community. To solve this problem, Tianjin Quantai Domestic Waste Treatment launched a domestic waste incineration power generation project.

ICBC granted a loan of RMB255 million yuan to assist with construction. The project began operations in December 2020 and has changed the method of domestic waste treatment from landfill to incineration. It is preventing the pollution of domestic waste into the soil and underground water sources and reducing reliance on fossil fuel-based power and heat sources and CO2 emissions by using waste as a resource for power generation.

Kevin Xu is Team Head, Corporate & Institutional Banking at ICBC New Zealand.

ICBC is a sponsor of the Herald’s Infrastructure report.

APEC 2021: The Kiwi women moving the world forward at Apec 2021 (NZ Herald)

APEC 2021: The Kiwi women moving the world forward at Apec 2021 (NZ Herald)

Women’s economic empowerment has been a key pillar of Apec’s work, and since New Zealand last hosted Apec two decades ago, has made significant gains.

Economies across Apec have worked together to promote those with “untapped economic potential” — people who have faced barriers to full economic participation — to provide the energy and vision for future growth.

A key focus of this work has been addressing the structures that hold back women’s full economic participation. While there is still significant progress to be made, as this year’s host New Zealand is leading the way with three women — Andrea Smith, Barbara Chapman, and Rachel Taulelei — holding pivotal roles to deliver the year’s event.

Andrea Smith

One of the key diplomats leading New Zealand’s year as Apec host is Andrea Smith, Apec deputy secretary at the Ministry of Foreign Affairs and Trade.

She has been in the role since 2017, and in that time has seen events that have put New Zealand’s hosting of Apec at risk — including the fire at the Sky City International Convention Centre fire where the CEO Summit was originally to be held, and the Covid-19 pandemic, which ground travel to a halt and forced Apec to go fully virtual.

Smith says that as host, New Zealand is at the leading edge of shaping the agenda for the Asia-Pacific and has “skin in the game”.

“Fourteen of our top 20 export markets are Apec members, including the three largest economies in the world — the United States, China and Japan — and 18 of our 19 free trade agreements are with Apec partners.” says Smith.

APEC 2021: Think Apec on Zoom is wild? Try Russia in 2012 (NZ Herald)

APEC 2021: Think Apec on Zoom is wild? Try Russia in 2012 (NZ Herald)

I was a participant in Apec’s Voices of the Future in 2012, held in Vladivostok, in Russia’s far east. The world looked considerably different back then.

Hu Jintao addressed the CEO Summit as President of China, Hillary Clinton gave a speech as US Secretary of State, on behalf of then-President Obama who was campaigning for the upcoming election, and Australian Prime Minister Julia Gillard was part of an education panel discussion, before having to depart early after of the death of her father.

As a New Zealand Voices of the Future delegate, I spent time with Prime Minister Sir John Key just ahead of his bilateral with Russian President Vladimir Putin, where the two were set to discuss the free trade agreement between New Zealand and Russia (negotiations were suspended in 2014).

Key spoke candidly about what it was like to represent New Zealand, a small economy, as an equal at the Apec table and engage with the world’s most powerful leaders.

Of course, one of the highlights of travelling to Apec was the cultural immersion and the people I met.

Russia went all out hosting Apec — US$21 billion was spent getting the city ready for the summit, vodka and caviar were prominent features at networking events, and a US$9 million firework display at the closing ceremony was one of the most extraordinary things I’ve ever seen.

At the summit’s gala dinner, I was introduced to the father of one of the Russian Voices of the Future participants. He was surrounded by bodyguards, and, unbeknown to me, was the Russian Energy minister.

I gave him my last remaining gift from NZ — an Ecoya candle. In exchange, he reached into his jacket pocket and handed me a large gold coin, minted to commemorate the new 1800km-long gas pipeline to Vladivostok.

Fast-forward nine years and it is NZ’s turn to host Apec. Things look so different now, with the pandemic requiring the summit to be delivered live over a virtual platform.

This year, I am the content producer for the Apec CEO Summit, as well as MC for the Voices of the Future programme. While the pandemic has meant attendees miss out on a visit to New Zealand, technological developments allow them to still experience NZ’s characteristic values of manaakitanga and whanaungatanga — a shared sense of humanity and connectedness — and work together on the issues that matter to them.

In 2012, when I helped write a declaration to Apec leaders on the issues we were most concerned about as future leaders, I was nominated by my peers to present our work, which was broadcast live on Russian TV. I spoke about the opportunity for SMEs to transform the economy of the Apec region, and encouraged leaders to support smaller organisations to grow. While the process of writing the declaration was a good one, I doubt Putin ever saw it.

This year feels like the dawn of a new era, in many ways, in digital diplomacy. As Apec chair, Prime Minister Jacinda Ardern will spend time next week with Voices of the Future delegates, receiving their declaration and hearing what matters to them, ahead of her meeting with leaders of the 21 Apec economies.

It is the next generation, after all, who are the biggest stakeholders in the work that Apec is doing.

Newshub Nation panel discussion (video)

It was nice to be back on the Newshub Nation panel this weekend with Ella Henry and Dileepa Fonseka, talking about opening the border, climate change, and a few laughs about the Winston Churchill painting controversy!
As New Zealand starts its journey to open to the rest of the world world, it was interesting to reflect on technologies being implemented globally that could play a part in NZ’s response:
🎤 The increased use of micro-influencers, particularly in the United States, to reach out to small pockets of communities that are vaccine-hesitant and allay concerns.
📌Wristbands (Singapore, South Korea, Hong Kong) and geotagged facial recognition (Western Australia) for ensuring home quarantine.
📱 Linking the Covid tracer app to vaccine status so that entry requirements can be varied based on risk and are validated when you scan into a venue (such as in Singapore, which requires double vaccination to enter restaurants, but a lesser requirement for office spaces).

 

New shifts in sustainability trends continue at pace

New shifts in sustainability trends continue at pace

The final leaders’ communique from the G7 states: “2021 should be a turning point for our planet as we commit to a green transition”.

Many of the sustainability trends in business that were on the rise last year are continuing at pace.

The pandemic highlighted the interconnectedness between social, environmental and economic challenges. It reinforced that an approach, centred around strong environmental, social and governance (ESG) principles is important for a sustainable future and that companies with strong track records in these areas tend to do well in the long-term.

But there are distinct new shifts in sustainability that have emerged over the past year that will shape the agenda and have a major impact on business in the months and years ahead.

Increased data and disclosure to counter greenwashing

The demand from consumers for sustainable business practices brings with it a growing concern that greenwashing is being used to obfuscate environmental credentials.

Recent audits have shown this concern has substance. A study of 12 of the biggest British and European fashion brands found 60 per cent of environmental claims could be classed as “unsubstantiated” and “misleading”. In another study, a sweep of company websites across a range of sectors by the European Commission found that green claims in 42 per cent of cases were exaggerated, false or deceptive under EU rules.

There is a growing expectation that companies will substantiate claims made.

Going a step further, some consumers and investors are expecting companies to disclose a plan for how their business model will be compatible with a net-zero economy — including detail on how that plan is incorporated into a long-term strategy that it is reviewed by the board of directors.

Earlier this month, former US Vice-President Al Gore told the Bloomberg Green Summit: “we must be vigilant about the rising threat of greenwashing or risk derailing the hard-won progress” that has been made in recognising the climate crisis.

He also noted that sustainable investing has “entered the mainstream,” providing even more openings for potential greenwashing.

Gore is right — sustainable investment opportunities have begun flooding the market to meet demand from investors looking to make decisions aligned with their ESG values. Of the S&P 500, about 90 per cent of companies publish sustainability reports, yet only 16 per cent have any reference to ESG factors in their filings — clearly demonstrating the gap between what companies voluntarily publish and regulatory disclosure.

To counter this, a broad range of requirements are being swept in to standardise the current patchwork of regulations and disclosure frameworks.

In March, Wall Street’s top regulator the Securities and Exchange Commission (SEC), announced the creation of a Climate and ESG task force to develop initiatives that will “proactively identify ESG-related misconduct”.

“Climate risks and sustainability are critical issues for the investing public and our capital markets,” said SEC acting Chair Allison Lee.

The task force will use sophisticated data analysis to identify potential violations, and evaluate and pursue tips, referrals and whistle-blower complaints on ESG-related issues.

The CFA Institute, a global association of investment professionals, is developing ESG standards for investment funds and other products, aiming to “provide greater product transparency and comparability for investors by enabling asset managers to clearly communicate the ESG-related features of their investment products”. Draft guidance was released earlier this year that the CFA Institute hopes will be adopted by fund companies around the world.

Global action to build back better and provide a green alternative to Belt and Road

One of the most dramatic turnarounds from the Trump administration has been the pace at which President Biden has thrown the weight of the United States behind global efforts to address global ESG issues.

Many of the Biden administration’s key people have been brought in with a strong environmental focus. Alongside this, the US quickly re-joined the Paris Climate Agreement, a new White House office of climate policy was established, and former Secretary of State John Kerry was appointed as international envoy on climate change.

In May, the White House issued an Executive Order that lays out a whole-of-government approach to addressing climate risks.

The recent Group of Seven (G7) meeting in Cornwall, United Kingdom, saw leaders announce the “Build Back Better World” (B3W) partnership. B3W is a “climate-friendly” initiative to mobilise private capital to help narrow the US$40+ trillion infrastructure need in the developing world which has been exacerbated by the Covid-19 pandemic — and has been described by some as a green counter to China’s Belt and Road Initiative.

Alongside this, the G7 leaders put forward ambitious targets for climate action. One of these targets saw a commitment to long-term strategies to net-zero greenhouse emissions by 2050 as soon as possible, “making utmost efforts to do so by COP26 (the UN Climate Change Conference COP26 in Glasgow in November).”

They also committed to set net-zero targets for energy generation in the 2030s and end direct government support for new thermal coal generation capacity without co-located carbon capture and storage technologies by the end of this year.

All other inefficient fossil fuel subsidies will be phased out by 2025. There was also a commitment made to stop direct funding for coal-fired power stations in OECD nations by the end of this year.

Other commitments made during the G7 that will impact the sustainable finance sector include the mandating of climate disclosures; a commitment to “intensify efforts in enhancing the offer of more sustainable transport modes” including encouraging the phase-out of traditional passenger vehicles in favour of electric vehicles by 2040; and a goal to jointly mobilise US$100 billion per year from public and private sources through to 2025 for developing countries.

These sweeping changes will have wide-ranging implications for governments, business, innovation, and financing.

The final leaders’ communiqué from the G7 states:

“2021 should be a turning point for our planet as we commit to a green transition” and accelerate efforts to cut greenhouse gas emissions, and “we acknowledge our duty to safeguard the planet for future generations” — although some have criticised the G7 for not being more ambitious in financial commitments to developing countries and for not being detailed in the plans to promote a green industrial revolution.

Threats to nature and biodiversity taking centre stage

In 2019, the UK was the first major government to commission a review into the economics of declining biodiversity.

The final report, the 600-page Dasgupta review, was released this year, and clearly links economic success to biodiversity.

It notes that our economies, livelihoods and wellbeing all depend on nature, and considers nature as an asset in the same way as produced capital (roads, buildings and factories) and human health (health, knowledge and skills) are assets:

“We rely on nature to provide us with food, water and shelter; regulate our climate and disease; maintain nutrient cycles and oxygen production; and provide us with spiritual fulfilment and opportunities for recreation and recuperation, which can enhance our health and wellbeing.

“We also use the planet as a sink for our waste products, such as carbon dioxide, plastics and other forms of waste, including pollution.”

The World Economic Forum estimates that $US44 trillion of economic value generation representing more than half of world GDP is moderately or highly dependent on nature. Yet the world’s biodiversity is declining faster than it has at any other time in human history, with the current rate of extinction tens to hundreds of times higher than the average over the past 10 million years — and accelerating.
We can expect to hear more about this and see it impact business decision making. The UK government has published an amendment to its Environmental Bill, requiring new “nationally significant” infrastructure projects — including for transport and energy — to provide a net gain in biodiversity and habitats for wildlife.

Protecting and enhancing nature will need concerted, coordinated action and will be major topics at this year’s upcoming COP15 (UN convention on biological diversity) in China and COP26 (UN climate change conference) in Glasgow.

“This year is critical in determining whether we can stop and reverse the concerning trend of fast-declining biodiversity,” says UK Prime Minister Boris Johnson.

“As co-host of COP26 and president of this year’s G7, we are going to make sure the natural world stays right at the top of the global agenda,” he said. “And we will be leading by example here at home as we build back greener from the pandemic.”

New Zealand Institute of International Affairs 2021: Prime Minister Jacinda Ardern interview (video)

Interview with Prime Minister Jacinda Ardern at the New Zealand Institute of International Affairs 2021 conference, ‘Standing in the Future: New Zealand and the Indo-Pacific region’ with co-hosts Tim McCready and Ziena Jalil.

 

New Zealand Institute of International Affairs 2021: Kurt Campbell interview (video)

Address and interview with Kurt Campbell, White House Coordinator for the Indo-Pacific, at the New Zealand Institute of International Affairs 2021 conference, ‘Standing in the Future: New Zealand and the Indo-Pacific region’ with co-hosts Tim McCready and Ziena Jalil.

 

New Zealand Institute of International Affairs 2021 conference opening (video)

Opening of the New Zealand Institute of International Affairs 2021 conference, ‘Standing in the Future: New Zealand and the Indo-Pacific region’. Co-hosts Tim McCready and Ziena Jalil.