Chapter One  General Provisions

Article 1 The Financial institutions of the banking sector (afterwards referred to as the banks) shall, with a strategic view to implement the scientific development outlook, to promote the thorough and sustainable development of the economy, environment and society, and to ensure the safe and stable operation of the banking sector, earnestly follow the spirits of “the Notice of the State Council on the Issuance of ‘General Work Plan on Energy Conservation and Emission Reduction’’’ (the State Council Issuance No.15 [2007] ) and of “the Decision of the State Council on the implementation of the Scientific Development Outlook and the Strengthening of Environmental Protection” (the State Council Issuance No.39 [2005] ), fully understand the great importance of energy conservation and emission reduction, and do exactly good work on credits underwriting for energy conservation and emission reduction.

Article 2 The banks shall take the promotion of the energy conservation and emission reduction of the society as their own important mission and the concrete incarnation of their social responsibility, raise the staff’s awareness of energy conservation and emission reduction, thoroughly know the relevant laws, regulations and standards, and greatly enhance the scientificalness and the foreseeability in the process of credit underwriting.

Article 3 The banks shall prevent the various risks caused by high energy consumption and heavy pollutant discharge, and strengthen the construction of systematic rules and enforcement force in terms of strategic plan, internal control, risk management, and business development:

(1) Formulate a plan responding to the various risks caused by the high energy consumption and heavy pollutant discharge in line with the business characteristics, risk profile and organizational framework of the banks.

(2) Work out policies and operational rules on the industrial sectors involved with the risk of high energy consumption and heavy pollutant discharge based on the composition of the banks’ clients and the characteristics of the industrial sectors to which the clients belong.

(3) Lay down rules and procedures on credit underwriting for energy conservation and emission reduction in accordance with the need of the internal control and risk management of the banks.

(4) Properly concentrate the authorization of credits to clients and projects involved with the risk of high energy consumption and heavy pollutant discharge in accordance with the expertise and experience of the credit officials of the banks.

(5) The board of directors shall review and approval the plan, policies, rules and procedures mentioned above, set aside the proper resources, and assign a senior manager who well knows the risk of high energy consumption and heavy pollutant discharge to be responsible and accountable for the implementation.

Chapter Two  Policies on Credit Underwriting

Article 4 In accordance with the state industrial policies, the banks shall not provide credits to the new projects that fall into the categories forbidden or restricted by the industrial policies; based on their credit principles, they may provide the credits to a project of the restriction category if the state permits the enterprise sponsoring the project to take measures to upgrade the projects; and in principle they shall no longer provide any kinds of new credits to the projects of the forbidding category and shall take measures to call the credits they have granted before. The banks shall not bypass procedures of credit underwriting to provide any credits or guarantees to projects in the forms of working capital loans and banking acceptance, or in other forms of credits or guarantees that are on the balance sheet or off the balance sheet.

Article 5 The banks shall pay close attention to the performance of the borrowing enterprises in achieving targets of energy conservation and emission reduction and to their compliance with laws and regulations on environmental protection, and improve the communication with the administrative departments for energy conservation and emission reduction. They shall not provide any new credits to the enterprises that are identified and publicized by these departments to have serious problems with energy consumption or pollutant discharge except that the credits are used for the purpose of solving the problems, and gradually reduce and call the old credits to these enterprises.

Article 6 The banks shall strengthen the analysis of backward production capacity in major industrial sectors and take reasonable and effective measures to timely adjust, reduce, and call the credits relating to the capacity that are regarded as backward in the name list of the enterprises or projects determined by the National Development and Reform Commission or its provincial counterparts or other relevant government agencies.

Article7 The banks shall closely follow up with such state key projects as major energy saving engineering, renewable energy projects, water pollution improvement engineering, sulfur dioxide recovery, pilot recycling economy projects, water resources conservation, resources multipurpose use, the utilization of wastes as resources, clean production, research and development on energy conservation and emission reduction and their demonstration and broad application in industries, energy conservation services systems, and environmental protection industries. Thoroughly considering factors like credit risk assessment, cost compensation mechanism and policy supports from governments, the banks shall satisfy the financing needs of select projects and provide good financial services such as investment advice, settlement and cash management for them.

Article 8 The banks may, in the process of implementing the spirit of energy conservation and emission reduction, provide preferential credit supports to the enterprises and projects that receive fiscal subsidies, tax exemptions, or other policy supports from the national or local governments, or that have excellent performance in energy conservation and emission reduction so as to receive the praise, encouragement and recommendation from the national administrative departments, if other conditions on credit underwriting are equally satisfied.

Article 9 The banks shall adopt differentiating regional credit policies. They may provide preferential credit supports to the enterprises and projects in the region where significant achievements in energy conservation and emission reduction have been made in reference to the performance targets of the provinces, autonomous regions and cities directly under the central government publicized by the national administrative departments if other conditions on credit underwriting are equally satisfied. They shall strictly control underwriting credits in the regions that are listed by the national environmental protection departments as “restricted regions” or “restricted reaches”.

Article 10 The banks shall seize the opportunity of business development brought about by the national adoption of the strategy of energy conservation and emission reduction, strengthen financial innovation, and proactively develop innovative financial products relating to energy conservation and emission reduction.

Chapter Three  the Management of Credit Underwriting

Article 11 The banks shall, based on the principles of “know your customers” and “know your customers’ businesses” and through the site investigation, consultation to the administrative departments for energy conservation and emission reduction, industrial associations and credit bureaus or in other proper ways, keep in-depth acquaintance with the performance of the borrowing enterprises and financing projects in achieving targets of energy conservation and emission reduction and their compliance with laws and regulation on environmental protection, and carefully analyze their problems with energy consumption and pollutant discharge and various risks caused by the problems.

Article 12 The banks shall conduct a strict compliance review of the “six must conditions” for the start and construction of projects (they must accord with industrial policies and market entrance standards, procedures for the approval or review or registering of projects, land use pre-review, approvals for environmental impact assessment, examinations of energy conservation assessment, as well as the provisions and requirements relating to credit underwriting, safety and municipal plan). The banks shall, in the process of review, pay attention to the compliance requirements both in form such as the authority, completeness and legitimacy of the approval or review or registering documents and in substance such as new projects being in accordance with national industrial policies and industrial development trend, the environmental impact assessment of projects being compatible with the general requirements for project-related zones in the environmental plan, and the technological and economic standards reached by projects being towards domestically or internationally advanced level.

Article 13 The banks shall strengthen disbursement management relating to financing projects. They shall not make disbursement to a project for its pre-start preparation and construction if the project does not obtain the environmental impact assessment approval it should have obtained; they shall suspend disbursement to a project for the construction of its principal facilities if the environmental facilities are not simultaneously being designed, constructed and operated with the principal facilities until the simultaneousness is realized; they shall not make disbursement to a project for its operation if the project does not obtain the environmental impact assessment approval for the project completeness it should have obtained. For overseas projects that are invested by domestic enterprises, the banks should push forward the borrowing enterprises to follow environmental laws and regulations of the country or region where the projects are constructed, and to follow the best practice on the assessment and control of environmental and social risks that is conducted for international financing projects.

Article 14 The banks shall strengthen the categorization management for financing projects. The banks in good conditions may divide their financing projects into the following three categories in terms of extent of the impact of a project on environment:

Category A: The projects that lead to a severe change in environment, thus causing adverse environmental and social consequences that are not easy to eliminate;

Category B: The projects that cause adverse environmental and social consequences but easy to eliminate through mitigation measures;

Category C: The projects that do not cause significant adverse environmental and social consequences.

The banks shall categorically manage the three types of projects above. For the projects classified as Category A and the projects classified as Category B but with material risks, the banks shall require the entities sponsoring these projects as well as important third parties such as contractors, suppliers and supervisory services firms to establish and adopt the management system and action plan against the environmental impact, the communication mechanism with the communities affected and the rules and procedures on monitoring, assessment and report (or public announcement) of the environmental impact, and engage an independent third party to monitor and assess the mechanism, capacity and results of the entities in controlling environmental risks. For the projects classified as category C and the projects classified as Category B but with minor risks, the banks shall pay proper attention to the environmental risk control of sponsoring entities.

Article 15 The banks shall adopt name list management for the borrowing enterprises with material risks of energy consumption and pollutant discharge. The enterprises put into the name list shall include those that are focally monitored by the national and local administrative departments for energy conservation and emission reduction, and those that are identified by the banks themselves to be risky in energy consumption and pollutant discharge. The banks shall proactively communicate with administrative departments, keeping timely acquaintance with the performance of enterprises in the name list in achieving targets of energy conservation and emission reduction and in compliance with laws and regulations on environmental protection, and persistently updating the name list. The banks shall strictly control credits to the enterprises in the name list.

Article 16 The banks shall seek various ways to mitigate the compliance risk and credit risk relating to energy consumption and pollutant discharge. They may require the project-sponsoring entities to raise the capital ratio in the investment, to issue mid-term or long-term corporate bonds, to increase technological upgrading plans and projects relating to energy consumption and emission reduction, and to pledge the operational rights of the projects completed or the cash flows from the projects completed. They may also require the entities to take out insurance policies on the construction period of the projects or on the engineering liabilities, environmental liabilities and product liabilities. For the borrowing enterprises and financing projects with material risks of energy consumption and pollutant discharge, the banks may manage and decentralize risks by syndicated loans.

Article 17 The banks shall, in the process of pricing credits in the light of risks, take full consideration of credit risks relating to energy consumption and pollutant discharge. They shall reasonably determine the price of credits based on the principle that returns should match with risks. While determining the indicator of returns adjusted for risks and distributing economic capitals, the banks shall take full consideration of multiple impacts and risks brought about by the borrowing enterprises and financing projects that belong to the industrial sectors of high energy consumption and heavy pollutant discharge.

Article 18 The banks shall pay close attention to the impacts of the government’s adjusting industrial structure and closing down backward production capacity upon the repayment capacity of the borrowing enterprises and financing projects, to the impacts of changes in policies on energy consumption and pollutant discharge and of upraise in standards on energy conservation and emission reduction upon the cash flows of the borrowing enterprises and financing projects. They shall strengthen sensitive analyses and make timely adjustments in asset risk categorization, provisioning calculation and loss write-off.

Article 19 The banks shall improve the management of loan contracts with the borrowing enterprises and financing projects that involve the risks of energy consumption and pollutant discharge. They may draw up the terms and covenants on such risks, including the statement on compliance with laws and regulations on environmental protection, the covenants on acceleration, suspension and foreclosure in case of failures to commit promises or in case of appearance of such risks. They shall strictly monitor the risks of contract violation.

Article 20 The banks shall strengthen staff training and capacity building, accumulate the specialized knowledge of energy consumption and pollutant discharge, and improve the capability of managing credits to the borrowing enterprises and financing projects that involve the risks of energy consumption and pollutant discharge. They may foster talents for themselves or introduce specialists from outside. They may also obtain specialized services by means of the third party’s review and assessment of environmental risks or other effective service outsourcing.

Article 21 The banks shall improve the disclosure of information on their work relating to energy conservation and emission reduction, publicizing their policies and standards on credit underwriting relating to energy conservation and emission reduction, disclosing information on credits to the borrowing enterprises and financing projects that contain the material risks of energy consumption and pollutant discharge, embracing the supervision from the market and stakeholders.

Article 22 The China Banking Regulation Commission will take credit underwriting for energy conservation and emission reduction as important factors for bank rating, linking the relevant results up with the assessment of the performance of senior managers, branches entrance and business development, and giving encouragement to banks with good performance. It may arrange a special inspection to banks that have a high proportion of credits to the industrial sectors of high energy consumption and heavy pollutant discharge or experience a high growth in such credits, and urge and supervise the banks to make rectification and reform. When necessary, it may ask external auditors to pay attention to the credit risk and compliance risk of the audited banks relating to energy consumption and pollutant discharge, bringing the role of external auditors into play.

Article 23 The banking associations at each level shall proactively guide and assist banks to do good work in underwriting credits for energy conservation and emission reduction, by spreading advanced experience and best practice, providing information services and technological advice, and strengthening the relationship with industrial associations and professional societies.

Article 24 The trust companies, finance companies and other non-depository financial institutions established within the People’s Republic of China shall implement the Guidelines when relevant to their businesses.

The Guidelines shall be implemented from its issuance date.