Tracking the implementation of green credit policy in China: Top-down perspective and bottom-up reform

Journal of Environmental Management 92 (2011) 1321e1327

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Tracking the implementation of green credit policy in China: Top-down perspective and bottom-up reform Bing Zhang, Yan Yang, Jun Bi* State Key Laboratory of Pollution Control & Resource Reuse, School of Environment, Nanjing University, Nanjing 210093, PR China

a r t i c l e i n f o

a b s t r a c t

Article history: Received 5 July 2010 Received in revised form 17 December 2010 Accepted 20 December 2010 Available online 9 January 2011

The Chinese government has introduced the green credit policy to mitigate the environmental impact of industrialization by reining in credit loans to companies and projects with poor environmental performance. This research investigated the implementation of the green credit policy both at the national and provincial levels. Our results show that the green credit policy is not fully implemented. The wide-ranging impact on high-polluting and high energy-consuming industries, vague policy details unclear implementing standards, and lack of environmental information are the main problems in the implementation of the green credit policy in China. On the other hand, the practice at local level (Jiangsu Province) is more practical by integrating green credit policy with the environmental performance rating system. Finally, suggestions are outlined to improve China’s green credit policy. Ó 2010 Elsevier Ltd. All rights reserved.

Keywords: Green credit Banking sector Environmental responsibility Environmental risk management Policy implementation

1. Introduction Banking and finance play a fundamental role in public policy and economic performance as well as in all forms of commerce and industry. They are crucial sectors in determining whether society stakeholders, from governments to individual consumers, succeed in following an environmentally sustainable path (Bouma et al., 2001; Emtairah et al., 2005). Banks can also bring on indirect pollution by lending money to polluting companies or projects which cause major damage to the environment. On the other hand, environmental issues may also influence banking management strategy and daily banking activities. Once investment projects which cause serious environmental problems are restricted by environmental policies, a negative effect on banks will ensue (Zhang, 2005). Initially, environmental issues did not attracted attention from the financial industry and banks (Yang, 1997). In the past quarter century or so, as, with strengthening of environmental awareness and stricter implementation of environmental standards, the relationship between the financial industry and environmental protection has come to be acknowledged. In 1980, the US Comprehensive Environmental Response Compensation and

* Corresponding author. Tel./fax: þ86 25 83592976. E-mail address: [email protected] (J. Bi). 0301-4797/$ e see front matter Ó 2010 Elsevier Ltd. All rights reserved. doi:10.1016/j.jenvman.2010.12.019

Liability Act of US (CERCLA) awakened the bank business in the US by rendering banks potentially liable for environmental cleanup costs at abandoned properties in relation to which a bank had provided a loan (Zhu and Zhu, 2003). With CERCLA banks began to pay close attention to the potential legal risks related to environmental performance of the recipients of bank loans or credit. Banks began to pay more attention to the environmental impact of their credit, asset management, investment and insurance businesses. At the same time, international organizations, most notably the United Nations and World Bank, pushed banks in all countries to integrate sustainable development into their activities through policies and guidelines. Of particular important are three global rules e the social and environmental performance standards of the International Finance Corporation (IFC, 2006), the Equator Principles (EPFIs, 2003, 2006), and the Financial Action of United Nations Environment Programs (Yu and Guo, 2003). As of 2008, 63 financial institutions were involved in the Equator Principles (EPs). However, the only China participant is the Industrial Bank of China (Li, 2009a) until 2009. In 1995, the People’s Bank of China published its Notice on Implementation of Credit Policy and Strengthening of Environmental Protection Works, which requested financial institutions to implement national environmental protection policy in credit activities (PBC, 1995). The State Council issued documents stating

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requirements for green credit.1 These documents include the Decision on Several Problems of Environmental Protection in 1996 (SCPRC, 1996), Decision on Implementation of Scientific Outlook on Development and Strengthening of Environmental Protection in 2005 (SCPRC, 2005), and Comprehensive Operational Schemes of Saving Energy and Reducing Pollution in 2007 (SCPRC, 2007). However, the policies in these documents are difficult to implement in China. Lack of environmental information, incomplete supporting policies and laws, unclear implementation standard for different industries, and local protectionism are considered to be the major barriers in the promotion of green credit policy (Aizawa and Yang, 2010; Li, 2009b; Matisoff and Chan, 2008; Zhang and Li, 2009). China’s environmental problems have attracted worldwide attention, as the country is now the world’s largest carbon dioxide emitter as well as the foremost source of air pollution. As a tool of macroeconomic policy to promote environmental protection, the State Environmental Protection Administration (SEPA, which now is the Ministry of Environmental protection, MEP), the China Banking Regulatory Commission (CBRC), and the People’s Bank of China (PBC) jointly issued Suggestions on Implementation of Environmental Policies and Regulations and Guard against Credit Risks on July 30, 2007. Its core content is the introduction of green credit (MEP, 2007). It provides for credit control on enterprises and projects in compliance with industrial policies and environmental law. Green credit is to be used to curb the blind expansion of industries with high energy consumption and heavy pollution. Instructions stipulate that environmental supervision and credit management of new projects should strictly follow the requirements of environmental protection laws and regulations. The initiation of the green credit concept and 11th five-year plan brings national attention to energy-saving and emission-reduction goals resulted in good immediate acceptance of the green credit concept. A number of provinces and cities issued policies to promote green credit. Banks also put forward green credit requirements (see supplemental material). However, the achievements of green credit policy (including the restriction of credit) only account for a small part of the total credit line. Data published by the CBRC show that the total loans granted by the five largest commercial banks in support of major projects for saving energy and emission-reduction only amounted to RMB 10.6 billion in 2007, where loan balances of financial institutions amounted to RMB 2600 billion (CBRC, 2008). The policy performance is far from the expected goal (Pan, 2008a; Zhang, 2002). Non-implementation or unsuccessful implementation of green credit policy is considered to be the main cause of the failure of green credit policy to produce the expected results or outcomes (Pan, 2008b). Policy failure can occur as a result of bad execution, bad policy, or bad luck. Ineffective implementation will be viewed by policy makers as a product of bad execution. External circumstances may be so adverse that bad luck is identified as the reason for failure (Hunter and Marks, 2002). Since the 1970s, with the work of Pressman and Wildavsky studies of the implementation of government policy have shown how implementation has a significant impact on the success of a policy (Pressman and Wildavsky, 1973). Explanations of the problems afflicting policy implementation have long focused on the approach adopted, i.e., top-down (Sarbaugh-Thompson and Zald, 1979) or bottom-up approach

1 “Green credit” policy, by extension, is one type of policy wherein the Chinese environmental agency works with banking authorities to identify companies that fail to comply with pollution standards or that bypass environmental assessments for new projects. “Green credit” restricts these companies from accessing fresh credit and influences them to support environment-friendly projects. However, in this research, we only focused on the restriction of credit to companies or projects with poor environmental performance.

(Berman, 1978; Hjern et al., 1978). Proponents of the top-down approach address control and communication factors at the hierarchical levels. However, supporters of the bottom-up approach, focus on the political micro-processes at play among stakeholders who have different interests and often irreconcilable values. In their view, the implementation of public policy results from a negotiation (Strauss, 1978) that depends on the structure of the network of stakeholders, their interaction, and the distribution of power among them. In addition, the advocacy coalition process, which captures the dynamics of competing interests (Sabatier and Mazmanian, 1983), has been shown to be superior to a more “bottom-up” or “advocacy coalition” approach (Elson, 2006). Sabatier and Mazmanian made an important contribution to the evolution of implementation theory in their review of the California Coastal Commission’s efforts to manage coastal zone land use. They concluded that the California Coastal Commission was relatively successful in implementing its objectives. They then identified criteria that explained this successful outcome and tested the criteria on a number of other case studies of policy implementation (Mazmanian and Sabatier, 1989). They summarized their findings by identifying six key criteria determining implementation success: clear and consistent objectives; causal linkages between objectives and actions; designation of a sympathetic agency with adequate resources and authority to implement the plan; skilled and committed implementation managers; public and stakeholder support; and a supportive socioeconomic and policy environment (Mazmanian and Sabatier, 1989). Following the Mazmanian and Sabatier analysis, other researchers tested and elaborated on the criteria for successful implementation (Goggin et al., 1990; Vedung, 1997; Winter, 1990). Following this approach, this study intends to make a systematic analysis on how banks implement the green credit policy in China to identify the problems during the implementation and to optimize the green credit policy. 2. Methods 2.1. Research design According to the green credit policy, banks should restrict money loaned to companies with poor environmental performance. Two additional factors will affect banks’ decision making: green credit policy requirements and the amount and quality of corporate environmental information available to bank lenders. Green credit policies, both from the central government and local governments, ask banks to implement green credit regulations. In general, the local environmental regulations or standards will be more concrete and strict than those of the central government. However, banks need collect relevant environmental information to implement the policy requirements. There are three ways to obtain environmental information: self reports by companies, environmental information provided by the central government, and environmental information provided by local governments. This research reviews the procedures of green credit and the policy implementation framework to analyze the green credit policy implementation in China. Sabatier and Mazmanian developed their theoretical framework for analyzing policy implementation in the early 1980s. The framework applies a number of statutory and non-statutory variables to five identified stages in the policy implementation process (Sabatier and Mazmanian, 1980). This approach to policy implementation analysis is grounded in policy theory, which includes veto points and causal theory (Mazmanian and Sabatier, 1989). According to Mazmanian and Sabatier, the crucial role of implementation analysis is to identify the variables that affect the

B. Zhang et al. / Journal of Environmental Management 92 (2011) 1321e1327

achievement of the policy objectives throughout the process. These variables can be divided into three broad categories (see supplemental material): (1) the material variables associated with the problem(s) being addressed, (2) the structural dimensions that influence the implementation process, and (3) the net effect of a variety of contextual variables to support the policy (Elson, 2006). Integrating Mazmanian and Sabatier’s framework and the procedure of availing green credit, we generalized five key factors affecting the implementation of the green credit policy. These are as follows:  Tractability of the problem (extent of behavior change required);  Clear and consistent policy items and objectives;  Access to environmental information;  Designation of a sympathetic agency with adequate resources and authority to implement the policy (environmental risk management agency);  Cooperation with environmental protection department.

2.2. Data collection The study was completed using data from the analysis of documents, observations of key actors, and focused interviews with operators (i.e., bank managers). To gain an overall understanding of bank implementation of green credit policy, the investigated implementation by major banks at national and local levels. Based on the amount of credit funds, four state-controlled commercial banks and four joint-stock commercial banks and two commercial banks of city were selected for the study (see Table 1). At the national level, the information and data used in this study were mainly from banks’ corporate social responsibility reports and relevant documents. At the local level, the study was conducted mainly by collecting information through face-to-face interviews in Jiangsu Province, which is one of China’s most developed areas. The interviews focused on implementation of the green credit policy in regard to policy items, policy standards, information availability,

Table 1 List of selected banks in China. No. Name of bank

Abbreviation Ownership

CSR Face-to-face reports interview

1

Bank of China

BOC

O

O

2

ICBC

O

O

CCB

State-controlled commercial banks

O

O

ABC

O

O

O



O

8

Zheshang Bank

ZSB

State-controlled commercial banks Joint-stock commercial bank Commercial bank of city Joint-stock commercial bank Joint-stock commercial bank Commercial bank of city

O

7

Industrial and Commercial Bank of China China Construction Bank Agricultural Bank of China China Bank of Communications Bank of Nanjing

State-controlled commercial banks State-controlled commercial banks



O

O

O

O

O

O

O

O

O

3

4 6

9

BankComm NJB

China Minsheng Bank 10 Shenzhen Development Bank 11 Hua Xia Bank

MSB

12 Industrial Bank

IB

SZCB

HXB

Joint-stock commercial bank Joint-stock commercial bank

1323

administrative feasibility, and political feasibility. Interviews were taped and transcribed. All participants were given a chance to comment on the content of the interview transcripts and all the quotations used in this study. To reduce personal bias, two managers were chosen for the face-to-face interview. 3. Results 3.1. Tractability of the problem The nature of policy issues, diversity of target group behavior, and the extent of behavior change required affects the effective implementation of policies (Sabatier and Mazmanian, 1980). The adoption of the green credit policy is mainly based on three considerations. First, China is facing an increasingly grim situation in energysaving and emission-reduction. In the 11th Five-year Plan, China set a 20 percent/per GDP unit energy-saving target and 10 percent “main pollutant” (i.e., chemical oxygen demand (COD); sulfur dioxide (SO2)) reduction targets. However, the 4 percent energysaving target for 2007 and the 2 percent emission-reduction targets for 2007 were repeatedly reported to have not been met. According to statistics, the industrial value added in the first half of 2007 increased to 18.5 percent. Six high energy-consuming growth industries, namely, petrochemicals, chemicals, building materials, iron and steel, nonferrous metals, and electric power lines, had a combined value added of 20.1%, 1.6 percentage points higher than the industrial value added. The task of restricting these high energy-consuming and high-polluting industries is considered crucial to the 11th Five-year Plan. Second, the government intends to curb projects and enterprises that do not meet the requirements of environmental protection laws and rules. Thus, enterprises with poor environmental performance will bring high credit risk, and pollutantemitting enterprises will be shut down. Banks are also required to restrict loans to heavily polluting enterprises. Third, environmental protection agencies in China are generally subject to a limited range of regulatory policy, inadequate regulatory power, and scarcity of regulatory instruments to improve environmental performance. Environmental protection agencies face an embarrassing state after four large-scale environmental enforcement actions (limitative ratification of companies, limitative ratification of industries, limitative ratification of region and limitative ratification of watershed) had limited effect for ineffective implementation. In this context, the green credit policy is expected to limit bank loans to high energy-consuming, highly polluting industries through the establishment of an environmental threshold to cut off their chain of funds. This will be done by limiting the total number of loans to these industries, suspending or declining some loans, and retracting loans previously disbursed to polluting enterprises. However, high energy-consuming and highly polluting industries are still the dominant force of China’s current economic development and will continue to be so for quite a long time. At present, China’s heavily polluting industries source more than 70%e78% of electricity consumption from coal, a level that is expected to be maintained at least until 2020 (Matisoff and Chan, 2008). Thus, the green credit policy will have a wide-ranging impact on economically critical enterprises in China, especially in the less developed regions. The wide-ranging impact makes the implementation of the green credit policy difficult. At the local level, since 2000 the Jiangsu Provincial government has developed green credit policy. The policy has focused on firms with poor environmental performance. The environmental performance of firms is rated by dividing firms into five rating

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categories, with two ratings (black and red) denoting inferior performance; one (yellow) denoting minimum compliance with emission regulations but failure to comply with stricter requirements; and two (blue and green) denoting superior performance (Wang et al., 2002; Zhang et al., 2008). Banks should restrict loans to firms with black and red ratings, while supporting firms with green and blue ratings. This approach makes the green credit policy easier to effectuate in Jiangsu. 3.2. Clear and consistent green credit policy items and objectives The green credit policy was launched in 2007, as banks were instructed to stop providing loans to high energy-consuming and polluting industries with the publication of Suggestions on Implementation of Environmental Policies and Regulations and Guard against Credit Risks. Thereafter, the CBRC issued two directives on evaluating environmental risks of loan applications and integrating environmental considerations into banking investment options. These are the Notification on Load Risk Prevention and Control of High Pollution Industries in July 2007 and Directive Suggestions on Energysaving, Emission-Reduction and Credit Work in November 2007. Both describe the implementation content of the green credit policy in more detail, especially on the loan controls in “Two-high & one overcapacity” industries2 (Lei, 2008). The first international investigation of Chinese banks’ environmental responsibility, by BankTrack and Friends of the Earth, found that only two banks published related policies on green credit (Michelle, 2007). However, by 2008, most of the banks publically emphasized implementation of green credit (see Table 2) in accordance with the requirements of the CBRC. Banks declared that they would deny loans to “Two-high & one overcapacity” industries by the “one ballot against the veto system”. However, most of the banks only emphasized the national policies with little detail on implementation policies and mechanisms. According to the bank interviews in Jiangsu, only Industrial and Commercial Bank of China (ICBC) and Agricultural Bank of China (ABC) issued an implementation policy to promote the green credit policy (ABC, 2008; Chen, 2007). Implementation standards are crucial if banks are to carry out the green credit policy. The two 2007 CBRC papers are still the principal regulations on green credit. Both MEP and the CBRC emphasize “Two-high & one overcapacity” industries. The MEP has also published a “credit blacklist” of substandard companies with high energy consumption, pollution, and environmental risks. Banks are prohibited from providing loans to blacklisted companies. The companies will not be deleted from the list until they rectify their environmental violations (Pan, 2008b). To date, the blacklist is the most specific national standard for implementing green credit. Among the 38 blacklisted companies, 12 submitted loan applications- but they were all restricted or rejected by banks (Pan, 2008a). On the other hand, with no further detailed national implementation standard of other requirements, banks provide the corresponding credit standard in accordance with the CBRC regulations. Thus, environmental impact assessment reports, “Two-high & one overcapacity” industries, and serious environmental violations are the three main factors which will considered by banks. However, these three environmental requirements are fundamental for enterprises that the credit policy needs more strict environmental requirement. Compared with the requirements of the head office, local bank branches are more practical. They may combine green credit policy

2 “Two-high” means highly polluting and high energy-consuming industries; “one overcapacity” means industries that have production overcapacity.

Table 2 Green credit policy of banks. No. Banks

Green credit in CSR reports

Interviewed

Documents

1 2

Bank of China (BOC) Industrial and Commercial Bank of China (ICBC)

Yes Y

Y Y

3

China Construction Bank (CCB) Agricultural Bank of China (ABC)

Y

Y

e Suggestions on Promoting Construction of Green credit e

Y

Y

China Bank of Communications (BankComm) 7 Bank of Nanjing (NJB) 8 Zheshang Bank (ZSB) 9 China Minsheng Bank (MSB) 10 Shenzhen Development Bank (SZCB) 11 Hua Xia Bank (HXB) 12 Industrial Bank (IB)

Y

Y

Notification on Support, Control and Press Lists of High Pollution Industries and Related Credit Policy e

e e Y

Y e e

e e e

Y

e

e

Y Y

Y Y

e e

4

6

with other local environmental management policies. In Jiangsu Province, according to the interview results, banks take the “environmental behavior ranking” as crucial factor, as well as the environmental impact assessment report (see Table 3). Enterprises with “red” and “black” ranking status will be forbidden to obtain credit from banks (JSEPB, 2009). The color list of enterprises provided by the local environmental protection bureaus (EPBs) is a convenient tool for Jiangsu banks as they try to carry out the green credit policy. In 2009, of the 16,464 firms involved in the Jiangsu environmental performance rating system 3.4 percent were rated red and 0.94 percent were rated black (Fig. 1). Thus, in Jiangsu their green credit policy is being implemented according to the corporate environmental performance color ratings. 3.3. Access to environmental information Successful policy or program implementation requires that those involved have sufficient information. Environmental information, such as environmental impact assessments, should be provided by the national and/or local environmental agencies. The Ministry of Environmental Protection only provides the credit blacklist of 38 enterprises and “Two-high & one overcapacity” framework from the national level, but this is not enough for banks promoting the green credit policy. The number of enterprises in the blacklist is far less than the number of companies (8000 in 2007) punished by the Ministry of Environmental Protection for their environmental violations (Schaefer, 2007). Thus, at present, banks must conduct green credit work with very limited information from the national level. The local government is responsible for collecting the data about polluting companies. However, local EPBs may lack the motivation to provide effective environmental information. Instead, they have motivation to maintain the local tax base, which may stem from short-term profit by highly polluting or high energy-consuming companies. Thus, local protectionism may frustrate ineffective promotion of green credit policy and central government sustainable development requirements of the central government (Zhang

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Table 3 Environmental standards of green credit in Jiangsu Province. No.

Option

BOC

ICBC

CCB

ABC

BankComm

NJB

ZSB

MSB

SZCB

HXB

IB

1 2 3 4 5 6 7 8 9 10

Approval result of received environmental impact assessment document “Three simultaneous” acceptance status of environmental protection facilities Sewage release status Occurrence of significant and serious environmental pollution accident Environmental administrative punishment for enterprise Enterprise sewage release permit and implementation Enterprise SO14000 environmental management system certification Enterprise cleaner production audit Enterprise environmental award Enterprise environmental activity evaluation

+a e e e e e e e e +

+ e e e e e e e e +

+ + + +

+ + + + + + e e e +

+ + + + + + + + + +

+ + + + + + + + + +

e e e e e e e e e e

+ + ++

+ e e e e e e e e +

+ e e e e e e e e +

+ e e e e e e e e +

a

+ e + e e

+ + + + + +

+ represents that the bank has such requirement.

provide a straightforward basis for implementing the green credit policy.

3.4. Environmental risk management

Fig. 1. Corporate environmental performance rating results in Jiangsu Province.

and Li, 2009). In addition, the limited details and lack of timeliness of environmental information provided by many local environmental departments cannot satisfy the requirements of banks auditing the loan application (Lei, 2008). According to interviews with local banks in Jiangsu, the local EPB(s) is the main information source for the implementation of green credit (see Table 4). Thus, the quantity and quality of data provided by local EPB is key to implementation of the green credit policy. In Jiangsu, the interviewed banks considered the Jiangsu corporate environmental performance ranking results to

Green credit is an important policy if banks are to reduce credit risks and to restrict investments that are environmentally destructive. Limiting credit for enterprises with poor environmental performance will significantly reduce the credit risk of banks. Thus, the integration of environmental risk management into a bank’s credit risk management system is important (Chang et al., 2008a). At present, the green credit policy, in large part only a set of administrative orders by MEP and CBRC rather than spontaneous initiatives taken by banks to reduce credit risk. Banks are passively fulfilling the green credit policy, which is not at all enough for them to perform their full social responsibilities (Chang et al., 2008b). We interviewed the listed banks in Jiangsu Province about the implementation of the green credit policy. Most of them (85.7%) revealed that they have not set up a special institution for green credit, while 52.4% of the banks do not have environmental risk management systems which take environmental factors into consideration in traditional credit services (Chang et al., 2008a). Our investigation found that only the ICBC and ABC have established a preliminary nationwide system for identification, supervision, feedback, and disposal of environmental protection information related to corporate clients with financing balance inside China. Their process includes an overall examination of the environmental protection condition of all corporate clients with financing balance inside China and then input into their

Table 4 Environmental information and data source. No.

Option

BOC

ICBC

CCB

ABC

BankComm

NJB

ZSB

MSB

SZCB

HXB

IB

1 2 3 4 5 6 7 8 9 10

Approval result of received environmental impact assessment document “Three simultaneous” acceptance status of environmental protection facilities Sewage release status Occurrence of significant and serious environmental pollution accident Environmental administrative punishment for enterprise Enterprise sewage release permit and implementation Enterprise SO14000 environmental management system certification Enterprise cleaner production audit Enterprise environmental award Environmental behavior ranking

ABD BD BD BD

ABD BD BD BD

B B B B B B B B B B

ABD B B BC BC BD B B BCD

Aa A A A A A A A A A

Bb B B A BD B A B B B

Cc C C -

ABC BCDd BCD BDEe ABD BC AD BCD ADE BDE

-

-

-

a b c d e

A represents that environmental information is from Ministry of Environmental Protection. B represents that environmental information is from Local Department of Environmental Protection. C represents that environmental information is from China Banking Regulatory Commission. D represents that environmental information is from Loan Companies. E represents that environmental information is from Consulting Organization.

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information systems the results of the examination and communication with local environmental protection authorities. 3.5. Cooperation with the environmental protection department Hogwood and Gunn considered one of curial conditions of effective policy implementation is that there is only one implementor, or other implementors have little impact on the main implementor (Hogwood and Gunn, 1984). Although financial institutions (i.e., banks) are the main implementors of the green credit policy, banks lack the corresponding knowledge of the environment and need have close cooperation with the environmental protection department. If the environmental protection departments do not cooperate, the green credit policy cannot be properly enforced. In a survey in Jiangsu Province, we found that environmental authorities are only willing to provide limited public information about most environmental laws. Information is either not available or is not timely provided. Moreover, information on the business environment is not updated. All these have contributed to the failure of full implementation of green credit policy. In some regions, to promote short-term economic growth targets, local governments do not spare effort to support firms or projects, even if the pollution is already seriously polluted or environmentally risky. Thus, banks find it difficult to reduce or stop extending credit for these firms or projects, with the local government providing protective umbrellas to firms. The situation results in the lack of implementation of the green credit initiatives (Matisoff and Chan, 2008). 4. Conclusion The green credit policy attempts to promote environmental protection and to reduce environmental risk by reining in credit to enterprises with poor environmental performance. Although the green credit policy is considered a winewin strategy for the central government and banks, the efficiency level of implementation is far from the expectations. This research attempted to investigate the implementation of the green credit policy both at the national and provincial levels. Our results showed that although the green credit policy makes some efforts to control “Two-high & one overcapacity” industries, it is still not fully implemented. Wide-ranging impact on “Two-high & one overcapacity” industries, vague policy details, unclear implementing standards, and lack of environmental information are the main problems in the implementation of green credit policy at the national level. To a great extent, the green credit policy is now limited to an administrative order, with resulting lack of motivation of banks to carry out the policy. By contrast, the practice in Jiangsu Province has better practicability while integrating the green credit policy with environmental performance rating. Based on our analysis of green credit policy implementation in China, some suggestions are in order to improve the green credit policy. First, a practical green credit standard or policy should be established to support banks who try to make green credit work. “ The Equator principles” and Environmental, Health, and Safety Guidelines are widely used standards for financing international projects and can help shape the green credit policy in China as well. The former is a management framework to address environmental and social risks in project finance, by incorporating. The latter provides information standards for 63 industries, including manufacturing, chemical engineering, energy, and infrastructure development, to help commercial banks and investors to understand environmental protection requirements in the varied industries. Since 2007, MEP has worked with IFC to transfer the Equator Principles, the Performance Standards and

the Environment, Health and Safety (EHS) guidelines to the Chinese context and requirements (Aizawa and Yang, 2010; IFC, 2008). In view of the distinct levels of economic development in China’s regions, a statewide green credit standard or policy is not a beneficial local level practice. Local green credit policy which combined with local environmental issues and other environmental management instruments, should be encouraged under the basic principles of green credit at national level. Second, there is need to strengthen coordination and cooperation between different government departments to establish an environmental information communication mechanisms essential to the implementation of green credit policy. Through further cooperation, the Environmental Protection Department, banks, and relevant supervisory departments should include environmental information in the credit system and construct a dynamic platform for information exchange and sharing. Finally, it is necessary to enhance banks’ environmental risk consciousness, so that they are focused on formulating the corresponding review and incentive mechanisms, needed to reduce environmental risk, and to consider green credit as a bottom line bank market activity e rather than an administrative order to be passively followed. To these ends banks should develop a responsibility system or functional department especially for environmental risk inspection and identification, as well as an internal environmental risk management procedure and mechanism to make the green credit policy and environmental risk management effectively normative. Finally, banks amust necessary to integrate environmental risk management procedures into the existing credit risk management systems, so that environmental risk evaluation is routinely included in pre-loan, loan, and post-loan controls. Acknowledgment This research is supported by Public Welfare Project of Ministry of Environmental Protection (No. 200809074). Appendix. Supplementary material Supplementary data associated with this article can be found in the online version at doi:10.1016/j.jenvman.2010.12.019. References Agricultural Bank of China (ABC)., 2008. Notification on the Name List of “high Pollution” Industries and Relative Load Policy. Aizawa, M., Yang, C., 2010. Green credit, green stimulus, green revolution? China’s mobilization of banks for environmental cleanup. The Journal of Environment & Development 19, 119e144. Berman, P., 1978. The study of macro and micro implementation. Public Policy 27, 157e184. Bouma, J.J., Jeucken, M.H.A., Klinkers, L., 2001. Sustainable Banking: The Greening of Finance. Greenleaf Publishing Ltd, UK. Chang, M., Peng, L.J., Wen, W.S., 2008a. Development of environmental management system in China’s financial sector. Frontiers of Environmental Science & Engineering in China 2, 172e177. Chang, M., Wang, S.W., Li, D.W., 2008b. The fundation of green credit: environmental risk management system of banks. Environmental Economy 7, 32e35. Chen, X.J., 2007. Green Credit in Industrial and Commercial Bank of China. China Banking Regulatory Commission (CBRC)., 2008. Banking Sector for the Significant Promotion of Energy-saving and Emission-reducing. http://www. cbrc.gov.cn/chinese/home/jsp/docView.jsp?docID¼200802264E2C3A1F464DA0 52FF257D6440C75200. Elson, P.R., 2006. Tracking the implementation of voluntary sector-government policy agreements: is the voluntary and community sector in the frame? The International Journal of Not-for-Profit Law 8, 34e50. Emtairah, T., Hansson, L., Hao, G., 2005. Environmental challenges and opportunities for banks in China: the case of industrial and commercial bank of China. Greener Management International 50, 85e96.

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