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A new report released today by BankTrack, the international NGO network
monitoring the financial sector, and Friends of the Earth US, finds that only
two of China’s ten most important banks -- China Development Bank (CDB) and the
Export-Import Bank of China (Chexim) -- have publicly-disclosed environmental
policies.

Both banks’ policies fall short of international best practice, while the rest
of the eight banks surveyed had no publicly-available environmental financing
standards. [1]

With this report, BankTrack aims to fill a gap in public knowledge on the
environmental policies of Chinese banks. China’s financial institutions have
long played a key role in bankrolling industrial development in within China,
and today they are also becoming important players in financing environmentally
and socially sensitive activities around the world.

"By adopting world-class environmental financing standards, Chinese banks can
play an important role in advancing sustainability on a global level", said
Johan Frijns, coordinator of BankTrack; "Otherwise, they threaten to drag down
whatever progress that has been made in developing such standards for the
international banking sector"

Focus on legal compliance

The report, titled "Time to Go Green; Environmental Responsibility in the
Chinese Banking Sector", concluded that environmental financing policies at
Chinese banks focus mainly on ensuring the clients obey environmental laws, and
thus lag far behind those of international banks.

The report includes examples of several environmentally and socially sensitive
transactions financed by Chinese banks, such as China National Machinery
Equipment Import-Export Corp.‘ Kiani Kertas pulp mill in Indonesia.

However, the report also points to some encouraging signs that Beijing is
beginning to stimulate banks to pay more attention to environmental matters.
For example, the Peoples‘ Bank of China has recently developed a new credit
database which includes borrowers’ environmental compliance data. This will
allow Chinese banks to evaluate how well companies have followed environmental
laws before offering loans.

Finally, the report shows that many international banks, who own significant
shares of Chinese banks, have the ability to institute world-class
environmental standards through their strategic investment agreements.

"International banks have complained that the lack of environmental financing
standards at Chinese peers is putting them at a competitive disadvantage" said
Friends of the Earth-US Michelle Chan-Fishel, who authored the report. "But
banks like HSBC, RBS, Citigroup, Goldman Sachs, and Bank of America all own
large shares in Chinese banks. They must take responsibility for ensuring that
high environmental standards, which they all claim to have, are also adopted by
their strategic business partners"

Secrecy prohibits proper assessment

None of the commercial banks in the study had publicly-disclosed environmental
policies, and a key challenge in writing the report was Chinese banks’ lack of
transparency. For example, Chexims‘ environmental policy was only released in
late April 2007, in response to a request by Pacific Environment, a BankTrack
member group.

"lack of transparency and public participation mechanisms are two fundamental
deficiencies which put them far behind their international peers", said Doug
Norlen of Pacific Environment. "In the last several years, almost all of the
world’s other public and private banks which have adopted leading environmental
standards have done so in consultation with civil society."

Implementation unclear

The report also raised questions about how well banks’ stated environmental
policies are being implemented, a problem which also plagues the Equator
Principles, a voluntary initiative of banks on project finance, as well as
individual banks that have adopted their own standards.

For example, CDB’s policy summary states that it only finances deals included
in an approved project list published by China’s State Environmental Protection
Agency. But given CDB’s rapidly expanding overseas profile, it is unclear how
the bank ensures regulatory compliance in its clients’ overseas activities.
Similarly, implementation questions also apply to the Export-Import Bank of
China, whose environmental policy includes vague language preventing it from
financing projects which create unacceptable environmental damage. For example,
the Ramu nickel mine in Papua New Guinea, financed by both CDB and Chexim,
proposes to use the controversial practice of submarine tailings disposal as a
mechanism for disposing of toxic mine waste.

"The proposal to utilise submarine tailings disposal at this mine site has been
discredited by independent scientific studies", said Techa Beaumont of Mineral
Policy Institute. "The use of this practice, particularly in a region known for
upwelling currents that can bring these toxic wastes to the surface, poses
significant environmental harm that could lead to violations of Chexim
environmental policies."

There is little indication that adequate environmental assessment and
monitoring has been done, despite commitments in Chexim’s environmental policy
to enhance these aspects of project development.

The report also includes a case study on the Chexim-financed Merowe dam in
Sudan, a project which is indicative of the bank’s new role as a key financier
of infrastructure projects in poor countries.

"China Exim bank should avoid the mistakes that Western financial institutions
have made, and address environmental and governance concerns in its lending
decisions", said Peter Bosshard of International Rivers Network. "Projects such
as the Merowe Dam in Sudan, which destroy the environment and impoverish
affected people, will not bring about sustainable development, and will
squander the great opportunity which China‘s new role presents."

[1] The banks covered in this report include: Bank of China, Industrial and
Commercial Bank of China, China Construction Bank, Agricultural Bank of China,
China Development Bank, China Export-Import Bank, China Export & Credit
Insurance Corporation (Sinosure), Agricultural Development Bank of China, Bank
of Communications, and China CITIC Group (China CITIC Bank).