CHINA Law and Practice Contributed by: Chen Yanhong, Beijing DHH Law Firm
1.6 ESG/Sustainability-Linked Lending In the PRC, ESG principles, along with sustainabili- ty-linked loans (SLLs), are rapidly becoming integral components of the financial system. In recent years, the combined effects of sustained policy support, growing market demand, and proactive participation by financial institutions have accelerated the develop- ment of this field. ESG and SLLs in China have pro- gressed, with several key characteristics. • First, policy driving is evident. The PBOC has launched a “carbon emission reduction support tool”, providing an interest rate discount of 1.75% for qualified green loans. By the second quar- ter of 2025, the balance of green loans reached RMB42.39 trillion, with an increase of 14.3% year- on-year. • Second, industry concentration remains high. SLLs are mainly concentrated in new energy (photovol- taic, wind power), energy conservation and envi- ronmental protection, green buildings, and other fields. • Third, term design has been standardised. Most SLLs set “key performance indicators (KPIs) + sustainability performance targets (SPTs)”, such as “10% reduction in carbon emission intensity” and “renewable energy power generation account- ing for 50%”. Enterprises that meet the standards can reduce the interest rate by 25-50 basis points (BPs), while those that fail to meet the standards need to pay a premium of 50-100 BPs. • Fourth, information disclosure has been strength- ened. The CBIRC requires banks to regularly dis- close the use of funds and environmental benefits (such as carbon reduction) of green loans. The Chinese government places great importance on green finance and ESG investment, introducing a series of policies to promote their development. For example, starting in October 2025, the “Green Finance Support Project Catalogue” added the cat- egories of “Green Trade” and “Green Consumption,” further broadening the application of green finance, particularly in consumption and trade sectors. From a regulatory perspective, in 2022, the CBIRC issued the “Guidelines on Green Finance for Banking and Insur- ance Institutions,” which, for the first time, explicitly requires financial institutions to integrate ESG con-
siderations into their overall risk management frame- works, thereby strengthening the strategic positioning of green finance. The PBOC extended the implemen- tation period for low-carbon loan instruments to the end of 2027, providing low-cost financing support for enterprises and promoting carbon reduction and sus- tainable development projects. 2. Authorisation 2.1 Providing Financing to a Company Banking Institutions Banks are required to obtain a financial licence and a business licence, with a business scope explicitly covering “loan issuance.” They must also comply with the “institutional entry” requirements set by the CBIRC – for example, nationwide banks must be approved by the State Council’s financial regulatory authority, while city commercial banks and rural commercial banks must be approved by local financial regula- tors. In addition, banks engaging in specific types of financing (eg, green loans, cross-border loans) must meet corresponding special regulatory requirements – for instance, green loans must be included in the PBOC’s “Carbon Emission Reduction Support Tool” programme. Non-Banking Institutions • Financial leasing companies and commercial factoring companies: must be registered with the local financial regulatory bureau, obtain a filing certificate, and maintain a minimum paid-in reg- istered capital of RMB100 million. Their business scope must explicitly include “financial leasing” or “factoring services.”Microfinance companies: must be approved by the local financial regulatory bureau, obtain a microfinance company operating licence, and maintain a minimum paid-in registered capital of RMB50 million. Loan issuance is subject to restrictions, such as “single-customer credit not exceeding 10% of net assets.” • Online financing platforms: must be filed with the PBOC or local financial regulatory authority as online lending information intermediaries and are required to establish third-party fund custody arrangements to ensure the segregation of client funds from platform funds.
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