Case study: How Hengfeng Bank works with its clients and customers to encourage sustainable practices

Stakeholder identification and consultation

Please describe which stakeholders (or groups/ types of stakeholders) you have identified, consulted, engaged, collaborated or partnered with for the purpose of implementing the Principles and improving your bank’s impacts. This should include a high-level overview of how your bank has identified relevant stakeholders, what issues were addressed/results achieved and how they fed into the action planning process.

Hengfeng Bank places significant emphasis on stakeholder engagement, continuously expanding communication channels and actively listening to the views and suggestions of its stakeholders. Hengfeng Bank’s key stakeholders include governments and regulators, shareholders and investors, customers and consumers, employees, suppliers and partners, the environment and society. To address the diverse expectations and needs of these stakeholders, the bank maintains effective communication methods and ensures prompt responses and appropriate actions.

During the 2023 reporting period, Hengfeng Bank’s stakeholder consultation efforts can be summarized as follows:

With the government and regulatory agencies: Hengfeng Bank actively participated in the development of the Enterprise ESG Evaluation System standards led by the China Enterprise Reform and Development Society. Additionally, the bank took part in the climate stress test organized by the People’s Bank of China. In the green bank assessment conducted by the China Banking Association, Hengfeng Bank’s scores in areas such as centralized management, policy and system development, capacity building, due diligence, post-loan management, and information disclosure significantly improved—an increase of 1.76 points compared to the previous evaluation. As a result, Hengfeng Bank was honoured with the title of “Advanced Unit of Green Bank Evaluation” among other recognitions.

With shareholders and investors: Hengfeng Bank has integrated green finance into its governance framework. The board of directors is responsible for formulating the green finance strategy annually, while senior management sets yearly targets on key sustainable development issues related to green finance in accordance with this strategy. The Board of Supervisors oversees the implementation of these initiatives. During the reporting period, the Board of Directors reviewed or considered four ESG-related matters and reported on relevant issues at the general meeting of shareholders.

Customers and consumers: Hengfeng Bank actively engages in communication with customers and consumers, developing green financial products and innovating based on their needs. For example, during the reporting period, the bank launched a digital platform to facilitate accurate identification of green projects and green companies. Through a digitized and standardized review process, Hengfeng Bank effectively identified environmentally friendly initiatives, minimized errors caused by human differences, enhanced identification efficiency, and shortened review periods. Additionally, its operations promote a paperless, digital, and intelligent model to reduce energy consumption and resource waste. In its private banking division, Hengfeng Bank advanced charitable donation initiatives within the family trust business, implementing a new “finance + charity” model that connects financial services with charitable activities to generate additional positive impacts.

Supplier Management: In accordance with the “Hengfeng Bank Centralized Procurement Management Measures” and the “Hengfeng Bank Supplier Management Measures (2020 Edition),” Hengfeng Bank adheres to the principles of fairness, transparency, competition, and efficiency in supplier selection and management. Hengfeng Bank actively promotes green procurement, implementing dynamic, classified, and scientifically-based supplier management practices. To extend its green principles throughout the supply chain and support sustainable operations, Hengfeng Bank prioritizes suppliers who demonstrate sustainable management, energy efficiency, environmental friendliness, and social responsibility when all other conditions are equal.

Partners: Hengfeng Bank capitalizes on opportunities to participate in industry forums to share its practices in green finance, gather insights from experts, and learn from the experiences of other financial institutions. Additionally, Hengfeng Bank engages in international sustainable development initiatives and fulfills its social responsibilities.

Employees: During the reporting period, Hengfeng Bank concentrated on two key areas. The first is energy conservation, reducing consumption, emissions, and waste within the bank’s operations. Hengfeng Bank actively encourages all employees to join in this effort. Furthermore, Hengfeng Bank enhanced the recovery and recycling of harmful substances, guided employees to reduce food waste, promoted green business travel, practiced green office management and digital workflows, established green data centres, and improved its overall energy efficiency. The second area focuses on staff training, internal capacity building, and related initiatives to strengthen its team’s capabilities.

How did Hengfeng Bank work with its clients and customers to encourage sustainable practices and enable sustainable economic activities?

In its 2023 PRB Reporting and Self-Assessment Template Hengfeng Bank reports that it works with its clients and customers to encourage sustainable practices and enable sustainable economic activities as follows:

Hengfeng Bank has a a green finance credit products system, with eight basic products (working capital loans, project financing, pre-project loans, merger and acquisition loans, debt financing instruments, debt financing, equity financing services, trade financing), eight featured products (carbon asset pledge financing, pollution rights pledge financing, contract energy management financing, energy conservation and emission reduction financing, clean energy financing, environmental governance financing, environmental facility financing, structured financing), and five dedicated financial service solutions (county photovoltaic financing service solution, new energy vehicle financial service solution, waste and sewage treatment industry financial service solution, rail transit financial service solution, and carbon trading financial services scheme). By establishing a special approval channel and providing a series of beneficial measures such as allocating dedicated capital and providing internal interest rate reductions, the supporting system for the bank’s green finance system has been significantly strengthened. By the end of the supporting period, the balance of Hengfeng Bank’s green credit reached 60.84 billion yuan, with a growth rate of 36.35%, higher than the 31.7% growth rate of average of twenty-one major banks in China disclosed by the Financial Supervision Administration.

Actions to encourage customers to implement sustainable measures during the 2023 reporting period can be summarized as follows:

1. Together with Weihai City, Hengfeng Bank held a green finance exchange forum and engaged with more than 100 stakeholders, including regulators, industry experts, scientific research institutions, well- known enterprises and others, to jointly help Weihai City, Shandong Province, to participate in the China green finance reform and innovation pilot (GFRIP) program, and also announced its carbon neural sub-branch project in Weihai.
2. Promoted credit granting policies in key identified green areas. Focusing on clean energy, environmental protection, green building, green transportation and other dedicated subdivide industries and markets, Hengfeng Bank formulated comprehensive financial service guidelines and clarified the focus of each branch, enhancing targeted support. The bank also actively explored innovative business models and financial instruments to drive sustainable development. For example, it developed a digital identification system for green credit, actively implemented the application of CERF, issued sustainable linked medium-term notes, and explored green supply chain finance, which won the “Best Supply chain Finance Bank” award of the 13th most trusted financial Service provider of Chinese economic and trade enterprises (Golden Trade Award).
3. Hengfeng Bank established a List of Key Enterprises in Green Finance, encompassing supply chain clients in sectors such as photovoltaic, wind power, energy storage, and other related segments. This guidance helps branches deliver targeted and precise services. Hengfeng Bank also strengthened the construction of the “dedicated service team mechanism” to improve service quality and efficiency. Additionally, over ten industry-specific green financial product guidelines were developed, covering areas like electrochemical energy storage, charging stations, and waste-to-energy plants. These guidelines include insights into market development trends, target customer groups, and key project delivery considerations.
4. Simultaneously, Hengfeng Bank actively engaged in communication and collaboration with its clients, launching innovative products such as Service-Level Banking (SLB), “Forest Rights + Carbon Sink” initiatives, green loans tailored for the agricultural industry, collateral financing through “Hong Kong Cloud Warehouse,” “Hengrong E,” and other financial solutions.

Financial Inclusion

1. Hengfeng Bank adhered to and implemented national policies prioritizing “agriculture, rural areas, and farmers.” The bank actively expanded services to rural regions and utilized its “one circle, one chain, and one platform” approach as a foundation to promote inclusive agricultural loans. By the end of the reporting period, the total balance of all types of agriculture-related loans reached 159.48 billion yuan, representing a 19.48% increase compared to the beginning of the year. Inclusive agricultural loans grew by 2.48 billion yuan compared to the beginning of the year, reflecting a growth rate of 28.71%.
2. Hengfeng Bank enhanced lending support for county-level urbanization. In 2023, the bank developed a list of twenty-seven pilot counties, focusing on their resource endowments and functional positioning to provide targeted financial support. By the end of the reporting period, Hengfeng Bank’s county-level urbanization financing balance increased by 163.94% compared to the previous year.

UN Principles for Responsible Banking: Accelerating a positive global transition for people and the planet

With over 300 signatory banks representing almost half of the global banking industry, the Principles for Responsible Banking are the world’s foremost sustainable banking framework. Through these Principles, the banking community takes action to align core strategies, decision-making, lending and investment with the UN Sustainable Development Goals and international agreements such as the Paris Climate Agreement.

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References:

This case study is based on published information by Hengfeng Bank, located at the link below. For the sake of readability, we did not use brackets or ellipses. However, we made sure that the extra or missing words did not change the report’s meaning. If you would like to quote these written sources from the original please revert to the following link:

https://hfbank.com.cn/upload/attach/Hengfeng%20Bank%20Reporting%20and%20Self-Assessment%20for%20Principles%20for%20Responsible%20Banking%20(PRB)%20in%202023.pdf

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