Industrial Bank : Second Opinion on Industrial Bank Co., Ltd. (IB)’s Green Bond Framework (Version 2020.10) by Su...

Second-Party Opinion

Green Bond Framework for Industrial Bank Co., Ltd.

Evaluation Summary

Sustainalytics is of the opinion that the Green Bond Framework for Industrial Bank Co., Ltd. is credible and impactful and aligns with the four core components of the Green Bond Principles 2018. This assessment is based on the following:

The eligible categories for the use of proceeds -

1. Renewable Energy, (ii) Energy Efficiency, (iii) Low Carbon and Low Emission Transportation, (iv) Sustainable Water and Wastewater Management, and (v) Sustainable Marine Economy, Marine Environmental Protection and Coastal Climate Change Adaptation - are aligned with those recognized by the Green Bond Principles 2018. Sustainalytics considers that the eligible categories will lead to positive environmental impacts and advance the UN Sustainable Development Goals, specifically SDG 6, 7, 11 and 14.

IB's internal process in evaluating and selecting projects is managed by the Green Bond Working Group (the "Working Group"), which will review and approve eligible assets. The Working Group shall review the asset list on a quarterly basis and determine if any changes are necessary. Sustainalytics considers the project selection process in line with market practice.

IB's processes for management of proceeds is handled by the Treasury team of the issuing branch and the headquarters. The Bank intends to allocate the proceeds within one year after issuance. IB will establish a Green Bond Ledger to record the source and allocation of proceeds and ensure they are used to finance eligible assets. Unallocated proceeds will be held in accordance with IB's prudent liquidity management policy. This is in line with market practice.

IB intends to report allocation proceeds on its website on an annual basis until full allocation. Allocation reporting will include aggregate amount and percentage allocated to the use of proceeds categories, the remaining balance of unallocated proceeds and types of temporary investment, and description of certain assets. In addition, IB is committed to reporting on relevant impact metrics. Sustainalytics views IB's allocation and impact reporting as aligned with market practice.

© Sustainalytics 2020

Evaluation Date	October 26, 2020
Issuer Location	Fuzhou, China
Report Sections
Introduction..................................................	2
Sustainalytics' Opinion ................................	3
Appendices ..................................................	8

For inquiries, contact the Sustainable Finance Solutions project team:

Evan Bruner (Amsterdam) Project Manager [e-mail] ([phone]

Charles Cassaz (Amsterdam) Project Support [e-mail] ([phone]

Mina Jang (Amsterdam) Project [e-mail] ([phone]

Nicholas Gandolfo (Singapore) Client Relations [e-mail] ([phone]

Second-Party Opinion

Green Bond Framework for Industrial Bank Co., Ltd.

Introduction

Founded in 1988 and headquartered in Fuzhou, China, Industrial Bank Co., Ltd. ("IB", or the "Bank") is a joint- stock commercial bank. Its main business areas include trust, lease, fund, consumer finance, futures, assets management, research and consulting and digital finance. As of the end of 2019, IB has 45 tier-one branches, including Hong Kong branches, and 2,019 outlets.

IB has developed the Green Bond Framework for Industrial Bank Co., Ltd. (the "Framework") under which it intends to issue Green Bonds and use the proceeds to finance and refinance, in whole or in part, existing and future assets that could further the shift to a low-carbon economy in China. The Framework defines eligibility criteria in five areas:

1. Renewable Energy
2. Energy Efficiency
3. Low Carbon and Low Emission Transportation
4. Sustainable Water and Wastewater Management
5. Sustainable Marine Economy, Marine Environmental Protection and Coastal Climate Change Adaptation

IB engaged Sustainalytics to review the Green Bond Framework for Industrial Bank Co., Ltd., dated November 2020, and provide a Second-Party Opinion on the Framework's environmental credentials and its alignment with the Green Bond Principles 2018 (GBP).1 This Framework has been published in a separate document.2

Scope of work and limitations of Sustainalytics Second-Party Opinion

Sustainalytics' Second-Party Opinion reflects Sustainalytics independent3 opinion on the alignment of the reviewed Framework with the current market standards and the extent to which the eligible categories are credible and impactful.

As part of the Second-Party Opinion, Sustainalytics assessed the following:

• The Framework's alignment with the Green Bond Principles 2018, as administered by ICMA;
• The credibility and anticipated positive impacts of the use of proceeds; and
• The alignment of the issuer's sustainability strategy and performance and sustainability risk management in relation to the use of proceeds.

For the use of proceeds assessment, Sustainalytics relied on its internal taxonomy, version 1.6.1, which is informed by market practice and Sustainalytics' expertise as an ESG research provider.

As part of this engagement, Sustainalytics held conversations with various members of IB's management team to understand the sustainability impact of their business processes and planned use of proceeds, as well as management of proceeds and reporting aspects of the Framework. IB representatives have confirmed

1. they understand it is the sole responsibility of IB to ensure that the information provided is complete, accurate or up to date; (2) that they have provided Sustainalytics with all relevant information and (3) that any provided material information has been duly disclosed in a timely manner. Sustainalytics also reviewed relevant public documents and non-public information.

This document contains Sustainalytics' opinion of the Framework and should be read in conjunction with that Framework.

Any update of the present Second-Party Opinion will be conducted according to the agreed engagement conditions between Sustainalytics and IB.

Sustainalytics' Second-Party Opinion, while reflecting on the alignment of the Framework with market standards, is no guarantee of alignment nor warrants any alignment with future versions of relevant market standards. Furthermore, Sustainalytics' Second-Party Opinion addresses the anticipated impacts of eligible projects expected to be financed with bond proceeds but does not measure the actual impact. The

1. The Green Bond Principles are administered by the International Capital Market Association and are available athttps://www.icmagroup.org/green-social-and-sustainability-bonds/green-bond-principles-gbp/.
2. The Green Bond Framework for Industrial Bank Co., Ltd. is available on IB's website at:https://www.cib.com.cn/
3. When operating multiple lines of business that serve a variety of client types, objective research is a cornerstone of Sustainalytics and ensuring analyst independence is paramount to producing objective, actionable research. Sustainalytics has therefore put in place a robust conflict management framework that specifically addresses the need for analyst independence, consistency of process, structural separation of commercial and research (and engagement) teams, data protection and systems separation. Last but not the least, analyst compensation is not directly tied to specific commercial outcomes. One of Sustainalytics' hallmarks is integrity, another is transparency.

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Second-Party Opinion

Green Bond Framework for Industrial Bank Co., Ltd.

measurement and reporting of the impact achieved through projects financed under the Framework is the responsibility of the Framework owner.

In addition, the Second-Party Opinion opines on the intended allocation of proceeds but does not guarantee the realised allocation of the bond proceeds towards eligible activities.

No information provided by Sustainalytics under the present Second-Party Opinion shall be considered as being a statement, representation, warrant or argument, either in favour or against, the truthfulness, reliability or completeness of any facts or statements and related surrounding circumstances that IB has made available to Sustainalytics for the purpose of this Second-Party Opinion.

Sustainalytics' Opinion

Section 1: Sustainalytics' Opinion on the Green Bond Framework for Industrial Bank Co., Ltd.

Sustainalytics is of the opinion that the Green Bond Framework for Industrial Bank Co., Ltd. is credible and impactful, and aligns with the four core components of the GBP. Sustainalytics highlights the following elements of IB's Green Bond Framework:

• Use of Proceeds:
• • The eligible categories - Renewable Energy, Energy Efficiency, Low Carbon and Low Emission Transportation, Sustainable Water and Wastewater Management, Sustainable Marine Economy, Marine Environmental Protection and Coastal Climate Change Adaptation - are aligned with those recognized by the GBP. Sustainalytics notes that the proceeds issued under the Framework could further the shift to a low-carbon economy in China.
  • In the Renewable Energy category, IB may provide loans or other types of financings to support power generation, maintenance, and transmission from renewable sources, including solar, onshore, and offshore wind, tidal, biomass, and hydro. For biomass, the feedstock is limited from agricultural waste and or organic kitchen waste from municipal waste. To be eligible, hydropower projects must have less than 20 MW of installed capacity. In addition, IB may invest in the manufacturing of renewable energy components.4
  • Regarding Energy Efficiency, IB may provide financings for the implementation, construction, maintenance, and development that enhance energy efficiency of technologies, products, buildings, assets, or systems. These investments must result in at least 20% of energy consumptions savings. Sustainalytics views positively view the establishment of minimum the energy efficiency savings thresholds. Sustainalytics further highlights that the Bank excludes financing of fossil-fuel powered technology.
  • In the Low Carbon and Low Emission Transportation category, IB may provide financings for the construction, operation, and maintenance of electric or hydrogen-powered public transportation assets, systems, and infrastructure. The Company may also invest in the manufacturing of electric transportation vehicles and components, such as electric rail, tram, metro, bus rapid transit, electric and hydrogen vehicles.
  • Within the Sustainable Water and Wastewater Management category, the Bank may provide financings for the construction, operation, and maintenance of wastewater treatment infrastructure. In addition, IB may provide financings for the construction and maintenance of urban drainage systems, river training and other forms of flooding mitigation, such as dams and levees. Sustainalytics positively notes IB's commitment to carrying out climate risk assessments prior to project financing.
  • In the Sustainable Marine Economy, Marine Environmental Protection and Coastal Climate Change Adaptation, IB may provide financings for the construction, operation and maintenance,

and retrofits of shipment and port pollution treatment facilities, sea water desalinization

4 Sustainalytics notes that the Issuer has indicated the any allocation of proceeds to the manufacturing of renewable energy components will be exclusively allocated to renewable energy technological components and any fossil fuel related technology is excluded.

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Green Bond Framework for Industrial Bank Co., Ltd.

facilities, 5 and sustainable water infrastructure, such as wastewater treatment and urban drainage systems. Sustainalytics notes that the Bank excludes fossil-fuel-powered technologies from the financings to shipment and port pollution treatment facilities.

• • IB has defined a look-back period of 24 months for refinancing.
• Project Evaluation and Selection:
• • IB's internal process in evaluating and selecting projects is handled by the Green Bond Working Group (the "Working Group"), which will review and approve eligible assets. Members of the Working Group include green finance, environment, and industry experts from IB's Green Finance Department. Each expert has a veto power to the final decision on the selection of eligible assets. The Working Group shall review the asset list on a quarterly basis and determine if any changes are necessary. Based on these elements, Sustainalytics considers this process to be in line with market practice.
• Management of Proceeds:
• • IB's processes for management of proceeds is handled by the Treasury team of the issuing branch and the headquarters. The Bank intends to allocate the proceeds within one year after issuance. IB will establish a Green Bond Ledger to record the source and allocation of proceeds and ensure they are used to finance eligible assets. The proceeds of each Green Bond will be deposited in the general funding account and "earmarked" pending allocation. Unallocated proceeds will be held in accordance with IB's prudent liquidity management policy. Unallocated proceeds could be temporarily invested in Green Bonds issued by non-financial institutions, or in money market instruments with good credit rating and market liquidity. Based on these elements, Sustainalytics considers this process to be in line with market practice.
• Reporting:
• • IB intends to report allocation proceeds on its website on an annual basis until full allocation. Allocation reporting will include aggregate amount and percentage allocated to the use of proceeds categories, the remaining balance of unallocated proceeds and types of temporary investment, and description of certain assets. In addition, IB is committed to reporting on relevant impact metrics, such as kWh of power generated from renewable sources or the amount of water saved/recycled. For an exhaustive list of impact indicators, please refer to Appendix 1. Based on these elements, Sustainalytics considers this process to be in line with market practice.

Alignment with Green Bond Principles 2018

Sustainalytics has determined that the Green Bond Framework for Industrial Bank Co., Ltd. aligns to the four core components of the GBP. For detailed information please refer to Appendix 1: Green Bond/Green Bond Programme External Review Form.

Section 2: Sustainability Strategy of IB

Contribution of framework to IB's sustainability strategy

IB has integrated the environmental aspect into its business operation plan at the branch level.6 Since 2019, the Bank has expanded its financing activities to the ecological environment management and energy-saving service industries, including water conservation, soil remediation, and public utilities, such as water and power supply.6 In addition, the Bank seeks to increase its involvement in green finance, primarily through the green bond market.

As such, IB has set the mid-term targets of RMB 1 trillion (USD 148.7 bn) financings and 10,000 clients for green finance by 2020.6 The Bank achieved these targets in 2019, one year ahead of the intended mid-term year. At the end of 2019, their total green financing7 portfolio equated to RMB 1.01 trillion (USD 150.2 billion) with 14,764 green financing corporate clients.8 Between 2016 and 2019, IB has issued nine green bonds with a total value of RMB 136.5 billion (USD 20.4 billion), aimed at financing projects for environmental protection, energy efficiency, renewable energy, clean transportation, among others.8 In 2019, according to its

1. Desalinization facilities which are powered at least 90% by renewable energy.
2. Industrial Bank Co., Ltd., "Annual Sustainability Report 2019", (2019), at:https://download.cib.com.cn/netbank/download/cn/Sustainable_Finance/report_2019en.pdf
3. Including loans, debt investment, bond investment, financing leasing, managed class assets, and equity investment that are aligned with IB's green financing standards (the "IB green finance standards"). IB green finance standards are a series of self-developed standards which are drafted based on domestic and international green finance standards and industrial standards. Further information available at: https://download.cib.com.cn/netbank/download/cn/notice/20200429_1_e.pdf
4. Industrial Bank Co., Ltd., "2019 Green Bond Impact Report", (2019), at:https://download.cib.com.cn/netbank/download/cn/notice/20200429_1_e.pdf

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