CHINA: February 26, 2008


BEIJING - Beijing has launched a "green securities" scheme aimed at making it harder for polluters to raise capital and requiring listed firms to disclose more information about their environmental record.


The initiative is part of a drive by the State Environmental Protection Administration (SEPA) to enlist other government agencies to give financial and economic policies a green hue.

China has adopted "green credit" and "green insurance" in recent months and has plans for "green taxation" and "green trade" to help clean up the economy.

"It will curb excessive growth in highly polluting sectors, reduce capital market risk and spur listed firms to improve their environmental performance," Pan Yue, deputy head of the watchdog, said in a statement on its Web site, www.sepa.gov.cn, on Monday.

The need to comply with tougher environmental standards is among the reasons executives regularly give for why the cost of doing business in China is rising.

One element of SEPA's "green securities" programme is already in place. Companies in sectors including thermal power, steel, cement and aluminium need its approval before they can apply to the securities regulator to sell shares.

The agency said it had checked the environmental record of 37 listed firms and objected to the capital-raising plans of 10 companies last year. Eight of them went on to issue shares only after improving their pollution controls, SEPA said.

Pan said some listed companies applied to sell shares to fund environmental protection, but, once the capital was raised, they just spent the proceeds on expanding production.


GREEN DISCLOSURE

The second pillar of the programme is a requirement that listed companies provide more information about their environmental performance.

SEPA said less than half of listed companies bothered to even mention the environment in their 2006 annual reports.

Greater disclosure would not only spur companies to meet their environmental responsibilities but would also help to protect investor interests, Pan said.

He said Beijing's drive to clean up the environment was translating into policy risks for many listed polluters -- and for retail investors in those companies.

SEPA last year suspended permits for a number of new projects until the companies or local governments involved had tackled environmental violations that the watchdog had highlighted.

The shares of Datang Power, Huaneng Power International, Huadian Power International and GD Power Development Co had all underperformed the broader market in 2007 because of tougher environmental standards, Pan said.

Green tightening had also weighed on the share performance of petrochemical, paper-making and pharmaceutical firms, he said.

SEPA is a relatively weak arm of the government. Pan acknowledged earlier this month that some provinces and banks had simply ignored its "green credit" policy, which requires financial institutions to block loans to companies that pollute.

But the watchdog's clout is growing as environmental protection rises up the political agenda, and there is talk that next month's annual meeting of parliament will upgrade SEPA from an agency to a fully fledged ministry.

(Reporting by Zhou Xin; Editing by Alan Wheatley and Ken Wills)


REUTERS NEWS SERVICE