This article was originally published on Forum for the Future and is republished with permission.

China’s largest bank, ICBC, has announced plans to introduce environmental criteria to its lending policies by examining the environmental impact of companies. This comes hot on the heels of the CCP’s recent release of China’s 13th Five Year Plan.

ICBC’s green finance move flags the rapid transition to green growth that is cascading through all sectors of the Chinese economy. For instance the demand for safe and healthy food has burgeoned catalysing change in agricultural production practices. The government has also made a push to increase energy efficiency, diversify its energy mix, and pursue aggressive adoption of clean and renewable energy in order to meet China’s 2030 peak carbon emissions target.

China's development is increasingly driven by environmentally considerations as the country accelerates its transition to the “New Normal” – a slowdown of industrial economic growth and a greater focus on better quality growth, including greater awareness of the environmental costs of traditional econoamic growth. This is being driven in part by a national vision of China as an “Ecological Civilization”.

So What?

ICBC’s move will have implications for the ways companies approach their environmental impact. By sending a strong signal to companies through financial pressure to go green or risk losing access to capital, green finance mechanisms and other green financial policies provide a hard incentive for companies to seriously consider adopting sustainability measures to reduce carbon emissions and manage their environmental impact.

By moving private capital towards public and green investments, green finance fosters public-private partnerships that will be crucial to countries’ management of environmental challenges and the overall transition to a green growth model.  Green banks could be an important source of capital for developing countries struggling for to fund sustainability projects.

In China, there have been other green finance trends that bode well for the possibility of a green finance ecosystem in China. In August 2015, China’s Xinjiang Goldwind Science and Technology, a state-owned manufacturer of wind turbine generators, issued a US$300m green bond, sending a strong signal that Chinese renewable energy sector is an attractive investment.

Can 'green banks' influence the way businesses approach their own environmental impact?