Environmental, Social, Corporate Governance Report

As CITIC Limited has grown and the public’s expectations of a company’s environmental performance has risen, we find ourselves faced with challenges regarding environmental protection. In line with government policy, CITIC Limited has strictly complied with the environmental laws and regulations of the countries and regions in which it operates. Its subsidiaries have continuously worked to improve their environmental impact, while remaining committed to corporate citizenship regarding environmental protection.

Contributions to the development of carbon emission trading in China

We have been working to enhance the management of carbon assets with initiatives that have included coordinating carbon emission resources across various segments. Subsidiaries with significant carbon emissions have conducted exploratory investigations and adopted effective measures to reduce carbon and conserve energy. Subsidiaries in the financial sector have continued to develop green finance business models with rigorous controls implemented on loans extended to enterprises with high levels of energy consumption and emissions. These collaborative efforts will help the nation achieve its goals in the reduction of carbon dioxide emissions.

Case study:

Development of carbon emissions trading in China

The professional carbon trade and investment team formed by CITIC Securities in 2011 has been actively involved in carbon trading in China and elsewhere. Their goal has been to drive the development of the financial aspect of China’s carbon market and to help enterprises gain value from their carbon assets. They have also been encouraged to expedite technological upgrades to lower energy consumption, pollution and carbon emissions across various industries. In 2015, CITIC Securities completed trades in carbon emission rights with a total volume of over one million tonnes, while also launching China’s first ever forward trade of carbon emission quotas. By the end of the third quarter of 2016, CITIC Securities had undertaken green bonds (including asset securitisation products) with an aggregate amount of RMB3 billion. This ranked them second among eleven lead underwriters of green bonds and managers of green asset securitisation products, according to the Green Charity Ranking published by the Securities Association of China.

Did you know: The China Emissions Exchange, the first platform for the trading of carbon emission rights in China, commenced operation in Shenzhen on 18 June 2013, a key milestone towards the development of the country’s first carbon market. Since then, carbon emission trading has been conducted on a trial basis in Beijing, Tianjin, Shanghai, Guangdong, Hubei and Chongqing. According to the China-US Joint Presidential Statement on Climate Change issued in September 2015, China has pledged to commence a national carbon emission trading system by 2017.

A new platform for the environment business

Through CITIC Environment, we have made concerted efforts to commence operations relating to water treatment, solid waste disposal, energy conservation and a reduction in emissions in China and Singapore. This subsidiary serves as a platform for energy conservation and our environmental businesses, one which has made positive contributions to advances in energy conservation technologies and industrial upgrades.

In 2016, CITIC Environment completed the acquisition of a 13.58% equity interest in Chongqing Sanfeng Environmental Industrial Group Co., Ltd (CSEG) in order to acquire a capability in solid waste processing. To expand its water treatment business, a total of 21 water treatment projects in the domestic and international markets were taken on with this acquisition, representing a total investment of close to RMB4.6 billion.

Development of Green Finance

Green Credit

CITIC Bank has stated that it will “strongly support the development of green, recycling and low- carbon economies, such as energy conservation, environmental protection and new energy, while stringently controlling financing for high- consumption and high-pollution sectors; it would vigorously support industrial upgrades for high-end and traditional manufacturing sectors and strictly comply with the ban in loans against four types of projects in its credit policies, for sectors including equipment manufacturing, petrochemical, cement production and auto manufacturing 1 , as well as the 6 pre-requisites for the approval of project loans 2 . For 2016, the balance of loans under the green loan projects of CITIC Bank amounted to RMB25,478 million, representing an increase of RMB1,782 million, up 7.52% compared with 2015.

Loans to sectors subject to high pollution, high emissions and excessive capacity

CITIC Bank monitored risks associated with high pollution, high emission and industries with excessive capacity. Through a new policy, companies are differentiated and rated on a case-by-case assessment as “supported, maintained, reduced or terminated”. As at the end of 2016, the balance of loans extended to “high-pollution” and “high emissions” sectors by CITIC Bank amounted to RMB43,745 million, representing a decrease of 12.82%, a decrease of 0.28 percentage points as a share of total company loans. Breaking down this number further, the balance of loans to the steel industry amounted to RMB21,963 million, representing a decrease of RMB314 million, down 1.41%, the balance of loans to the coal-fired power plant amounted to RMB9,426 million, a decrease of RMB2211 million, down 19.00% compared with the previous year.

Upgrading e-banking transactions

Along with the rapid growth in e-banking, CITIC Bank has continued to roll out mobile finance initiatives on the back of Internet-based finance. This is in line with the strategy of balanced dual development underpinned by initiatives to “enhance the financial aspects of Internet businesses” and to “introduce Internet-based financial businesses”. As at the end of 2016, CITIC Bank had 19,584,800 mobile phone banking customers, representing a 53.89% increase compared with the end of the previous year. Its personal Internet banking business also reported stable growth with 23,081,900 existing users, representing an increase of 5.05 million new users, or 28.01% compared with the end of the previous year. The replacement ratio related to e-banking transactions was 97.83%, which was 1.7 percentage points higher compared with 2015.

• “Four types of projects banned for loans”: these are projects that have not obtained the approval of official environmental authorities; new projects under the “restricted” category and projects under the “phase-out” category of national industrial policies; high-pollution projects included under the categories of “restricted regions” or “restricted river coastal regions”; and enterprises and projects involved in violations of environmental laws.
• “Six pre-requisite conditions”: fulfilment of regulations and requirements such as industrial policies and market entry thresholds; project approval and examination or filing procedures, pre-examination for land use, approval of environmental impact assessment, energy conservation assessment and examination, and credit, safety and city planning. No credit facilities should be granted to projects that do not comply with the “six pre-requisite conditions”.

Resources and Energy

CITIC Resources is committed to clean production through the employment of advanced technologies, which is part of our concerted effort to protect the natural environment of our operating areas and the local communities.

Case study:

Karazhanbas Oilfield: protect environmental with better management

Since its acquisition of the Karazhanbas Oilfield in Kazakhstan in 2007, CITIC Resources has continued to deal with environmental issues inherited from past operations. Through an annual plan, they have continued their efforts to deliver on its environmental responsibilities. In an international market of persistently low oil prices, last year the Karazhanbas Oilfield formulated its Environmental Work Plan 2016- 2025, pledging to resolve underground and surface oil contamination and other historical environmental issues of the oilfield over the next 10 years. It has further undertaken advances in environmental treatment and protection through greater efforts to protect and restore the operating environment. The plan has been approved by local environmental authorities.

CITIC Mining International renewed its environmental management system in accordance with international and Australian standards as well as the recently updated ISO/AS 14001. At the Sino Iron project, the HSE performance was upgraded under SinoSAFE environmental initiatives. In addition, as an important part of its environmental management initiative CITIC Mining International has also monitored the terrestrial and marine habitats surrounding the Sino Iron project site to minimise the impact of its operations.

Manufacturing

At the beginning of each year, CITIC Heavy Industries conducts a meeting on energy conservation and emissions reduction, during which they analyse current conditions and formulate plans and interim measures. In 2016, the desulphurisation gypsum and dehydration GDYT filter for power plants developed by CITIC Heavy Industries was officially delivered to Luoyang Thermal Power Co., Ltd. and presentations were made to market the unit to the power industry. The unit is capable of reducing the integrated energy consumption of power plant desulphurisation systems by 50%-80%, while preventing the generation of waste water, acid waste and other forms of environmental pollution.

CITIC Dicastal adopted the following measures in environmental protection, energy conservation and emissions reduction in 2016:

CITIC Pacific Special Steel puts a strong emphasis on the processing of gas, waste water and particles. Major environmental initiatives in 2016 have included the following:

Green office and low-carbon living

CITIC Limited and its subsidiaries advocate the philosophy of green office and low-carbon living by encouraging careful moderation of staff consumption of water, electricity, food and more. Employees are also asked to conserve resources by exercising self- discipline.

Case study:

e-office progress for the paperless office

CITIC Limited continued to enhance the development of its e-office programme in 2016. Two upgrades of the original OA system were introduced before it was then implemented across all subsidiaries, meaning that CITIC Limited now transmits all internal non-classified business documents via electronic means. In addition, the mobile office system and senior management e-bulletin allow business documents, mail, internal publications and statements to be read by staff on mobile devices during business trips, as opposed to the former method of faxing office work to remote locations. This has resulted in greater efficiency and further advancements of the paperless office at CITIC.