Revolutionizing China’s Dairy Sector With Sustainable Finance
Challenge
Around the world, nearly two million tons of milk are produced daily.1 As demand for an essential source of nutrition grows, the global dairy industry is progressing toward more sustainable practices. Globally, greenhouse gas (GHG) emissions per kilogram of milk declined nearly 11% from 2005 to 2015, reflecting continued improvements to on-farm efficiency. 2
Still, regional variation remains. In China, currently the world’s third-largest dairy producer, many dairy farms have high GHG emissions levels compared to those in more developed regions 3 – but appetite for change is strong.
China Mengniu Dairy Company Ltd – one of the ten-largest dairy companies in the world 4 – has taken the need to reshape the country’s highly fragmented dairy industry to heart.
“Step by step, we aim to innovate low-carbon ranches, practice green production, create greener packaging and achieve low-carbon transportation, leading the Chinese dairy industry toward carbon neutrality,” says Chris Kwok, Financial Controller at China Mengniu Dairy.
Impact
To realize those ambitions, China Mengniu Dairy must continue to invest in its production processes with an eye to innovate. In turn, it required additional funding and a trustable green advisor who truly understands the industry.
In 2021, DBS Bank (Hong Kong) and two other banks arranged China Mengniu Dairy’s first offshore green loan to help the dairy-maker fund its ambitions. China Mengniu Dairy will use the proceeds of the HK$2.3 billion loan 5 to produce organic milk and improve the company’s energy and water-saving capabilities, while helping banks and external investors gain a better understanding of Mengniu’s sustainability commitments.
“With green financing, Mengniu has been investing along the value chain from forage cultivation, raw milk sourcing to manufacturing and distribution for better industry collaboration,” says Kwok.
Takeaway
Through DBS Bank (Hong Kong)’s green loan and co-advisory that demonstrates its strong connectivity and capability in advising Chinese clients to successfully receive green financing in Hong Kong, China’s dairy industry is on track to secure further offshore green financing opportunities in its crucial path to net-zero.
“While working with our client Mengniu, we understand that there are a few challenges in China’s dairy industry, including food safety, efficiency improvement and emissions reduction,” says Wallace Lam, Managing Director and Head of Institutional Banking Group at DBS Bank (Hong Kong). “The dairy sector in China has been undergoing rapid growth in recent years. Since demand is high and the industry’s environmental impact is huge, it is important to act now.”
“Engaging with upstream dairy partners along the entire industry value chain and helping them gain access to supply chain resources is critical for green production from source. To help the industry to transition, working with an anchor client – like Mengniu – is very effective to get partners onboard and drive better industry collaboration toward common ESG goals.”
