By Paul Davies, Gary Gengel and Andrew Westgate

In April 2015, the Final Report of the People’s Bank of China’s Green Finance Task Force made 14 recommendations to facilitate the establishment of China’s green finance system. Recommendation 13 proposed the imposition of lender liability on banks to force financial institutions “to take environmental impact into consideration in making investment and financing decisions”.

The practical consequence would be that banks and other financial institutions become liable for environmental pollution or…