Local governments in China appear to have moved to the forefront of efforts to promote more sustainable economic and societal outcomes through the issuance of green bonds.
That's among the takeaways from a panel discussion at FinanceAsia’s China Fixed Income Summit in Hong Kong on Thursday.
“We see creativity emerging from Chinese provincial and local governments on motivating companies to issue green bonds,” Mushtaq Kapasi, managing director at International Capital Market Association, said. “And this creativity needs to be encouraged.”
His comments follow the publication in June of new rules designed to allow greater special bond issuance to support project financing. These bonds generally have lower costs and higher credit ratings than local government financing vehicles (LGFV).
It's the kind of state buy-in that has enabled the Chinese market for green bonds – bonds whose proceeds are earmarked for environmental projects – to flourish.
Last year, Chinese green bond issuance topped $30 billion, according to a report by the Climate Bonds Initiative, cementing the country's market as the second-biggest in the world.
And last month saw the first municipal special green bond issued by Jiangxi province, the proceeds of which will be used for municipal infrastructure construction.
“In 2014, it was still a niche market, but now it is an overall strategy for companies,” Kapasi said. “Things are definitely improving.”
China's green bond push dovetails with the broader Chinese state drive to put the country's economy on a more environmentally friendly footing.
For example, about 15% of the buildings under construction in China match green building standards, Freeman said, especially in the Guangdong-Hong Kong-Macau Greater Bay area – and thanks in large part to initiatives taken by the regional government.
LESSONS LEARNED
What's been learned in China could also be exported, panellists said.
“China has more experiences on green bond issuance and these experiences can be taken to other countries,” said Rachel Freeman, chief strategy and innovation officer at the investment bank AMTD Group.
The first priority is to increase the supply of green projects that could be funded through capital markets in this way, she said.
Countries and institutions also need to work together and consolidate a standard to define what “green” is for more transparency and certainty, given some of the greenwashing claims that have surrounded some Chinese green projects.
For example, China has previously allowed issuers to use up to 50% of a green bond's proceeds to repay bank loans, whereas elsewhere 95% of the proceeds must be earmarked for green projects and coal projects, no matter how clean, are excluded.
Encouragingly, Chinese green bond standards appear to be edging closer to international standards. Last year, the share of Chinese outstanding green bonds failing to meet international standards fell 12 percentage points to 26%, according to a report in February from the Climate Bonds Initiative and China Central Depositary & Clearing Company. At the same time, the issuance of internationally aligned green bonds rose by a third, it said.
