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December 13, 2017

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Eco-friendly finance needs more participants

TOO few companies and institutions are issuing green bonds, and volumes need to be increased, according to Ma Jun, director of the Center for Finance and Development at Tsinghua National Institute for Financial Research.

“Three years ago, we were still discussing why we should do green finance, but now the focus has shifted to how to generate more issues,” Ma told the recent seminar.

Of all bonds issued last year, 2 percent were green bonds. Ma said 20 percent of investment in China needs to be green-oriented to meet national objectives for a cleaner environment.

“There is high demand in the market,” he said in a keynote address at the event. “As observers have pointed out, green bonds are issued at lower coupon rates than similar bonds of the same maturity. The question is how to motivate more financial institutions and corporates to join the team.”

He added, “I think we should make clearer to issuers the kinds of benefits they will enjoy by issuing green bonds. For example, consumers are becoming more environmentally conscious and prefer low-carbon products. Therefore, companies that are more eco-friendly will be more welcomed by investors.”

A “white list” library is now being compiled to focus on more socially responsible production, with companies being encouraged to procure raw materials from identified green suppliers.

Local governments should give more incentives to green companies, Ma said. Shanghai has been a leader in that regard.

Ma Jun also appealed for more efforts to attract overseas investors. He said more than half of European investors are considered “responsible,” which means they would be interested in including green-related assets in their portfolios.

“Harmonization between guidelines is another key issue facing us, and a unified definition of green finance is expected to be unveiled next year,” Ma said.

Currently, there are some differences between the standards issued separately by the People’s Bank of China and the National Development and Research Commission.

As a next step, Ma said, all bond issuers — including green bond sellers — will be required to provide environment information. What should be included in that disclosure needs to be coordinated. A benchmark for third party verifiers of debt also will be implemented.

“We are now concerned that too many verifiers may be out of control and that might affect the quality of green ratings,” Ma said.

China’s proportion of global green bond issuance dropped in 2017, he noted, but that reflected increased activity in other markets and not less activity in China.

“It is a good thing, from my perspective, that at least 10 countries issued their first green bonds this year after China pushed green finance onto the agenda of the Group of 20 summit,” he added.

He noted that Indonesia and India have set up their own standards and definitions for green finance during the past year.

“So you can see that green finance is on a fast track of growth around the globe,” Ma noted. “China was home to the world’s largest green bond market last year, but that comprised only about 2 percent of bonds issued here, whereas globally the figure is around 0.2 percent.”

At the moment, banks own the majority of green debt. A new horizon for green investment may be the conversion of the assets lacking liquidity into green-asset-backed securities, Ma said.

He lauded the introduction of green bond index-linked products and improvements in rating methods.

Green finance in China dates back to late 2015, when the People’s Bank of China announced plans to introduce green bonds on the interbank market. On the same day, the Green Finance Committee of the China Society of Finance and Banking issued a catalogue of “endorsed projects” that qualify for green funding.

A few weeks later, the National Development and Research Commission published guidelines on green bonds for the state-owned company sector.

Thanks to these measures, green bond issuance in China jumped from almost zero to 230 billion yuan (US$34.7billion) in 2016, accounting for 39 percent of global issuance. Of that amount, some 200 billion yuan of green bonds were issued in the domestic market, and the remainder offshore.


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