China's State Council, the Chinese Government's cabinet, last week published an important and comprehensive plan to maintain a 15% annual growth for low carbon and environmental protection industries - with an important extra element.
The plan talks about opening up debt instruments as a means of financing growth in this area and proposes:
- Encouraging environment protection companies to issue green securities, including bonds.
- Establishing a loan grading system for environment friendly projects.
- Allowing private corporations to issue green bonds, or more specifically, bonds for energy saving and environmental protection.
Mandarin readers can view the document here.
The document goes on to propose a pilot scheme for corporate green bonds. Yes yes yes!
It also proposes improved environmental and energy efficiency standards in a range of areas; much-needed, and these provide the asset definitions for green bonds. Essentially, bonds backed by assets that qualify, like renewable energy plants or buildings that meet robust carbon footprint standards, should qualify as green bonds.
China’s government has an ongoing focus on energy conservation and renewable energy as a means of contributing to sustainable economic growth. It's been very diligent at implementing command and control measures in different sectors, and establishing carbon trading pilots. Bonds are now coming into the mix of broader financial market reforms.
If the focus on green bonds is designed to guide private investment from both the huge savings pool of domestic households and from foreign capital, then a lot of investment could shift very quickly.
Of course the same arguments that have convinced China's Government to pursue this apply equally in the EU and the USA: the need to promote a market for capital products that will finance an urgent policy priority area. That's the sort of thing we count as "Capital Steerage".
Note: it's not all about green bonds. For a different perspective see this Der Spiegel coverage.