Last night, in a room full of people at Renmin University’s Chongyang Institute in Beijing, including journalists from Xinhua News, the People’s Daily and the China Economic Daily, we launched our new report Growing a green bonds market in China: key recommendations for policymakers in the context of China’s changing financial landscape. It’s an action-oriented paper undertaken in conjunction with IISD, and Chongyang, in partnership with the Financial Research Institute of the Development Research Centre of the State Council (DRC-FRI).
With it we also released a simple “How to” guide for green bond issuers in China. Both are downloadable on our web site in Chinese and English.
Earlier that afternoon we’d had a half-day, invitation-only workshop about the report’s recommendations, including some expert commentators:
- Yanfei Ye, Deputy Director-General, Prudential Regulation, China Banking Regulatory Commission (CBRC).
- Benhua Wei, former Deputy Director-General of the State Administration of Foreign Exchange (SAFE), manager of China’s $4+ trillion state foreign exchange reserves.
- Dai Ze, Deputy Director of the Bond Market Division of the People’s Bank of China (PBoC), China’s central bank.
- Tailei Wan, Head of the Bond Department, National Association of Financial Market Institutional Investors (NAFMII).
- Professor Wang Yao of the Central University Finance Institute.
… as well representatives from the Minister of the Environment, the Industrial Bank of China and the China Central Depository & Clearing Co. Chongyang Institute’s Wang Weng moderated.
I am going to tell you that the response was very positive. But beyond that it was Chatham House rules, so details I cannot divulge. Sorry. Although I can tell you I was so excited afterwards I had to do a little dance.
At the public lecture that evening we had talks from:
- Wen Wang, Executive Director, Chongyang Institute.
- Prof. Hong Lan, Deputy Director, Center for Environmental Finance, Renmin University
- Simon Zadek, Co-Director, UNEP Inquiry into the Design of a Sustainable Financial System, and the main organiser of the Greening China’s Financial Reforms project.
- Mark Halle, VP, International Institute of Sustainable Development.
- And of course me, Sean Kidney, CEO Climate Bond Initiative, presenting the main recommendations. (In English unfortunately – I’m enormously grateful for good interpreters).
The two documents complement the Greening China’s Financial System synthesis paper launched at the China Development Forum - which we wrote about on Saturday. The papers we’ve just launched are basically the green bond-specific parts of the full Greening China’s Financial System paper.
The substantial commitments China has made to reform its bond markets are exciting from a financial and economic perspective, but also from an environmental one, as they increase the opportunity to utilise the bond market to finance the transition to a low-carbon/green economy in China: policymakers can consider how to facilitate green bonds in the initial design of the market. Pushing ongoing changes in a green direction is much easier than attempting changes to established systems.
We’ve proposed a range of specific, action-oriented recommendations for China’s policymakers on how to make this happen.
Clearly, China is grappling with environmental challenges that are a little different to those of the mature economies in Europe and the US where the green bond market has been largely climate change focused. While climate change is high on the agenda in China too, the green challenge here is much broader: the extreme levels of air pollution, contaminated soil and lack of clean water makes this very clear. As a result you will see discussion of green transitions, green finance and, now, even green bonds in official document after official document. Rumour has it that the 13th Five Year Plan, soon to be released, even has a chunk in it about green finance.
Some highlights from our report are:
- China’s particular environmental challenges and financial system means China-specific definitions for green bonds are recommended. The China Banking Regulatory Commission has already done a lot of work in this area, and this can be seen as a foundation for national definitions.
- A new multi-sector “Green Bond Market Development Committee” should be set up to follow up recommendations made in the DRC paper and in a forthcoming PBoC paper (that we’ve also had some engagement with).
- Partial credit guarantees would support a managed transition to full credit transparency for green municipal revenue bonds and green public-private partnership project bonds. A special, limited capitalisation fund could be set up to support this, with a sunset clause.
- Tax credits should be considered for interest earned on green bonds from state owned enterprises, corporate (“enterprise”) green and medium-term notes.
- A green bonds quota should be established for foreign investors as part of China’s regulated inward investment scheme. China would gain not only from access to the yield hungry bond markets on Europe, Japan and North America, but also benefit from the injection of governance and prudential requirements that participation by institutional investors would provide for the Chinese market.
Next: we’re moving on to working with demonstration green bond issuers - hence the “How-to issue a green bond in China” brochure. We expect the first officially sanctioned one to be out mid-year; more will follow quickly.
Of course the opportunity to integrate green bond market development with ongoing debt capital market reform is also ripe in other emerging markets. We’ve also got country green bond development programs in India, Brazil, Canada and few other places. Watch this space.
