China update: central bank's new green bond market regulations drafted; big banks queuing to issue

Today I’m in Beijing. I’ve just had a meeting with a humungous bank – everything is just so over-sized in this country, with this bank having over 300,000 staff and assets of more than US$1 trillion.

Evene the central bank has 400,000 staff for goodness sake! And my friends at the Beijing City Finance Bureau - still housed in a basic 1970s building a bit like the high school I went to - are now handling a trillion dollar infrastructure investment plan for 120 million people (in the newly merged economic zone of Beijing, Tianjin and Hebei).

It’s like you’ve accidently wandered into a world of everything being super-upsized.

Of course that’s why their green bond market is going to be super-upsized as well.

As you may recollect, we’ve been involved for the past year in a green finance project led by People’s Bank of China (PBoC: China’s central bank) Chief Economist Ma Jun, in collaboration with the UNEP Inquiry into the Design of a Sustainable Financial Market.

A couple of month’s ago the bank’s Deputy Governor launched the project report, complete with 13 recommendations for action, one of which – surprise! – was to grow a green bonds market in China.

The recommendations are not sitting on a dusty shelf as so often happens in Washington DC or Brussels – they’re in the process of being implemented!

Last week the PBoC’s Regulatory Division circulated internally a draft of its new green bond issuance regulations. Yes, it will be a regulated market in China, right down to definitions of what constitutes “green”.  The new regulations will be finalized sometime in Beijing’s Autumn. But overseas issuance by Chinese banks with international branches will not require PBoC approval, so first off the mark will be big banks issuing green bonds in London or Hong Kong (or both).

PBoC has also now sponsored a multi-stakeholder Green Finance Committee to keep pushing on green finance reforms, complete with multiple sub-committees such as for green bonds. There are 85 organisations involved, Vice-Chairmen from every financial market regulator, and the Committee’s membership includes representatives from Chinese investments funds with assets under management of RMB 18 trillion (USD 3tn) - two-thirds of China’s assets under management). All that means that “every man and his dog” are involved, and you will see strong coordination between regulators around green bonds.

Yes, we’re involved. World Bank/IFC and Climate Bonds verifier Trucost are the other foreign members of the green bonds sub-committee.

This Friday I’m back in Guiyang at the annual EcoForum Conference to speak in the green bonds forum moderated by my good friend Professor Wang Yao – secretary of the green bonds subcommittee.

Last year’s conference was where the PBoC green finance project germinated, after Ma Jun participated in green finance and green bond workshops (see the blog about his speech).

Post-workshop, UNEP’s Simon Zadek and Ma Jun plotted, the PBoC project was born, and now green bonds are about to burst forth as a result – plus 12 other important recommendations of course, but as you know I’m a little one-track.

Ma Jun will speak again this year in the green bonds session, as will folks from the National Association of Financial Markets Institutional Investors and the China Industrial Bank (champing at the bit to issue a green bond). This year we’ve also invited reps from ICMA, HSBC and from a big provincial development authority – provincial green infrastructure bonds will the big 2016 story in China, after bank green bonds get going.

The green finance push has got a head of steam here — for example the upcoming 13th Five Year Plan apparently will have a big section on the green finance.

China’s environmental challenges are enormous: air, water, food all have big pollution problems. Making sure green finance effectively contributes to addressing those problems is a highly-charged issue in China. More renewable energy facilities were built last year than coal-fired power stations; Metro rail is being built at vast scale and you know have to go into a lottery to even buy a car in Beijing; and the government has deliberately throttled back GDP growth targets to allow cleaner but slightly slower growth over faster but dirtier growth.

The supertanker is turning.