In a report entitled “Establishing China’s Green Financial System”, China’s central bank, the People’s Bank of China (PBoC), paves the way for official guidelines on green bonds, an evaluation system to check the correct allocation of funds and assess environmental impact, creates incentives for green bond issuance such as preferential taxation and interest rates, and streamlines the approval process.
“The Chinese market for green bonds is exploding,” says Amundi’s Samama. “The Chinese government is pushing very hard and green bonds are the product they want to promote. That means it will become harder for companies to cheat. Furthermore, the introduction of national pollution taxation in 2017 will see the creation of the world’s biggest taxation system on polluting companies.”
China’s role in promoting green bonds could be game changing in terms of the availability of finance for the transition to a low-carbon economy at a faster pace. China already accounts for around 20% of global issuance of climate bonds.
One lingering concern, however, is that China has not signed up to the CBI’s certification standards. Instead, it has created its own system, which, although it is inspired by the CBI standards, takes into account idiosyncrasies of the local economy. (As such Chinese green bonds are, strictly speaking, considered to be climate bonds.)
“Transparency standards are largely the same,” Samama says, “but there are differences in the definitions of what is green. In China clean coal is considered green, for example. The differences are minor, however, compared to the overall alignment of standards.”
Axa Investment Managers responsible investment analyst Vincent Compiegne believes establishing credible standards for green bonds is important not just in China, but for all emerging markets. “China’s standards are good,” he says, “but they are not the same as the CBI’s certification, which is the best in the market. To accelerate the growth of green bonds in emerging markets, it is important to quickly establish a set of standards, especially in China and India.”
