Green financing to help drive China’s 2060 push for carbon neutrality

Sustainable financing is becoming ‘more mainstream’ and ‘more common’ in investment portfolios
China was the second-largest issuer of green bonds globally in 2019, at US$55.8 billion

Green finance

Chad Bray

Published: 8:00am, 5 Nov 2020

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Green bonds and other types of sustainable financing could play a major role in driving China’s pledge to be carbon-neutral within the next four decades, as sustainable investing gains more traction in investment portfolios, according to panellists at the South China Morning Post’s Asia Sustainability Conference.

“This is effectively a movement that has gathered steam. If you look at the diversity of investors, it has gotten higher. I think the demand and the supply of green bonds and sustainability financing has become fairly mainstream,” Kok Siong Ng, chief financial officer at Link Asset Management, said. “I think this is going to get more mainstream and more common. I think this is something you can’t ignore.”

Ng said about a quarter of the firm’s financing was in the sustainability-linked or green financing space, with the firm targeting increasing that to one-third in the future.

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Sustainability: Green bonds to help drive China's push towards carbon neutrality

In September, Chinese President Xi Jinping said in a video address to the United Nations General Assembly that the country would scale up its voluntary emissions targets under the Paris climate accords, hitting peak emissions before 2030 and achieving carbon neutrality before 2060.

Green finance will be an important tool for policymakers on the mainland as they try to achieve a goal of carbon neutrality by 2060, according to Fitch Ratings.

The SCMP’s Chad Bray, left, discusses green bonds with Kok Siong Ng, chief financial officer of Link Asset Management, Ellen Lam, senior adviser for environmental finance at WWF-Hong Kong, and Issac Yeung, general manager of Hong Kong and China Gas Company, at the Asia Sustainability Conference on Wednesday. Photo: SCMP

“New policies and incentives have continued to emerge despite the coronavirus pandemic, with financial regulators setting policy goals to address climate change through investment and financing in China’s next five-year plan,” Fitch analysts Jingwei Jia and Mervyn Tang said in a research note on Wednesday.

China was the second-largest issuer of green bonds that met international standards after the United States last year, issuing US$55.8 billion of “labelled green bonds”, according to the non-profit Climate Bonds Initiative (CBI). Including bonds that only meet Chinese standards, China would have surpassed the US in issuance.

About US$257.5 billion in labelled green and climate bonds were issued last year, according to CBI. That amount is expected to reach US$350 billion this year, a fraction of the US$100 trillion bond market globally.

China was the second-largest issuer of so-called labelled green bonds in 2019. Photo: Bloomberg

Ellen Lam, senior adviser for environmental finance at WWF-Hong Kong, said China had made a “bit of progress” in moving closer to international standards for green bonds. The latest consultation of the green bond project catalogue proposes to eliminate fossil fuels – one of the deviations from international standards.

“Green bonds, over the past 10 years, have been a proof-of-concept in how the financial system can really channel funds from different parties,” Lam said. “That is the first step for green bonds. There’s a long journey ahead.”

Issac Yeung, general manager of the Hong Kong and China Gas Company, better known as Towngas, said issuing green bonds on the mainland was much easier than in Hong Kong because of the “landscape”. “You have lots of investment opportunities in mainland China,” Yeung said. In Hong Kong, there are fewer projects that can be targeted for green bond financing, he added.

The city hopes to become a green financing hub, particularly as the Greater Bay Area develops further. Seven financial regulators and government bureaus teamed up in May to set up a cross-agency body focused on promoting the city as a sustainable financing centre.

Separately on Wednesday, Arjan de Boer, head of markets, investments and structuring for Asia at Indosuez Wealth Management, said only about 27 per cent of the firm’s large clients had active sustainable investments despite increasing client interest.

“The ultra [high net worth] clients are closer to 40 per cent,” de Boer said. “[The percentages] are higher in Europe, than they are in Asia.”

The level of demand among clients was increasing, particularly as a result of the coronavirus pandemic, as investors focused on more environmental, social and governance (ESG) strategies, he said. “There’s more interest among the second generation of wealthy families in Asia, as well,” he added.

Arjan de Boer, head of markets, investments and structuring for Asia at Indosuez Wealth Management. Photo: Handout

Katy Yung, managing partner at the Sustainable Finance Initiative, said the coronavirus pandemic had affected how investors were allocating capital. “There has been a little more preference for liquid strategies within ESG, and impact [investing as well],” Yung said. “Some of our families have been looking into ESG [exchange-traded funds] and diversifiers, like micro finance debt funds, and new and up and coming ESG hedge funds.”

Interest remains in alternative and private-equity impact, but investors are concerned about lock-ups or identifying the right strategy to deploy, she added.

Mary Leung, head of advocacy for Asia-Pacific at the CFA Institute, said companies who were better at managing their ESG risk, or had portfolios that had an ESG tilt, actually outperformed traditional portfolios this year as the pandemic weighed on financial markets.

“As a result, we have seen massive fund flows into ESG funds,” Leung said. “I think ESG has [had] a pretty good crisis. [Nevertheless,] the concern about ESG and the loss of performance still lingers.”

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