Beijing tightens green bond rules, requires 100 per cent of proceeds to be invested in environmentally friendly projects
- CSRC has instructed the Shanghai and Shenzhen bourses to bring issuances of such bonds in line with the newly published China Green Bond Principles
- China first to make green bond guidelines mandatory, analyst says
Separately, the China Securities Regulatory Commission (CSRC) has instructed both the Shanghai and Shenzhen bourses to revise rules to bring issuances of such bonds in line with the newly published China Green Bond Principles, said two sources.
China published the principles, a set of self-disciplinary green bond frameworks largely based on international standards, on July 29. The planned rule changes would make the guidelines mandatory for exchange-traded bonds, and reduce the risk of greenwashing, or exaggerated environment-friendly claims.
Sean Kidney, CEO of Climate Bonds Initiative (CBI), a London-based non-profit body that promotes investment in the low-carbon economy, said the changes would make China a leader in global green bond regulation.
Many securities regulators set voluntary green bond guidelines, “but to the best of my knowledge, China would be the first to make it mandatory”, he said.
It also means a lot more green bonds in China will become internationally recognised, potentially enabling China to overtake the United States as the world’s largest green bond market, he added. China had issued roughly US$200 billion of green bonds by the end of 2021, compared with slightly over US$300 billion by the US, according to CBI.
The bourses and the CSRC did not respond to requests for comment.
China has stepped up efforts to develop green finance, seeking to channel low-cost funding into areas including renewable energy and electric vehicles so as to achieve Chinese President Xi Jinping’s twin goals of peak emission by 2030 and carbon neutrality by 2060.
Although a record US$109.5 billion of Chinese green bonds were issued in 2021, making China the fastest-growing major market for such bonds, nearly 40 per cent of the issuance was not aligned with global definitions, according to CBI, which sets international standards.
The glitch was that in China’s fragmented bond market various regulators define green bonds differently, Kidney said.
Although green bond issuers in China’s interbank bond market already use 100 per cent of proceeds on green projects, the CSRC, which regulates exchange-traded corporate bonds, only sets a green “use of proceeds” threshold of 70 per cent, while the National Development and Reform Commission, the watchdog of state-owned enterprise bonds, requires a minimum of 50 per cent.
To promote rule harmonisation both at home and abroad, China published its green bond principles late last month, which are largely in line with principles issued by the International Capital Market Association.
In the notice sent to market participants, the Shanghai exchange, home to more than 300 billion yuan (US$43.7 billion) worth of green bonds, asked underwriters to ensure future issuance complies with the principles.
In addition, the exchanges in both Shanghai and Shenzhen have been told by the CSRC to update relevant rules based on the principles, according to the sources.