China loses top billing as green bond issuer to US
Standard & Poor’s Global Ratings says the country’s green bond issuance expanded a modest 0.9pc in 2017 from the year earlier to US$23.1 billion
China lost its top spot last year to become the second biggest green bond market globally after the US, according to Standard & Poor’s Global Ratings.
The country’s green bond issuance expanded a modest 0.9 per cent from a year earlier to US$23.1 billion in 2017, with its contribution to the global market falling to 15 per cent in 2017 from 26 per cent in 2016, said Michael Wilkins, S&P’s managing director, sustainable finance.
Efforts by the Chinese authorities to reduce corporate borrowings to eliminate unproductive companies have led to tighter financial conditions and higher yields that have weighed on both green bonds and ordinary bonds.
In the US, green bond issuance surged 120 per cent to first place at US$43.1 billion in 2017, with its proportion of the global issuance rising to 28 per cent from 22 per cent.
Wilkins said issuers have become more willing to get into new forms of financing vehicles such as green loans, green funds, and green structured products, reflecting the market is accepting new business opportunities within the green space.
The US’ green securitisation was boosted by a large US$25 billion mortgage-backed securities, issue by mortgage guarantor Fanny Mae.
“Whilst growth in green bond issuance could slow in 2018, due to the efforts of the Chinese authorities to moderate corporate borrowing, we expect the country to maintain its current level of green bond supply and remain at the forefront of climate and green finance,” Wilkins said.
S&P forecasts the global green bond market to increase about 30 per cent to around US$200 billion this year because of strengthening fundamentals.
One of China’s primary goals is to shift towards an economy that is more environmentally sustainable. The transformation requires massive investment that cannot be financed solely by public resources, with the funding gap to be filled by private-sector capital.
“The green bond market is seen as a powerful instrument in delivering those targets, as the People’s Bank of China [the country’s Central Bank] recently outlined in its ‘Guidelines for Establishing the Green Financial System’,” Wilkins said.
Under its 13th Five-Year Plan, Beijing has committed to reduce its carbon and energy intensity per unit of GDP by 18 per cent and 15 per cent respectively by 2020.
A recent joint-paper published by the China Green Finance Committee and the European Investment Bank is another sign of China’s willingness to improve the linkages and consistency between regional and national green bond markets across the globe to support issuance and investor demand.
“This has increased transparency in the market and is likely to have a positive impact on investor demand for green bonds in China,” Wilkins said.
Last year’s largest green bond issuers included the Bank of Beijing (US$5 billion), the Indian energy company Greenko ($US1 billion), and Mexico City Airport (US$4 billion).