China proposes cutting clean coal from revised green bond standards

4 Jun, 2020 23:50
source: Singularity Financial

Singularity Financial Hong Kong June 4, 2020 – China has issued a draft proposing to exclude clean fossil fuels from the list of projects that are eligible to be included as green projects in a green bond framework approved by Chinese regulators.

A draft list of projects considered eligible for green bond financing, released by the People’s Bank of China on May 29, excluded those intended for the “clean utilization of fossil fuels”.

The decision was made to “align with international standards”, the central bank said in a statement alongside other government bodies.

The exclusion of clean coal is subject to public consultation and comes alongside plans to better align standards across China’s regulatory bodies, which have historically maintained different standards on green financing.

The move is a “hugely significant step that will be welcomed by international investors”, said Sean Kidney, chief executive of Climate Bonds Initiative, a UK-based markets watchdog.

Flows into Chinese bonds from international fund managers have been boosted over the past year following the inclusion of the country’s debt into global indices. But green bonds have remained relatively untouched by overseas investors.

China has chosen to signal that it can align fragmented regulatory standards and, after months of discussions, has brought the whole structure closer to international rules. It has made the reduction of greenhouse gases a priority, above simply tackling air pollution. This is especially true if the rules make it harder for China to fund coal projects overseas.

The Green Project Catalogue

The Green Project Catalogue comprises a list of projects that are eligible to be included as green projects in a green bond framework approved by Chinese regulators — with the 2020 version marking the first revision to the list since 2015.

Perhaps the most eye-catching development in the new Green Project Catalogue is the exclusion of “clean fossil fuels”, a previously included project category that had led to a notable divergence between the projects that are eligible for green financing in China, and those that meet generally accepted market standards in other parts of the world.

The Green Project Catalogue is a crucial document in the context of green bond issuances in China. Unlike in other jurisdictions, China requires regulatory approval in order to label an issuance “green”. That approval has previously come from the regulator directly responsible for the issuer.

For example, the People’s Bank of China had provided approval for financial entities, the National Development and Reform Commission had provided approval for non-listed companies, and the China Securities Regulatory Commission had provided approval for listed entities — with each of these regulators setting their own standards for green projects (as discussed in a previous Latham blog).

However, the 2020 Green Project Catalogue will apply to issuers in each of the sectors the three regulators oversee — meaning it will, for the first time, represent a comprehensive guide as to what can constitute a green project in China.