NDRC has been put in charge as China’s green notes reach the 2nd highest globally

1 Jul, 2021 05:42
source: Singularity Financial

Singularity Financial Hong Kong July 1, 2021 – International fund managers are increasingly grappling with fragmented policies in China’s green bond market that can make it hard to assess just how much of that money is going to projects to help the environment.

Bloomberg Green reports, “the country aims to be carbon neutral by 2060, a push that’s fueled a 248% jump in sales of green notes locally and offshore this year to $23 billion, a record for this point in a year. That leaves the total outstanding amount the second highest globally after France.”

But only about half or less of Chinese green securities meet global standards for what counts as green, according to Xie Wenhong, China program manager at Climate Bonds Initiative. The international not-for-profit organization publishes screening standards for green debt that are followed by many investors.

Guidelines set by China’s National Development and Reform Commission, the top economic planning body, NDRC, allow as much as 50% of green bond proceeds to be used to repay bank loans and replenish working capital. This contrasts with CBI’s methodology, which requires full allocation to green projects. Green Bond Principles from International Capital Market Association also require all proceeds of green bonds to be dedicated toward green projects.

“If you’re an investor that’s buying a use-of-proceeds bond, it’s important that the proceeds are actually going to the end destination that you want it to go to,” said Paul Lukaszewski, head of corporate debt for Asia Pacific at Aberdeen Standard Investments in Singapore. “Irrespective of their label, we would treat bonds which allow proceeds to go to other purposes as being general corporate purpose bonds and assign no benefit to their label.”

Recently, NDRC has been put in charge of devising a plan for the world’s biggest polluter to cut greenhouse gas emissions, indicating that climate policies are gaining a more central role in the nation’s long-term development strategy.

Under the new arrangement, the NDRC will take the lead in charting the broad plan for cutting emissions, as well as roadmaps for cleaning up carbon-intensive sectors such as power generation and metals production, the people said. Meanwhile, the Ministry of Ecology and Environment, or MEE, will oversee the carbon market, emissions reporting and international cooperation, two of the people said.

Three regulatory bodies released the Green Bond Endorsed Projects Catalogue (2021 edition) in April, which removed clean coal and fossil fuel projects from eligible programs.

“Chinese green bond issuers who tap the external USD market typically issue under global green bond frameworks which require 100% of proceeds going toward specified projects,” said Lukaszewski at Aberdeen Standard Investments.