The Climate Bonds Initiative has launched a report and how to-guide on issuing green bonds in the Chinese market at an event in Beijing.
Green bonds, a debt instrument for financing projects that tackle environmental problems, are set to explode in China, according to the Climate Bonds Initiative’s Sean Kidney.
See our articles:
- Sean Kidney on the unstoppable green bond juggernaut
- Report: The push to transform China’s financial system
The report, a collaboration with the International Institute for Sustainability, is a high-level document that provides key recommendations for policymakers in China on how to grow the green bond market locally.
Some action points proposed in the report include:
- Set up a new entity, “Green Bond Market Development Committee”, to review existing and forthcoming green standards and regulations
- Set up an independent, government-approved verification supervisory entity for green bonds
- Provide corporate tax credits for interest earned on green enterprise bonds (from state owned enterprises), corporate bonds and medium-term notes
- Establish a central fund to provide partial credit guarantees for green municipal revenue bonds and green public-private partnership project bonds
An easy-to-understand companion how-to guide on issuing a green bond in China proposes five steps to successful issuance:
1. Identify qualifying green projects and assets
The key feature of a Green Bond is that the proceeds are for green projects or assets. The “greenness” of a company does not matter – it’s about the physical assets or projects.
Guidance about what assets or projects qualify as green can be found at the China Banking Regulatory Commission or the International Climate Bond Standards Scheme.
2. Arrange independent review
Credible independent review and verification protects your reputation. Verifiers can also help identify green assets.
Verifiers include Clean Development Mechanism (CDM) or Emission Trading Schemes (ETS)-qualified organisations. International issuers can use Climate Bonds approved verifiers to confirm green credentials.
3. Set up tracking and reporting
The value of the assets or projects must stay equal to, or greater than, the amount of the bond. The issuer needs to track this and be able to show how they are doing it — transparency is essential.
4. Issue your Green Bond
The usual steps apply here, as for any other conventional bond:
- Seek required issuance approval from regulators
- Structure the bond working with an investment bank or advisor; get credit rating
- Market and price the Green Bond
5. Monitor use of proceeds and report annually
Confirm at least each year, through a public report, that the funds are still properly allocated to green projects.
This can be done by an auditor or in a letter signed by an authorised officer of the company.