23 December 2015

China releases national green bond standards

China has launched its national green bond standards, in move expected to kick-start the market in the country.

The Green Projects Catalogue (GPC), developed by the People's Bank of China's (PBoC) Green Finance Committee, provides a set of standards for screening which assets and projects are eligible to be financed using green bonds.

The standards are part of China's drive to make its financial system environmentally sustainable. It believes that green bonds have a key role to play in this transition.

"Green bonds, as a low-cost, liquid and low-risk investment tool, can effectively improve the availability of finance for green projects and reduce the cost of financing them," said a document released along with the standards. "And for investors, green bonds can provide new channels for participation in green investment." 

The GPC covers six broad sectors:

  • Energy efficiency;
  • Pollution control;
  • Resource efficiency and recycling;
  • Clean transport;
  • Clean energy; and
  • Climate adaptation and conservation.

The standards provide regulation on how the proceeds are used, including ring-fencing of funds, selecting eligible projects, and what type of investments are acceptable before the proceeds are allocated.

They also require robust disclosure of information from green bond issuers regarding asset or project type, how they selected green projects and whether any other standards were used, and reporting environmental performance.

Issuers are "encouraged" to engage an independent party to review or to certify the bond in terms of use of proceeds and environmental performance.

"We welcome this very exciting development, which is a big boost for green bonds worldwide," said ‎Giulio Boccaletti, global managing director, water, for the Nature Conservancy. "Investors will need standardised metrics and independent verification so they know what they're buying. If China gets those right, it will be a big step forward and a beacon for the rest of the world."

The standards were written by the Green Finance Committee, which was set up by the PBoC to help green its finance system. Investors managing two-thirds of China's assets under management are represented on the committee, as are financial sector regulators and all the major banks and development banks.

Earlier this month, India released a draft of its own set of national green bond standards for consultation, with other countries such as Mexico expected to follow suit.