On May 29, 2020, the People’s Bank of China (PBOC), in conjunction with the National Development and Reform Commission (NDRC) and China Securities Regulatory Commission (CSRC), jointly issued a consultation paper on “Green Bond Endorsed Project Catalogue (2020 Edition)” to solicit public opinion. Feedback submissions may be made on (or before) June 12, 2020.
China’s criteria for identifying green bonds have historically been more lenient than international standards. In fact, some projects involving the clean utilization of fossil energy or coal were also classified as green projects, while other globally recognized standards strictly excluded such.
China’s domestic standards for green bonds have also not been uniform. For example, Green bonds issued by financial entities are subject to the PBOC Green Bond Endorsed Project Catalogue(2015 Edition) and Green domestic corporate bonds (and in general non-listed companies) are subject to the NDRC Green Bond Guidelines.
Further, Green bonds issued by listed companies and corporate asset-backed securities are subject to the CSRC Guidelines for Supporting Green Bond Development. This multi-agency regulatory scheme has caused confusion for market participants, and left huge room for policy arbitrage and potential “green washing”.
Recognizing the above problem, the NDRC compiled a “Green Industry Guidance Catalogue (2019 Edition)”. This version provided a unified basis and reference for the identification of green industries, and had the goal of further alignment with internationally recognized green industry guidelines.
The new 2020 Edition is primarily based on the 2019 Edition, to unify the standards of China’s green bonds, and the scope of application, which includes but is not limited to green financial bonds, green domestic corporate bonds and green bonds issued by listed companies as well as corporate asset-backed securities. It also classifies green bond endorsed projects into four levels. The first level is classified into six categories, namely: energy-saving and environmental protection industry, cleaner production industry, clean energy industry, eco-environmental industry, green upgrading of infrastructure and green service.
The new version is certainly a move in right direction with enhanced uniform structures. It’s worth noting that external reviews and assurance guidelines are closely aligned, with China taking early steps to strongly encourage the use of independent verification.
However, further efforts to harmonize green bond guidelines should focus primarily on green definitions, with particular emphasis on development of sector specific criteria and the basis for criteria.
After the 2020 Edition is released, China’s green bonds will hopefully have a unified standard which issuers and intermediaries will be able to depend on as a sole authoritative reference. And, it should increase investors’ confidence as it is more aligned with the global “Climate Bond Standard”. The most impactful alignment being the exclusion of fossil fuel related projects.
One day remains for us to influence the 2020 Edition. Please provide your timely feedback to help promote an optimum China based standard with robust global alignment and more secure investment. Feedback can be sent to: email@example.com.