Posted inFixed Income

China green bonds gain traction

Coupled with a diversity of products and government support, China sustainable fixed income is expected to continue to grow.

China is now the fourth largest green bond issuance market, after the US, Germany, and France. The country’s new bond issuance reached $22bn by the end of the second quarter of 2021.

Apart from conventional green bonds, the China onshore bond market has also seen innovative sustainability-themed products launched this year, including carbon-neutrality bonds, pandemic-related bonds, biodiversity bonds, and sustainability-linked bonds, Sustainable Fitch told a media briefing.

The growth is supported by new government policies and initiatives, including the green bond taxonomy, ESG information disclosure requirements, national carbon market, circular economy strategy, and an emission-reduction lending facility from the Peoples Bank of China.

“We think more policy initiatives are on the horizon as China will gradually roll out the latest ‘1+N national climate policy scheme’ to various polluting sectors,” said Jingwei Jia, research associate at Sustainable Fitch.

Although banks, especially state-owned banks, usually play a large role in China’s onshore green bond market as an issuer, Sustainable Fitch expects to see the trend to shift gradually to non-financial companies as well, such as those in the energy and utilities sector, and local government financing vehicles (LGFV).

“The climate transition process began from state-owned government banks, but as the process moves down to the municipal level, LGFV’s are also issuing green bonds to achieve climate targets at a local level, such as railway and clean infrastructure projects,” said Jia.

“As companies are going through the climate transition, more of them are issuing green bonds to finance green projects and support their green framework.”

Shortage of investable options

More generally, however, Asia retail investors struggle to gain access to regional green bonds. For instance, there is only one green bond ETF for Asia, said Nneka Chike-Obi, director at Sustainable Fitch.

But, with the authorities stepping up regulations on information disclosure, Chike-Obi believes there will be more products available in the Asian green bond ETF market in the future.

Looking into 2022, Sustainable Fitch believes investment themes will shift from existing emission reduction to emerging ESG topics such as biodiversity, the circular economy, waste management, and clean technology.

Sustainable Fitch was launched by the Fitch Group earlier this year, and it offers a range of ESG ratings products at both an entity and instrument level for all asset classes globally.

The firm is also launching a new ESG ratings product which is focused on the ESG-labelled market, and will comprise the entire fixed-income investable universe in the future.

Part of the Mark Allen Group.