For the first time last week China issued a financial green bond, a sign of the speedy expansion of Chinese capital markets. Agricultural Bank of China (ABC) issued the landmark bond, raising about USD1 billion. Perhaps more significantly, ABC is the second Chinese bank to sell notes in London in a matter of days, paving the way for President Xi Jingpings visit to London this week. China is strengthening its presence and collaboration with the City of London. The Peoples Bank of China (PBoC) is working on its first overseas renminbi central bank note in London. The China Development Bank is also set to issue. Sean Kidney, Chief Executive Officer and Co-Founder of the Climate Bonds Initiative talks with Euromoney Conferences Giada Vercelli about the opportunities in the City regarding the emerging Chinese green bond market.
EC: China seems to prefer the City to other financial centres as the hub to set an offshore centre for renminbi exchange. What are the key takeaways for your industry of President Xi Jingpings visit to the London this week?
SK: China is incredibly serious about its need to rapidly transition to a clean green economy. The central bank (PBoC) has also been explicit in saying that there are not enough public sector funds available for the scale of the investments the country has to make, and they need to mobilise private sector capital as much as anyone else (well, perhaps not quite as much as some of us in Europe). That means investors can expect a lot of opportunities to invest in Chinese capital market products - in particular in highly rated green bonds. That's something investors have simply not seen before and they will need to review their asset allocation strategies accordingly. Given the size of the Chinese economy, investors are incredibly under-exposed from a diversification point of view; they can look to re-weight now.
Investors with exposure to commodities that depend on the Chinese economy - what doesn't? - need to reflect as well. What does a huge lurch to green mean for the nature of commodities demand from China?
EC: Would ASEAN accept renminbi as an anchor currency, especially given the recent volatility of the Chinese economy?
SK: Given the weighting of trade with China in ASEAN economies one would have to be incredibly surprised if we did not see a move in this direction, even with the odd China wobble. And it's not as if EUR and USD don't have wobbles as well.
EC: What are other key challenges facing Chinese issuers as they look to tap into growing investor demand for green bonds?
SK: A big part of the challenge is investor education about what's really happening in China and investor confidence in Chinese issuer green claims. For many investors China seems like a wild west of inadequate rules and enforcement; getting to know potential issuers and how they work will be a big part of that. That's why we've co-hosted this week, with the London Stock Exchange, a forum in London for prospective Chinese green bond issuers. Clear independent review and certification (and monitoring) of green claims will also be vital for international credibility. I believe we'll see that.
EC: How can the green bond market practitioners seize the Chinese opportunity? What are the needs they should anticipate to secure Chinese business?
SK: Chinese issuers need support to issue into this market, from investment banks, from verifiers (we've been working with Approved Verifiers under the Climate Bonds Standard, like EY, KPMG, Trucost and Sustainalytics, to have that support provided), and from investors detailing their requirements. Given the expected scale of issuance in the coming year, we will need to quickly see the growth of local green bond indices, tracker funds and the like.
EC: China has made sustainable growth a priority, as it is already the worlds largest clean tech investor.
SK: Yes, and the world owes China a great debt for so dramatically driving down the cost of solar with its large scale State procurement of solar energy.
EC: The China Green Finance Committee, chaired by the PBoC, collaborates with international partners to deliver more sustainable growth. How is the UK responding to these initiatives?
SK: The UK Government has, through its Foreign and Commonwealth Office, actually been actively supportive of a variety of initiatives that have contributed to Chinese green finance developments. For example, they funded the Climate Bonds Initiative report "Growing a green bonds market in China: Key recommendations for policymakers in the context of Chinas changing financial landscape" which fed into the green bond recommendations earlier this year from the PBoC Green Finance Task Force. Their Shanghai Consulate climate change projects officer, Edward Baker, has been hyper kinetically active in the space.
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