Green finance

Asian green finance marches on despite imperfect standards

Even though there are no unified standards in Asia, companies like ICBC and Korea Electric Power Corporation are issuing green debt.
Asia Pacific had the highest growth rate in green bond issuance at 35% in 2018, according to Climate Bonds Initiative.
Asia Pacific had the highest growth rate in green bond issuance at 35% in 2018, according to Climate Bonds Initiative.

Green financial standards are neither unified nor perfect in Asia (or the rest of the world for that matter), but this has done nothing to deter Asian issuance of green debt.

For instance, ICBC, one of China's Big Four state-owned banks, recently said that it plans to raise a green term loan facility worth up to $400 million in US dollars and sterling. ICBC is the first Chinese bank to secure a green loan which complies with the Green Loan Principles which were jointly launched by the European and Asia Pacific Loan Market Associations in March last year. Both organisations promote best practices for syndicated loans.

This will be the first green loan to be issued by the London branch of ICBC, which has appointed BNP Paribas and HSBC as joint green coordinators and lead arrangers. The loan facility will finance green projects mainly in the UK, which can include renewable energy and water projects, a BNP Paribas spokesman said.

“This is part of our commitment to provide $100 billion in sustainable financing and investment by 2025,” said Daniel Klier, global head of sustainable finance at HSBC.

In April, the Singapore branch of ICBC issued a $2.2 billion green bond in US dollars, euro and renminmbi to finance green projects in the Belt and Road Initiative, China’s plan to connect with other nations via infrastructure projects.

In July last year, ICBC listed $1.58 billion of green bonds on the London Stock Exchange International Securities Market, which remains the largest green bond on the London Stock Exchange. And in October 2017, it issued $2.1 billion of green bonds and listed them on the Luxembourg Green Exchange.

IMPERFECT OR NO STANDARD

Currently, there is no unified global standard for green debt, and in some Asian countries like China, green disclosure and standards leave much to be desired.

“An issue facing investors globally is the extent to which any green bond issued globally is genuinely green and meets the individual investor’s requirements,” Gabriel Wilson-Otto, Asia Pacific head of stewardship at BNP Paribas, told FinanceAsia.

At present, the European Union (EU) has no formal green bond standard. The EU intends to publish a green bond standard within two years, said Wilson-Otto, while Chinese entities are working with European counterparts to improve harmonisation of green taxonomies. “We expect ongoing improvements in transparency and harmonisation of green bond standards, but it will be a gradual process,” he said.

China lacks a unified standard of disclosure of environmental effectiveness in green bond issuance, concluded a report from state-owned clearing house China Central Depository and Clearing in December last year. There is inadequate external rating and supervision of the disclosure of Chinese green bonds, it said.

There is no overarching single regulator for green bonds in China. Those issued by financial institutions are regulated by the People’s Bank of China (PBOC), those issued by state-owned enterprises are regulated by the National Development and Reform Commission (NDRC), while green bonds issued by listed companies follow the regulations of the China Securities Regulatory Commission (CSRC).

Nonetheless, China’s green finance regime is improving. In March, six government agencies including the NDRC and PBOC issued a set of criteria to define green projects, so that bonds which finance these projects can be classified as green bonds by the Chinese government.

As for Asean, the region’s green bond standards were launched in November 2017 and updated last year to align with the Green Bond Principles of the International Capital Market Association (ICMA), a Swiss-headquartered organisation which promotes international standards for capital markets.

The Monetary Authority of Singapore (MAS) wants to nurture the growth of green, social and sustainability bonds. “So far, over S$6 billion ($4.4 billion) worth of green bonds have been issued here and we aim to scale this up further over time,” said Heng Swee Keat, Singapore's deputy prime minister and finance minister, recently.  

In South Korea, Korea Electric Power Corporation (KEPCO), the country's largest electricity company, has just sold a 5-year Reg S/144A $500 million green bond at 2.5% to finance green projects. The paper priced at 99.548 to yield 2.597%, equivalent to the 5-year US Treasury rate plus 75bp, in from initial price guidance of the area of 5-year US Treasury rate plus 100bp. On Tuesday morning, the bond rose to 100.089 to yield at Treasuries plus 73.3bp.

It is expected that the bond will be rated AA- by Fitch Ratings, while Moody's and S&P Global Ratings have rated this bond Aa2 and AA respectively. Joint bookrunners are Bank of America Merrill Lynch, Citigroup and Credit Agricole CIB. KEPCO's $500 million green bond had an order book of $3 billion from 124 accounts, with 66% of the orders from Asia, 22% from Europe and 12% from the US. 

South Korea lacks market guidance or standards for green bonds, which can cause confusion in the local market around the types of assets and projects that can be considered green, said an Asian Development Bank Institute report in November last year. Globally accepted standards, such as the Climate Bonds Standard, can help.

Poor or inadequate disclosure of green environmental information is getting increasingly costly for companies. For the first time, CDP, a nonprofit global environmental disclosure platform, named companies for not being transparent enough about their environmental impact. Its list targeted 707 companies in 46 countries for not reporting their climate change, water security and deforestation data, including Chinese e-commerce giant Alibaba and Genting Plantations of Malaysia.

CDP is acting on behalf of 88 investors with nearly $10 trillion of assets, who are pushing for better disclosure from these companies. 

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