For investors and issuers, the pressure to live up to “being green”is coming from all sides –regulators, customers and the public at large are all keen to see businesses burnish their green credentials.
One obvious way of doing so is to access the burgeoning green bond market. In 2017, global issuance of green bonds smashed through the $100 million barrier for the first time, reaching $157 billion, a January report from the Climate Bonds Initiative states.
But problems remain. A lack of standardisation and taxonomies of what is actually green has caused confusion amongst investors and issuers. There are now three main certification standards in Asia: The Green Bonds Principles, the Climate Bonds Standards and, for domestic issuance, China's Green Bonds Guidelines.
"There is a red flag on the horizon with green bonds, and that is the risk that we haven't defined what is really green," said Shayne Elliot, Australian bank ANZ's chief executive officer. ANZ recently issued its Sustainable Development Goals (SDG) Bond Framework, outlining its commitment to green finance.
This lack of a common standard creates an opportunity for a market to take the lead as a green bond hub.
Not for the first time, it's Hong Kong and Singapore that are competing for the green dollar. And in this case, it seems Hong Kong is edging ahead with the launch of its Green Finance Certification Scheme by the Hong Kong Quality Assurance Agency (HKQAA) on March 12.
According to Jonathan Drew, managing director of HSBC's infrastructure and real estate group, Hong Kong’s scheme is a tool to enhance credibility of the issuers and build stakeholder confidence in green financial instruments in a fast-growing market.
As such Hong Kong is building on the geographical advantage of its huge hinterland of Chinese issuers, some of which are using Hong Kong to sell their green bonds to international investors.
China issued $36.4 billion in green bonds in 2017, according to Climate Bonds Initiative figures, bolstering Hong Kong’s chances of leading the region's green mandates.
Source: Climate Bonds Initiative data January 2018
Two green bonds have already been certified under the Hong Kong Scheme this year.
Swire Properties' $500 million Reg S issue on January 3 and Modern Land China's $350 million high yield offering in February were the first to receive the territory’s Green Finance Certificate and Certification Mark.
Both were well received in the market, being oversubscribed twice over, according to capital markets data provider Dealogic.
In an emailed statement from the HKQAA, the agency said it would complete the certification process within three months of receiving an application, and the costs would vary depending on the complexity of the deal.
The scheme requires the applicant to formulate and implement an “environmental method statement” that references environmental targets under the 17 sustainable development goals (SDGs) defined by the United Nations Environment Programme.
In another move designed to promote Hong Kong as a green hub, the government announced in its 2018 to 2019 budget the development of a new grant scheme for green bond issuance and plans to issue $12.75 billion of green sovereign bonds over the next five years.
Under the pilot grant scheme, eligible first-time green bond issuers in Hong Kong can receive up to $320,000, potentially offseting a significant portion of issuance costs. Each issuer can apply for a grant for two bond issuances at most.
Singapore also offers green bond issuers an incentive scheme, but is some $20,000 less. To be sure there is no limit to the number of issuances allowed in Singapore.
With green bond issuance expected to break records once again in 2018, Hong Kong is ideally placed to take advantage of its pipeline from China to further establish its green credentials, relegating Singapore to the smaller Asean (Association of Southeast Asian Nations) markets.