Here’s your weekly update on green finance in China with green bonds, sustainability loans, a Central Bank plea, and green real estate. It's written for you by the International Institute of Green Finance at the Central University of Finance and Economics in Beijing. 26th of July 2019. |
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一, a 174 percent increase in green bonds |
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Summarising green bond issuances for the first half of 2019, researchers at IIGF have issued a paper to provide you with the high ground outlook for the state of green bonds. The market is still growing and a year on year comparison with 2018 showed an uptick in green bond issuance, however, as issuance is naturally aligned with overall credit growth in the economy there are noticeable fluctuations in the growth pattern. Second quarter saw a range of accommodating policies rolled out, including RRR cuts, a shift away from the de-leveraging campaign, and more manoeuvre room for local governments to borrow, in an effort to overcome the slowdown in Q1. There have been 84 green bond issuances at a face value of 143.3 billion RMB in the first half of 2019 – an increase of 174 percent compared with the same period last year. Regular bond issuance increased by 5.7 percent. So for the first half of 2019 green bonds made up 0.65 percent of the bond market. If we can deduce anything from the past three years of issuance history, we will see a doubling of total issuances in the second half of the year. Another big change came in the structure of the market, came when corporate green bond issuances surpassed financial green bonds on a RMB comparison basis. In H1 2019 corporate green bond issuance was nine times larger than financial green bond. However, a large portion of this was due to the China Three Gorges Co. issuing 20 billion RMB worth of green bonds. Another noteworthy fact: The average running time for a green bond have gone from 3.42 year to 4.92 years since 2016. The following recommendations from the authors could ensure further success in the area: - Create better synergy between industrial and financial policy - Pave a way for the issuance of sovereign green bonds - Reduce the risk weighting of green bonds - Combine green bond rules with ESG standards IIGF报告: 2019年中国绿色债券市场半年度分析简报 |
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Cofco International Ltd. is less than four years old as a standalone company, but is already among the worlds five biggest food companies, with over 34 billion USD in revenue. It’s Chinese by name and ownership, but more than half of its revenue stems from beyond China’s borders. Now it wants to become greener by inking a sustainability loan. “The trading division of China’s biggest food company signed a $2.1 billion loan that links all of its main financing lines to environmental targets.” It’s the first time a Chinese company has signed this kind of deal, which is kind of do-less-harm arrangement. From the Bloomberg fact sheet: |
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These kinds of arrangements are a part of a larger trend: “The sustainability linked loan, a concept that barely existed just a few years ago, is another example of how green finance is sweeping across the corporate world, even in some of the biggest-polluting countries like China. Loans with margins tied to borrowers’ sustainability metrics soared 63% in the first half of this year to $44 billion.” But these kind of loans are ripe for criticism as they, by default, are a two party contract with little transparency and room for public scrutiny. "Critics have argued that these kind of loans amount to little more than "greenwashing" by generating positive attention for companies with little action. For Cofco International, the savings achieved by meeting the loan’s targets are relatively small." Bloomberg: Chinese food giant raises $2.1 billion in country’s first sustainability loan |
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一带一路, the South African case |
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Going forward we'll add a Green Finance Belt and Road story to the mix for your weekly newsletter. Dr. Christoph Nedopil Wang of the IIGF will supply news and analysis for the segment. You can find his writing at www.green-bri.org or follow the steady newsflow on our dedicated LinkedIn page |
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At our green finance Belt and Road sister site Xu Hongfeng have written a piece on the energy situation in South Africa and how BRI is fitting into that. South Africa’s economy cannot be considered green in and by itself, but the country is a signatory of the Paris Agreement and the renewable potential is big. As Xu writes: “The REIPPP [Renewable Energy Independent Power Producer Procurement Programme] consists mainly of onshore wind power, solar photovoltaic power, solar thermal power, biomass power and small-scale hydropower. Under this program, electricity production companies that win the REIPPP through price bidding would sign a 20-year agreement of renewable energy power procurement after meeting the requirements on localization rate, ownership and job creation. As of January 2018, there have seen several rounds of tenders under the REIPPP program, involving 6,428 MW installed capacity (3,367 MW onshore wind and 2,372 MW solar photovoltaic).” Where does BRI come in? There have been numerous cases of Chinese companies winning bids to build wind or solar in South Africa, however, the full BRI monty of investment, construction and operation is a recent phenomenon. Xu writes up the case of the De Aar Project in the Northwest of South Africa. “It [The De Aar Project] shows that Chinese companies are backed up by Chinese capital and can export the concept of “Made in China” in to foreign markets. The 163 wind turbines in this project are the 86-1.5MW model developed by the Chinese company United Power, and the wind tower and accessories are provided by the Chinese company Titan Wind. Apart from such large equipment, Longyuan, as the owner of the project, employs local products for general equipment as well as local labour mostly for technology and legal consulting and management, which have created job opportunities for the locals and effectively helped conquer the difficulties of adapting the project to the local environment. It was estimated that the project could provide 644 million kWh clean electricity to 85,000 local households per year, save 215,800 tons of standard coal units and reduce CO2 emissions by 619,900 ton.” IIGF: The resources and potential of renewable energy in South Africa |
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A research project by a phd student at Renmin University and a journalist from the People’s Daily have gone over climate change coverage by the New York Times and The Guardian to look at how they report on the issue. They find that the New York Times is descriptive of climate related phenomenon in its reporting, while the Guardian debates the science of climate change by having scientific viewpoints represented. The interesting part is in the recommendations though: “China's news media can draw on similar methods by closely tracking cutting-edge science, ensure the scientific nature of climate change reporting, and effectively guide hot and difficult issues. It is necessary to make climate change reports deep, detailed, and transparent, to truly reflect the impact of climate change, guide the public on the uncertainties with the topic, and take action to address climate change.” That’s domestically. On the foreign pages the objectives are different: “In the negotiation on climate change and the interests among countries, countries will have different political concerns and positions. China's news media can also include reports on the views and positions of various countries and at the same time try to go deep into the positions around the table.” And: “Focus on ordinary workers who contribute to energy conservation and emission reduction in all walks of life.” As observers of a lot of Chinese climate change news we’d like to add that the communalities are many across the geographical coverage – the major difference is the depiction of positive stories and solution seeking by media institutions – something that is especially prevalent in the Chinese coverage. 新闻战线: 做好气候传播，国外媒体有啥招 |
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四, AIIB from the homefront |
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Last week we featured a videolink to interview with Jin Liqun as a summary of the AIIB summit in Luxembourg. State media has reported on the success of the meeting, most interestingly is the fact that “green” feature in many of those summaries. Below from Xinhua. 亚投行年会欧洲“首秀”：壮大国际“朋友圈” 践行绿色低碳承诺 |
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A decade after the world bailed out finance, it’s time for finance to bail out the world The erudite Adam Tooze has written an excellent essay for Foreign Policy looking at central bankers in a world of climate change. It’s a summary of all you’ve learned from subscribing to this newsletter– just in better prose. The intro: “In October 2012, the global financial system got its first taste of the effects of climate change when Hurricane Sandy roared through lower Manhattan, shutting down Wall Street. Amid the blackout, the power remained on in the tower containing the headquarters of Goldman Sachs, offering to the world a striking if accidental symbol of a future age of climate inequality. As the investment bank stood firm, the U.S. government’s outpost on Wall Street, the New York branch of the Federal Reserve, made plans to pull up stakes. In response to the hurricane, the Fed created new backup capacity for market operations farther inland, at the Federal Reserve Bank of Chicago. Descended from historical port cities, it is not by accident that the world’s leading financial centers—New York City, London, Singapore, Hong Kong, Shanghai—are vulnerable to flooding. But the larger challenge that climate change poses is not so much the physical as the systemic risk. What central bankers—the world’s preeminent economic decision-makers since the 1980s—are beginning to worry about is the potential for climate change to trigger financial crisis.” Foreign Policy: Why central banks need to step up on global warming |
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The top 30 green realtors report has been published and Xinhua has the full report. It’s the fourth edition of the index that seeks to map out how the housing sector works with and against the effort to combat climate change. The authors include a long methodology section dedicated to changes made since edition one. According to the last five-year plan from the State Council, green buildings should make up half of all new constructions by 2020 and rise by five percent a year thereafter. And a solution to an issue is prescient: “Statistics from the Ministry of Housing and Urban-Rural Development shows that over 40% of global energy consumption and 21% of greenhouse gas emissions come from the construction industry.” We’ve previously written about the issue with assessing the green viability of a building based on blueprints or the finished product. The former was previously the methodology in many cases, but according to the authors of this new report, that is changing. “In the new era, China's ecological civilization construction has entered the fast lane and has been incorporated into the overall layout of national development. As one of China's “large energy consumers”, the real estate construction industry is also moving towards an important barrier to green development. In the past, behind the aura of scale and profit weaving, the role of real estate as a major energy consumer has long been ignored; today, the development of green real estate is no longer an option, but a must." There’s a lot to dig through here. Xinhua: 2019中国绿色地产指数TOP30 |
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七, green bonds to the market |
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There were an equal number og labelled and non-labelled issuances in the past weeks green bond market (eight) If you want the grand overview scroll up to the first story in this edition and read our half year summary of the 2019 issuance. Last edition carried our report on the non-labelled green bond market. 盘点绿色债券7.8-7.14 |
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This is the eighteenth issue of our Green Finance in China newsletter. The idea is to bring the latest in news, research, and opinion related to green finance in China to anyone interested. Please send tips and criticisms our way. You can also have a look at greenfinanceinchina.com where we'll host earlier editions, blog posts, and more. If you've been signed up to our newsletter by mistake please unsubscribe at the bottom of the email. |
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