By Paul Davies and Andrew Westgate
Green bonds, which tie the proceeds of the issuance to investments that have positive environmental and/or climate benefits, are a rapidly growing asset class. Recent figures have corroborated the narrative of growth predicted by industry experts.
In the first quarter of 2016, green bonds totalling US$17 billion were issued globally – three times the total amount issued in the same period in 2015, almost half of which are attributed to Chinese issuers. Banks continue to dominate issuances, but a recent corporate issuance shows the burgeoning development of the asset class.
Zhejiang Geely – perhaps best known in the UK as the owner of the London Taxi Company, manufacturer of London’s iconic black taxi cabs – recently issued US$400 million of green bonds. The funds will be used in part to develop green taxis in Europe, but also to fund electric vehicle design in Asia.
What’s next for green bonds?
As countries worldwide face increasing pressure to reduce carbon emissions, increased growth in the Chinese green bond market is likely as further issuances target international investors. The Zhejiang Geely bonds were marketed to international investors and were six times oversubscribed – demonstrable of the attractiveness of this growing asset class as investors seek to integrate environmental initiatives into their investment portfolios.
The next step in the development of the international asset class will likely result in the publication of regulations for Chinese corporate green bond issuances by the National Association of Financial Market Institutional Investors (NAFMII). The publication of these regulations, expected in the next few months, are anticipated to trigger increased global investment in China’s green bond market. Bloomberg recently reported on China’s increasing share of the green bond market, noting that banks and corporates are increasingly obtaining green certificates to enable future issuances.
Furthermore, it is anticipated that, following publication, NAFMII will release local government green bond guidance – resulting in Chinese onshore green bond municipal issuances and further development of the asset class.
As China continues to carve out an increasing share of the green bond market, it is clear that green bonds will be an important mechanism in its commitment to reduce carbon while balancing the books and stimulating international investment.
This post was prepared with the assistance of Glen Jeffries in the New York office of Latham & Watkins.
Read more on green bonds and the development of China’s environmental policy:
China Gives Green Light for Green Bonds
Is Green Sukuk a Viable Option for Clean Energy Initiatives in the GCC?
Shanghai Issues Draft of Revised Environmental Protection Regulations for Public Comment
China Cuts Down on Carbon as Coal Falls Out of Favour
China One of First Countries to Sign Paris Agreement
Submit a comment about this post to the editor.