This morning, China made a significant stride in the global financial landscape as its vice-minister of finance, Liao Min, inaugurated trading at the London Stock Exchange. This event symbolizes China's official entry into the sovereign green bond market, occurring amidst fluctuations in the FTSE indexes following US President Donald Trump's recent tariff announcements. The debut offshore transaction of CNY6 billion (approximately $825 million) drew over CNY47 billion in orders at its peak. This deal, also listed in Hong Kong, was priced closely to China’s mainland curve due to strong investor interest. Led by Crédit Agricole and Bank of China, this issuance has attracted keen attention from various sectors including supranational entities, central banks, sovereign wealth funds, asset managers, and notable ESG investors. Proceeds will be allocated towards projects promoting clean transportation, sustainable water management, natural conservation, and marine ecosystem restoration.
Under a newly launched green bond framework, China aims to channel funds into environmentally beneficial projects. Norway’s DNV and China’s Lianhe Green Development provided a second-party opinion on the deal. Caterina Ottavi, a green bond fund manager from Italy’s Eurizon, remarked that this issuance carries substantial symbolic and political significance. She anticipates it may inspire other emerging and developed economies to issue their first green bonds. The modest initial issuance is seen as a prudent move by the Chinese government to assess market appetite, with hopes for future issuances, potentially in hard currencies to attract a wider range of investors.
In recent months, China has shown growing interest in accessing global debt markets. In September, the country priced a €2 billion deal in Paris, followed by a $2 billion sale in Saudi Arabia in November. Additionally, the European Investment Bank (EIB) successfully issued its first bond under the EU’s Green Bond Standard, raising €3 billion from over 300 investors. This bond priced three basis points inside initial guidance. Investors from France, Germany, and the UK took significant portions of the allocations, with bank treasuries purchasing nearly half. Meanwhile, ISS ESG introduced a new sustainability bond rating product designed to provide investors with detailed assessments at the issuance level for various types of bonds.
Till Jung, head of ESG at ISS STOXX, highlighted the increasing volume and complexity of labeled bond issuances against a backdrop of varied regulatory and market reporting standards. The new rating system evaluates instruments based on alignment with relevant principles and the UN SDGs, offering an overall rating from A+ to D-. It incorporates supplemental data such as EU Taxonomy-alignment and emissions intensity of financed projects, utilizing around 400 indicators. This innovative approach ensures evaluations are not solely based on general elements from the issuer’s activities and performance but delve deeper into specific aspects of each bond issuance.
With these developments, China positions itself as a pivotal player in the global green finance arena, signaling a commitment to sustainable development while navigating complex international financial dynamics. The introduction of new assessment tools further enhances transparency and credibility in the bond market, paving the way for more robust and impactful investments in environmental initiatives worldwide.