China’s bond markets seeing green momentum, but more transparency needed: experts

AllianceBernstein's Brad Gibson, CLP Holdings' Francis Ho and APG's Gregory Suen discussed investor appetite, greenwashing and taxonomies at FA's China Fixed Income Summit.

December 05, 2023

There are signs of optimism in China’s green debt markets, according to speakers at a panel discussion at FinanceAsia’s 5th China Fixed Income Summit on December 5 in Hong Kong.

However there is still plenty of work ahead, especially around disclosure, despite significant market growth over the last eight years.

Gregory Suen, head of China fixed income, APG, said: “We have seen a lot of green bonds being issued in recent years. However, we want to understand the overall process and not just the transactions — we want to understand the entire supply chain and to take a holistic approach.”

Suen added: “In terms of green investments and ESG, there are not enough public disclosures. ESG vendors don’t have sufficient data for Chinese companies – for investors it is harder to understand the details, especially compared to other countries. The transparency on disclosure could be improved.”

Speaking about demand versus quality in the Chinese market, Brad Gibson, head of Asia Pacific fixed income, AllianceBernstein, said: “The intentions are often very good, but sometimes the execution is poor. It was encouraging to see China adopt similar principles to the EU . . . however, when you lift the lid, there is always the ongoing issues with disclosure and transparency. Therefore, constant dialogue with banks and issuers is important.”

He added: “The demand is there, even in the primary issuance market, for bonds labelled green, but transparency is work in progress.”  

Also noting a step change in demand, Francis Ho, senior director group treasury and project finance, CLP, said: “Since China’s green bond launch in 2015 by the People’s Bank of China, China, today, is now taking up half or almost half of global issuance.”

Ho added: “China’s regulator has taken great efforts to make things closer to global standards. In 2021, there was a change in catalogue to align China’s taxonomy with international standards.”

There could be a further move for China's taxonomy to be in line with the EU and subsequently the rest of the world.

Volatile markets dampen demand

As a note of caution, there are signs that not all investors are quite yet fully onboard with the new green investment wave.    

Gibson added: “You can tell the interest in China for responsible investments when markets are volatile -- whether they still want to discuss ESG criteria as opposed to the cheapest source of funds. For example, the stresses in Chinese dollar credit market and property market."

He continued: "There were some differences in discussions. Our analysts come out with an internal score to provide to portfolio managers and we can give them a reward depending on how green they are – and that differentiation changed in the last 18 months given the volatility of the markets.”

However he ended with a note of optimism: “The demand is there, for example from European insurance companies, the guidelines today are very different to five years ago in terms the amount of ESG required." 

On the common issue of greenwashing, Suen said: “Engagement is important regarding greenwashing and to make sure certain goals are met. Talking . . . and the lack of data, makes things slower and more cumbersome, but we and our clients feel this is very important.”

The panel was moderated by Sally Wong, chief executive officer of the Hong Kong Investment Funds Association.

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