Green bonds and loans by local issuers in Hong Kong jumped nearly fivefold last year to US$2.3 billion, with volumes expected to rise further after the government rolls out an issuance programme, according to Climate Bonds Initiative.
A total of US$11 billion in green debt was issued in the city, as shown by a report published on Monday by the promoter of bonds and loans that finances projects with environmental benefits.
The Hong Kong government a year ago announced a green bond issuance programme of up to HK$100 billion (US$12.7 billion), which was touted to be the world’s largest. The roll-out is expected some time in the first half of this year.
“Hong Kong will also benefit from a proposed initiative by Beijing next month to align China’s issuance standards with international norms,” said Sean Kidney, chief executive of the London-based non-government organisation.
“Regulators in China continue to take measures to further open up the market and to harmonise what they are doing with international requirements,” he told a green bond seminar hosted by the Hong Kong Monetary Authority.
“Expect a change in the green bond catalogue that is used to govern China’s domestic issuance some time next month … [it will help] remove the barrier to international capital flow to the Chinese market. The greening of the Bond Connect scheme will become a feature of the coming year.”
He was referring to a mutual market access scheme launched last July that allows investors from the mainland and overseas to trade in each other’s respective bond markets through Hong Kong, the third largest bond market in Asia excluding Japan.
Chinese regulators allow domestic green bonds to fund cleaner coal consumption projects. This is not allowed under international standards. Chinese and European standard setters have been in discussions on ways to harmonise different standards, Kidney said.
The Hong Kong government also launched a subsidy programme for first-time corporate issuers from China and over 60 nations covered by Beijing’s cross-regional development plan called Belt and Road Initiative. It would cut their issuance expenses by half, and boost Hong Kong’s role as a regional bond issuance centre.
Mainland China was the world’s second largest green bond issuer last year with deals just over US$30 billion, trailing the United States’ US$35 billion, according to Climate Bonds Initiative.
Moody’s has forecast global green bond issuance to rise 20 per cent to US$200 billion this year, after last year’s volume grew only 6 per cent to US$167 billion – well short of its forecast of US$250 billion. The ratings agency attributed the slow growth to a decline in overall bond issuances globally, amid rising interest rates.
Despite an uncertain outlook on interest rates this year, Moody’s expects strong investor demand, greater governmental efforts to address climate change prevention and mitigation, and repeat issuances to bolster this year’s deals pipeline.
Jay Lee, partner at international law firm Simmons & Simmons, noted a rapid growth of sustainability bonds – which seek to meet both environmental and social objectives. These bonds last year took away market share from green bonds.
“Meanwhile, commercial banks are also providing more loans that achieve similar objectives, especially to smaller firms, which can be packaged and be turned into securities increasingly sought after by fund managers looking to fulfil their sustainable investment mandates,” said Jolyon Ellwood-Russell, another partner of the firm.
Source South China Morning Post