The first successful issuance of carbon asset transformation bonds
On February 14, the first national carbon asset transformation bond "23 Huaguang Environmental Protection SCP004 (transformation/carbon assets)", with Bank of Ningbo as the main underwriter and Industrial Bank as the joint lead underwriter, was issued in the China Interbank Bond Market. The issuer of this bond is Wuxi Huaguang Environmental Protection Energy Group Co., Ltd., with an issuance scale of 200 million yuan. It is issued at a fixed interest rate and a floating interest rate, with the floating interest rate linked to the carbon emission quota (CEA) yield. This bond is issued with a scale of 200 million yuan and a term of 268 days, making it the first carbon asset transformation bond in China.
This bond is issued at fixed rate+floating rate, of which the floating rate is linked to the yield of carbon emission quota (CEA), and the raised funds are all used for the natural gas Cogeneration project. After independent evaluation by a third-party organization, the project is expected to achieve an annual energy saving of 220400 tons of standard coal and a reduction of 967300 tons of carbon dioxide emissions. It can effectively implement the industrial policy of "energy conservation and emission reduction", replace small and dispersed coal-fired thermal power units in the region, reduce dispersed pollution, and solve the demand for electricity in the region, alleviate the pressure of power grid peak shaving, and have significant environmental effects. It can effectively promote the clean development of the local economy, It has strong environmental and social benefits.
During the 14th Five Year Plan period, China's ecological civilization construction entered a critical period with a focus on carbon reduction as the strategic direction and promoting comprehensive green transformation of the economy and society. To achieve comprehensive low-carbon transformation of the social economy in a short period of time, it is necessary to support both green industry projects and the transformation and development of high carbon industries. As the first branch of Equator Bank in China, Industrial Bank Wuxi Branch actively plays an innovative and leading role in the field of green finance, providing financial support for the transformation and development of traditional industries. As of the end of 2022, Industrial Bank Wuxi Branch has provided green finance financing services to nearly 200 enterprises in the Wuxi region, with a total investment of nearly 32 billion yuan. In addition, the branch issued a number of Green bond for enterprises within its jurisdiction, such as: Guolian Group sustainable linked bonds, Wuxi Jianfa green dollar bonds, Wuxi Jinyuan green euro bonds, etc.
Extended Reading
Transformation bonds will make up for the financial support problem of high carbon enterprise transformation
In the past 2022, China's Green bond market has made remarkable progress. Its market size has remained at the forefront of the world, product innovation has been enthusiastic, and market standards have become increasingly perfect. At the same time, as traditional high energy consumption and high carbon emission industries face the task of green and low-carbon transformation, transformation bonds have been innovatively launched in the interbank and exchange markets, and research on transformation financial standards has also made phased progress. Looking forward to 2023, all parties pay close attention to what new progress China's Green bond and transition bonds will make in terms of institutional norms, market size, product innovation, etc. Focusing on these topics, the reporter of the Financial Times interviewed Wang Wen, Executive Dean of Chongyang Institute of Finance, Renmin University of China, and Secretary General of the green finance Professional Committee of the Chinese Financial Society.
Financial Times reporter: In 2022, the global financial market continued to fluctuate and geopolitical conflicts intensified, which impact has it had on the development of China's green financial market? How about the overall issuance of China's Green bond market?
Wang Wen: At present, the world is entering a new period of turbulence and change. The Federal Reserve and the European Central Bank have raised interest rates for many times. The global financial market continues to fluctuate. Under the influence of the Energy crisis, Europe has postponed the process of carbon neutrality and cleaning. Under this comprehensive transformation, China's green finance still maintains a thriving development and leading global trend.
In terms of domestic development, the carbon neutrality process has gradually entered a stable and fast-paced stage. China's green finance business has provided an increasingly obvious driving force for the green transformation and sustainable development of the real economy, and also provided more innovation opportunities for the financial market. In terms of foreign cooperation, China has further expanded the scope of international green finance cooperation, not only taking the lead in formulating the G20 financial framework for transformation and implementing the G20 Roadmap for Sustainable Finance, but also updating the EU China Common Classification Catalog for Sustainable Finance, promoting the implementation of the the Belt and Road Eco-investing Principles, improving the breadth and depth of international cooperation in green finance, and transmitting a positive signal to promote the two-way opening of green financial markets, It is of great practical significance to inject Chinese financial power into the development of the global green Low-carbon economy in the process of promoting global green recovery and sustainable development.
Green bond have played an important role in the green transformation of the financial market. In the first half of 2022, China issued a total of 400.636 billion yuan of Green bond, a year-on-year increase of 64.4%. By the middle of the year, the stock of Green bond had reached 1.42 trillion yuan, a growth rate and scale far exceeding the past; The issuance of green bonds in 2022 exceeded 1 trillion yuan, the first time since the first year of green finance in 2016. With the continuous improvement of various regulatory policies, the optimization of trading mechanisms and market structures, the financing services provided by financial institutions for green industries are becoming increasingly standardized and standardized. China is currently the country with the largest stock of green funds in the world and the core engine of the global green economy. The green finance market has been rapidly improving in quality and efficiency while maintaining growth and increment for several years.
Financial Times: At present, the scale of Green bond in China has ranked among the top in the world, but the proportion of Green bond in green financial products is low, the product system is not rich enough, it is difficult to accurately meet the green development needs of enterprises, and the "green" incentives on the investment side are not obvious. What are your suggestions for increasing the supply of green bonds, promoting product innovation, and enhancing investment attractiveness?
Wang Wen: First of all, increasing the supply of Green bond is the only way to improve China's green direct financing. At present, green credit accounts for more than 90% of the overall scale of green financing in the green financial market. Most of the green funds are concentrated in banks, mainly loans. We should strengthen the development of the green direct financing market, expand the application of Green bond and other direct financing tools, guide social capital into the green financial market, and improve the participation of investors.
Secondly, it is suggested that in the process of green bond incremental innovation and product innovation, enterprises should prevent and avoid the risk of "washing green" and "drifting green" in financing business such as issuing Green bond. In order to ensure that green development is not biased or distorted, attention should be paid to preventing the use of Green bond to raise funds to invest in non green project activities or to conduct false low-carbon propaganda for high carbon projects, so as to promote enterprises to target the improvement of low-carbon effectiveness of emerging green industries and the transformation of traditional brown business stock.
Thirdly, investment and financing should be given equal attention to promoting the deepening development of the Green bond market. Improving the attractiveness of Green bond investment is mainly based on the exploration of green development potential and ecological benefits. At the same time, it needs to improve the standardization and informatization level of Green bond market, which helps investors to positively consider and evaluate the profit and liquidity expectations of Green bond.
Finally, it is suggested to combine the Green bond market with the climate investment and financing pilot project. The promotion of local pilot projects for climate investment and financing will inevitably rely on and rely on green financial markets and tool innovation, and more and more social resources will continue to be invested in climate governance and low-carbon transformation. Under the demand of climate investment and financing objectives, Green bond should better respond to climate strategic requirements such as carbon peaking and carbon neutrality, ease the time and space contradiction of climate funds, and form a batch of advanced experience.
Financial Times reporter: From the perspective of improving the system and norms, what aspects do you think we need to focus on to further promote the development and growth of China's Green bond market?
Wang Wen: First of all, the Green bond market should continue to improve the modernization level of the standard system, realize the internationalization of China's green bonds, promote green finance to "go global", and enhance the international voice of green finance. The goal is to establish a green standard system coordinated with green industry and green finance, cover green production, clean energy, information disclosure standards and norms, and further realize green product standards, green logistics standards The connection between green trade standards and green finance standards extends the connection between Green bond and green industry business from financial operation to environmental and social fields, and implements the connection of Carbon footprint disclosure in the whole industry chain supply chain.
Secondly, expanding Green bond financing is the primary foothold for expanding green direct financing, while avoiding problems such as the concentration of green bond funds and the narrow investment industry. Diversified green financing activities are the basis for expanding the source of funds and the scope of capital flows, and also help to improve the multi-level green financial system, so as to give play to the role of capital markets in supporting and encouraging green industries.
Finally, the Green bond market should establish and improve a modern green incentive and constraint mechanism, attract more financing entities and social investment into the Green bond market, and form a joint force with government funds. At the same time, it also needs to further attract a wider range of international funds into the Chinese market, expand the international influence of China's green finance, and inject new impetus into the United Nations climate governance agenda.
Financial Times reporter: Developing transitional finance is becoming a key task in promoting the achievement of the "dual carbon" goal. What practical significance do you think it is to encourage the development of transitional bonds? How effective is the current development practice of China's transitional bonds?
Wang Wen: Transformational bonds are an important practice in the process of tool innovation in China's transitional finance, which is of great significance for the development of green finance in China. If analyzed from a macro perspective, green finance often provides financial support on the energy consumption side, while financial instruments such as transition bonds can improve the transformation rate of carbon intensive industries on the industrial production side.
Specifically, at present, most of China's Green bond and green credit are used for "pure green" projects, such as distributed photovoltaic, hydropower stations, etc., but the financial market lacks systematic investment and financing help for the green transformation of the brown industry. The emergence of tools such as transformation bonds has made up for the lack of financial support for the transformation of low-carbon enterprises through green financing.
Currently, China has carried out a considerable amount of practical work in the field of transitional finance. The pilot program for transitional finance began as early as 2020, and in recent years, some financial institutions have also issued relevant documents. For example, Bank of China and China Construction Bank issued the "Transitional Bond Management Statement" and "Transitional Bond Framework" at the beginning of 2021, which clearly defined transitional bonds and provided qualified project categories. They are the first batch of guiding documents to launch support transitional finance. At the beginning of 2021, Bank of China successfully completed the pricing of RMB 5 billion equivalent transformation bonds overseas, marking the world's first public offering of transformation bonds by financial institutions. In June 2022, the Interbank Market Dealers Association issued a notice on conducting innovative pilot projects related to transitional bonds, proposing to launch innovative transitional bonds to address climate change targets and support the green and low-carbon transformation of traditional industries. It can be said that China has accumulated a considerable amount of experience in transitional bonds and has taken the lead in the global transitional financial market.
Financial Times reporter: Currently, there is no widely recognized and clear set of transitional financial standards in China. Do you think how to further exert efforts to promote the development of the transitional bond market?
Wang Wen: As an emerging concept in the green financial market, transitional finance has not yet formed clear unified standards and frameworks in China and globally. In order for China to provide sustainable and promotable support for global green upgrading and transformation and improve the international liquidity of transformation funds, transformation finance must be internationalized and standardized. This is an opportunity for China to improve its standard interpretation and climate voice and drive global transformation Financial innovation.
To smoothly promote the stable development of the transitional bond market, at least the following three major challenges need to be addressed:
One is to address the industry differences supported by transformation bonds. The high emission industries such as electricity, construction, and non-ferrous metals that transformation finance targets each have different emission reduction goals and plans. Enterprises in these fields have significant industry differences in terms of funding needs, timing, and operational methods, which enhances the horizontal scale of the development of transformation bond standards. Establishing industry wide standard specifications for transitional bonds will provide important financial standard support and reference basis for the "1+N" policy system and global sustainable development blueprint.
Secondly, transformational bonds do not accomplish their mission through initial financing, but rather follow industry paths and provide long-term and sustained transformational support. Due to the limitations of production methods and technological accumulation, different enterprises have significant individual differences in the use of transformational financial funds, and require financial institutions to conduct long-term tracking and dynamic evaluation. This has brought longitudinal requirements over a large time span for the design and innovation of transformational bonds. This is an inevitable requirement for providing a sustainable, replicable, and sustainable long-term dynamic transformation financial support for the practical path of carbon peak and carbon neutrality.
Thirdly, transformation bonds are different from ordinary financing tools. The fundamental purpose of transformation bonds is to help enterprises achieve transformation goals. Therefore, it is necessary to establish a scientific and independent low-carbon development evaluation system to evaluate and define the industries and enterprises supported by transformation bonds and other tools.
In addition, there are structural contradictions in the funds required for transforming the financial market. High emission enterprises on the demand side lack sufficient funds to invest in transformation activities, and green funds on the supply side are limited by project scope and basic information, making it difficult to effectively connect funds. Therefore, establishing policy and market innovation for transitional bonds, improving the evaluation system and incentive mechanism for the transition process, are important foundations for effectively promoting the development of transitional bonds.
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