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countries, they say, and produce the critical mass for the green­bond market to take off
globally.

Green bonds are a new but rapidly growing asset class, of which about $40 billion worth have Video Slide Photos African Voices
been issued globally, but in China it is estimated that at least 2 trillion yuan ($300 billion) is
needed to achieve China's environmental targets under the 13th Five­Year Plan (2016­20).

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Such figures demonstrate the enormous potential for China to become a world leader in green
bonds. To make the most of these opportunities, the Chinese government established the
Green Finance Task Force last year, for which rules and incentives are now being formulated
to grow China's green bond market.
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"China has a great need to improve the environment," says Klaus Eklund, an economist with
the Swedish bank SEB. "Meanwhile, it has high savings ratios in private households, so a huge
pool of capital can be directed into green projects. Finally, the Chinese government has
realized that it needs to play a role in growing the green bond market under the 'new normal'.

"Developing a mature green bond market means that financial market forces can be redirected
to make the environment cleaner. The previous growth strategy of China was founded on
Barca survives Bayern
cheap capital, and China is now trying to reach a new normal with environmentally clean fightback to reach Champions
projects as one key focus." League final

The contribution of Eklund's team at SEB has been considerable. In fact it is credited with More Africa News
coming up with the idea of green bonds, which it presented to the World Bank in 2007. The
bank later created guidelines for green bonds and issued the first ones in collaboration with Chinese firm completes major power project in
SEB the following year. Nigeria
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The proceeds of green bond financing are channeled into climate change projects, and their UN says over 300,000 need emergency aid in
rise has coincided with the increasing awareness of climate change issues and an increasing South Sudan state
number of individual investors and funds willing to invest in such bonds. Kerry visits Djibouti, US military base as Yemen
conflict drags on
The first green bonds issued were for a relatively small amount, Somalis convicted of migrant smuggling
in the tens of millions of dollars, and investors were few. But S. Africans also in pain as result of xenophobia
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Last year, green bonds worth $36.6 billion were issued, more
than triple the amount in 2013. But enormous potential still exists
in this market, given that the International Energy Agency says
$13.5 trillion must be invested in low­carbon energy by 2035 to Special
reduce emissions.

Heike Reichelt, head of investor relations and new products at

the World Bank, says that while the bank played an important
role in setting the foundation for the green bond market, it has
greatly diversified in terms of issuers and credit categories, and
this will continue. What do we know about Full coverage of Boao
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"The green bond market is also catalyzing a broader
development of a more sustainable and responsible capital
market in general. There is a very direct dialogue between
investors and issuers, and investors are asking about the social
and environmental impact of their investments, not just about the financial characteristics."
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Since the World Bank developed the first green bond in response to demand from
Scandinavian pension funds, it has issued more than $8 billion worth of green bonds in 18
different currencies and 90 different green bond transactions. A third of the projects that the
World Bank's green bonds support are in China, Reichelt says.

Besides growing China's domestic green bond market, the emergence of renminbi­
Annual legislative and Spring Festival trends
denominated green bonds in offshore markets could also play an important role in helping political advisory sessions reflect a changing China
China to reform and open up its capital markets, and internationalize the renminbi.

Most green bonds worldwide are denominated in US dollars or euros, but last June the World
Bank's private­sector arm, the International Finance Corporation, issued the first renminbi
green bond in London. This was a milestone in adding a new currency to the global market for
green bonds, and as the capacity for offshore renminbi bonds builds, that will also help to
increase offshore renminbi liquidity.

The three­year bond raised 500 million yuan and was priced at a yield of 2 percent. It was
listed on the London Stock Exchange and became a milestone for the internationalization of
the renminbi.

Benjamin Powell, International Financial Corporation's head of funding, says that issuing the
offshore renminbi bond has created an important signal in the market that it can be done, and
he expects it may encourage other firms in the market to issue offshore renminbi bonds.

"From the transaction we have seen a great amount of investor appetite in the offshore
renminbi market in London," he says, adding that the UK government's support for London to
develop as an offshore renminbi hub also helped with International Financial Corporation's
decision to issue this bond in London.

Powell says the proceeds of the offshore renminbi bond were swapped back to dollars to be
used in International Financial Corporation's projects globally, although in the future it is
possible that it could be kept in renminbi to fund green projects in China.

This would involve choosing specific green projects in China that have the same maturity as
the bond issuance, and link the two, so the proceeds can be used in China projects directly,
Powell says.

China has enormous potential to develop its green bond market

because of the government's determination to build up green finance,
and the scale of green projects available in the country, he says.

But at the same time the Chinese government needs to play an

important role in ensuring the market for green bonds is as transparent
and effective as possible, he says, adding that it can learn lessons from
the international market on how to establish transparent processes,
and ensuring that investors receive full disclosures on how the issuers
manage the proceeds of the bonds.

"I think there is the scope for government endorsed verification agents
to be established in China, so that the government gets behind an
entity that is there to verify the green program of new issuers," Powell
says.

The global market for green bonds has surged because there is a
growing number of issuers both from the public and private sectors and
multinational organizations, he says.

The growing number of green projects globally means there is an

increasing number of projects ready to take on the proceeds of green
bonds issuance.

"National agencies and corporates are all seeing the effects of climate
change around them, and they are trying to push investments to
mitigate the effects of climate change. The process started with public
sector agencies creating products and frameworks so that other
investors can build on it."

The importance of China's green bond agenda has attracted interest

from governments such as the City of London Corp to work closely with
China, lending its expertise in the bond market to help China grow its
green bond initiatives.

When the then Lord Mayor of the City of London Fiona Woolf visited China last year, she
spoke with representatives of the People's Bank of China about green finance. She said she
believed it would be a great catalyst for further promoting China­UK green finance initiatives if
a Chinese government issued a renminbi green bond in London.

"That would also be a big endorsement for London's capability as a key offshore renminbi
center. It would make financial sense given that London's renminbi liquidity makes renminbi
bond issuance easy and cost­effective.

"It will be a fantastic signal to London and the rest of the world that the Chinese government is
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taking the green agenda seriously. It could also unlock the potential for cities that struggle to
raise finance from national governments."

Mark Boleat, policy chairman of City of London Corp, says London has a unique advantage in
building up the green bond market because of the concentration of financial experts in the city,
which already has a large bond market.

"Green bonds represent a new market, and one I think many people would find attractive. Our
government has a strong commitment to improve the environment, and we have lots of
expertise on bonds here in London, so all this makes London a natural center to grow the
green bond market."

Despite the rapid growth of green bonds globally, there are still many challenges to growing
the market globally and in China.

Eklund says a major challenge arises as to whether the standards of green bonds can be
upheld. "There are many different kinds of issuers, and this is a challenge for the investors
because there is no fixed international framework. Anyone who issues a bond can call it
green."

In mature Western capital markets, green bonds are generally audited by an independent
body to check that the proceeds from the bonds are indeed used for green projects. This has
led to investor trust, and it is proven that the green credential of the bonds have made it easier
for the issuers to raise the finance needed for projects.

However, in a market such as China, green bonds are not vetted by independent bodies or
government departments, meaning there is a high risk that issuers are exploiting the market by
falsely labeling bonds as green.

In China, the number of so­called green bonds is still small, and they are mostly issued by
railway companies, although the green credentials of the projects are not guaranteed, Eklund
says.

Eklund says one important thing is for China to try to emulate the green bond market of the
West, meaning the market must be transparent, and there must be a standard check on what
is said to be green.

Second, liquidity is needed in China's green bond market.

"This could be done by using regulations to incentivize existing banks or to create a green
investment bank."

Finally, China should consider giving economic incentives to green bonds, or green finance
initiatives, so as to give a good start to the growth of this market.

Eklund says Western green bond markets grew on the basis of market forces, but that in China
the government needs to play a bigger role to explicitly grow this market, because China's
financial system is less mature.

"The Chinese financial market is much more regulated and much more government­controlled,
so the government needs to play a role in setting up the rules and regulations," he says.

"Currently many state banks are channeling investments into state­owned enterprises at low
interest rates, but this is changing, and the government needs to channel more finances into
green projects, and encouraging the growth of a green bond market is one way to achieve
this."

To push forward the development of China's green bond market, the Green Finance Task
Force was set up last year jointly by the People's Bank of China Research Bureau and the UN
Environment Program to look into the design of a sustainable system.

In a report published by the task force in March, the deputy governor of the People's Bank of
China said the Chinese government is directing financial incentives toward developing green
projects. For example, the bank has worked to improve the interaction between credit policies
and industrial policies by increasing credits to energy conservation and environmentally
friendly sectors.

cecily.liu@chinadaily.com.cn

(China Daily Africa Weekly 05/15/2015 page16)

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