Sunday, 23 June 2024

CCB launches a new index reflecting China’s green bond pricing

5 min read

By Busch Pu

China Construction Bank teamed up with data provider Wind Info to launch the CCB-Wind Green ESG Bond Issuance Index. This will serve as a barometer for China’s growing green bond market.

  • CCB-Wind Green ESG Bond Issuance Index will help institutional investors grasp the price movements in the primary market of China’s green bond
  • The index was simultaneously launched in Luxembourg Stock Exchange, world’s famous green exchange a month after China removed fossil fuel investments from updated green bond list
  • With MSCI ESG rating upgraded to A, CCB leads China’s fast-growing green capital market with constant innovations

China Construction Bank Corporation (CCB) partnered with Wind Information Co., (Wind Info) and the International Institute of Green Finance (IIGF) of the Central University of Finance and Economics to launch the CCB-Wind Green ESG Bond Issuance Index and Yield Curves in Beijing. The launch was held simultaneously in Luxembourg. The index is dynamically updated on the official website of CCB, Wind Info terminals, and the Luxembourg Stock Exchange to help domestic and foreign market participants grasp the movements of China's green bond market in real-time.

An index to reflect price movements in China’s green bond

Against the backdrop of a transition to a green and low-carbon economy and society, CCB, the largest lead underwriter of credit bond issues in China's interbank market (CIBM), has collaborated with Wind Info, China's largest data information provider and roped in IIGF, which has rich research experience in the field of green finance, to launch the index.

It is the first green bond issuance index in Chinese bond market that integrates environmental, social and governance (ESG) and carbon neutral concepts, as well as three primary market yield curves of China’s green bonds, carbon neutral bonds, and ESG bonds. The base date of the index is 1 July 2019. In same year, China issued a record $32.9 billion of green bonds, according to Climate Bonds Initiative (CBI).

The index is based on international leading ESG evaluation systems and domestic green bond standards. Its development involved repeated testing and back testing that used rich data in the primary and secondary markets and focused on green and ESG bonds under the original CCB-Wind bond index.

The collaboration between CCB and Wind dates back to 2017 when they launched the CCB-Wind Interbank Bond Issuance Index and Yield Curve, the primary  issuance index in the interbank bond market and has become an important basis for pricing decisions.

Wang Hao, executive vice president of CCB, said the index independently developed by the three parties through close collaboration fills the pricing reference gap in the primary market, improves the green bond price discovery mechanism, and tracks the long-term value of green investment. Its launch also marks a major step to improve China's green bond market. More importantly, it integrates domestic and international green standards to provide investment institutions with an effective tool that is more intuitive, accurate, quantifiable, and comparable. It is expected to enhance the international market’s understanding of China’s green bonds and high-quality ESG issuers, guiding funds to make allocations to China's green assets more actively, and accelerating the pace of cooperation in the market. Wang said, “Taking reference from domestic and international standards for green and ESG bonds, the index will provide international and institutional investors with a more intuitive and accurate instrument that is quantifiable and comparable”. “It will deepen international investors' understanding of China's high-quality corporate green bond issuers, guide more proactive allocation of global funds to the country's green assets, and accelerate international cooperation of green capital markets,” Wang added.

China aligns green bond to international standards by excluding fossil fuel investments

Wang Xin, director-general of People’s Bank of China’s (PBoC) Research Bureau, expects the launch of the index will send a positive message to the market. The launch took place only a month after the central bank upgraded its green bond list. PBoC in April released The List of Project Supported by Green Bonds (2021), a list of projects considered eligible for green bond financing in China. One notable change was the removal of the controversial “clean coal use” and other fossil fuel investments. Investors applauded this further alignment with international standards. The latest catalogue will take effect on 1 July and replace the one published in 2015.

The simultaneous launch of the index and curves on the Luxembourg Exchange also signals the international recognition of China’s effort in green finance. The Luxembourg Green Exchange is the world's first trading platform dedicated exclusively to green, social, and sustainable bonds, and home to more than half of the world's listed green bonds. It provides international investment institutions with a more convenient channel to understand China’s green bond market and ESG issuers and serves as a beneficial practice to China’s green finance internationalisation. It should guide global financial markets to China’s green ESG standards and create a new benchmark to understand China's green and low-carbon development.

Wu Xiaolong, vice general manager of Investment Banking Department of CCB, said, “The well-known pledge by President Xi Jinping is to ensure that China will realise its goal of carbon emissions peak in 2030 and carbon neutrality in 2060. Green finance and carbon neutrality have become a continuing national strategy to China”. “Being in the capital and direct financing markets, we are keenly aware of the immense efforts that have been made in implementing the environmental protection and carbon neutral strategy since the beginning of the year,” Wu added.

CCB is pioneering green finance in China’s fast-growing capital market

China has developed a robust green bond market in recent years. With RMB 116.8 billion ($17.7 billion) issuance, China overtook the US to become the biggest green bond issuer in the first quarter of 2021, according to Reuters. By the end of 2020, the volume of labelled green bonds issued in the country exceeded RMB 1 trillion ($155.3 billion), while the volume of unlabelled green bonds hit RMB 10.32 trillion ($1.6 trillion). The money invested in green projects reached RMB 6.12 trillion ($0.95 trillion), according to the IIGF.

CCB has actively carried out new financial practices and continued to promote the organic integration of green and sustainable development concepts with the group’s strategy, operation management and information disclosure. Its efforts have been recognised in society and the capital market. At the end of 2020, CCB’s MSCI ESG rating was upgraded to ‘A’, the highest among the top ten Chinese banks in the world by market capitalisation. In the field of green capital market, CCB has built the "Feichi-Luxin" investment and financing platform which comprehensively employs diversified tools to widely mobilise various social resources to support and cultivate green industries. Going forward, CCB will continue to perform its responsibilities as a major bank and give further play to its experience and influence in China's bond market, carry out innovative practices in green finance, and contribute to the promotion of international cooperation in China's green capital market.

Keywords: Clean Enerygy, Sustainable Finance, Green Bond Market, Carbon Emissions, ESG, Green Investments
Institution: China Construction Bank, People's Bank Of China, Wind Info
Country: China
Region: East Asia
People: Wu Xiaolong, Wang Hao
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