China looks to bundle its green loans for sale to investors

A team from China’s central bank is in London this week seeking advice from British regulators and bankers on how to securitize China’s 8 trillion yuan ($1.26 trillion) of green loans for environmentally friendly projects for global investment.

The banks hope that loans for green buildings, low emission vehicles or other environmentally friendly projects could prove interesting to global investors looking to invest in green assets.

Investors mostly only buy green bonds, of which $155.5 billion were issued in 2017. China’s green loan portfolio is currently worth 8 trillion yuan ($1.26 trillion).

Funds such as Brookfield Renewable Power and Northland Power Income Fund have focused on green assets and many other funds are divesting from fossil fuel companies and looking for alternative green investments.

“Internationally, there is a lot of demand for green assets, but not enough supply,” said Ma Jun, chairman of the green finance committee of China Society for Finance and Banking, an organization under China’s Central Bank.

“So making Chinese green loans accessible is significant in mobilizing global capital for green investment,” Ma said.

As each individual green loan in China is too small for international investors to take notice, selling Chinese green loans requires a process whereby investment banks package a large number of loans together into a single product, which can be traded on China’s Bond Connect.

The Bond Connect is a new mutual market access arrangement that allows investors from Chinese mainland and overseas to trade in each other's bond markets.

Jan Dehn, head of research at the London-based investment management company Ashmore, said China’s green loans market is important at a time when green investing is increasingly popular internationally.

“China is now taking a lead in green finance. The size of the Chinese green finance market is simply impossible to ignore,” said Dehn.

Green finance is a new concept that emerged a decade ago when the World Bank issued the first green bond, raising funds to finance environmentally friendly projects such as solar farms, wind farms and hydropower stations.

These green bonds became particularly popular among long-term investors, because certified green infrastructure and energy projects follow stricter emission rules, thereby reduce climate risks for investors.

Roger Gifford, chairman of the City of London's Green Finance Initiative, added that China and the United Kingdom are well positioned to drive forward the green finance agenda, due to the two countries’ respective expertise and commitment to green finance.

“We’re very excited to witness very fast private-sector activities advancing green finance activities in recent times,” Gifford said.