New ESG bond index will make green finance transparent

The May 20 global launch of a new environmental, social and governance－ESG－bond index simultaneously in Beijing and Luxembourg will increase transparency in the domestic green bond market and improve the level of internationalization of the market, industry professionals said.

That's because China's new ESG bond index is expected to provide an important basis for green bond pricing in the primary market.

It will be made accessible to international investors through the Luxembourg Stock Exchange.

The CCB-Wind-CUFE Green ESG Bond Index has been jointly developed by China Construction Bank Corp, Wind Information Technology Co, and the International Institute of Green Finance (IIGF), which is part of the Central University of Finance and Economics in Beijing.

The index aims to evaluate and screen the ESG performance and fundraising projects of the newly issued bonds every week in the national interbank bond market, the Shanghai Stock Exchange and the Shenzhen Stock Exchange.

After the screening, the yield data in the primary market of the selected samples are extracted, which will then be reclassified and averaged with specific weights to form a green ESG bond issuance index, according to the Luxembourg Stock Exchange.

"Following China's recent efforts to further open up its financial markets, international investors are increasingly focusing on China. In parallel, China has established ambitious policies to green its financial system and support sustainable development and the transition toward a low-carbon and more inclusive economy," said Julie Becker, CEO of the Luxembourg Stock Exchange.

"The development of China's bond market－coupled with the growth of green finance in China－brings benefits and opportunities far beyond China's borders. Professional and private investors alike are, therefore, looking for information and data to inform their investment decisions and support both their diversification strategies and sustainability mandates," she said at the global launch of the index.

China has developed a robust green bond market. By the end of 2020, the volume of labeled green bonds issued in the country exceeded 1 trillion yuan ($155.6 billion), while the volume of unlabeled green bonds hit 10.32 trillion yuan, among which the money invested in green projects reached 6.12 trillion yuan, according to the IIGF.

The new index will fill the gaps in reference pricing of green bonds in the country's primary market and track the long-term value of green investments, said Wang Hao, executive vice-president of China Construction Bank.

"Taking reference from domestic and international standards for green and ESG bonds, the index will provide international institutional investors with a more intuitive and more accurate instrument that is quantifiable and comparable.

"In this way, 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," he said.

China released the "Green Bond Endorsed Projects Catalogue (2021 Edition)" in April, which will come into effect on July 1. The new index is part of the adoption of the updated catalog, said Wang Xin, director of research at the People's Bank of China, the central bank.

The country's green finance standards task force has already listed the standards for environmental information disclosure of listed companies and ESG assessment standards of bond issuers as key standards for development this year.

The PBOC will push for the convergence of green bond standards between China and major international green financial markets, apart from promoting the unification of fundamental institutions of the domestic green bond market in the areas, including the administration of bond issuance, ratings and verification, and information disclosure, he said.

Global issuance of green, social and sustainable bonds totaled a record $231 billion in the first quarter of 2021, a 19 percent increase over the previous quarter and more than three times higher than the same quarter last year, Moody's Investors Service said in a report on May 10.