Officials from China and the EU – the second and third-biggest issuers of green bonds after the United States – are due to start talks in Brussels on Thursday to decide on standards for the increasingly popular investment vehicle.
An agreement would boost the credibility and the appeal of the bonds for increasingly socially conscious investors and so likely boost issuance in the multibillion-dollar market.
The US under President Donald Trump has turned a cold shoulder to environmental concerns, withdrawing from the Paris Agreement to combat climate change as well as reversing US regulations enacted under his predecessor to force US utilities to use less coal.
Allowing green bonds to finance coal-related projects was a major sticking point between the EU and China, with existing European standards prohibiting any coal financing while Chinese rules allow half of green-bond proceeds to be used for that purpose.
But in what may be a major concession that will help clinch a deal, China is said to be willing to agree to the European position on this point, according to Reuters.
China’s willingness to be flexible shows how seriously it takes the talks on an otherwise technical subject, given the increasingly contentious atmosphere between Brussels and Beijing.
For example, EU leaders will discuss requiring “reciprocity” in bid tenders for public projects. The requirement would mean that, non-EU countries would be allowed to bid for EU public projects only to the extent that they allow EU countries to bid on their domestic public projects.
While the proposal does not name China, officials have made clear it is aimed directly at Beijing’s restrictions on foreign bidding.
Agreement on common issuance rules for green bonds would ease, if only temporarily, pressures on the bilateral relationship.
Green bonds are common bonds that have been issued since 2007 to finance specific projects that could be classified as environmentally friendly.
The total number of new green bonds sold in 2018 grew to US$163.7 billion, up 3 per cent from the previous year, according to the Climate Bonds Initiative (CBI), a not-for-profit organisation that tracks the market. However, there are no internationally recognised standards for green bonds, with each issuing country or region setting its own rules.
Beijing, in recent years, has promoted new green financing methods to help industry pay for its transition to cleaner modes of growth and is now the leader with 78 per cent of all emerging market volumes and 18 per cent of global volumes.
While Chinese issuers, many of which are financial institutions, took away US$41.4 billion in green bond sales, just US$30.9 billion of that is aligned with international standards, excluding proceeds used to fund projects in coal and other fossil fuel-based technologies.
The European Commission is expected to release a final report on a new European green bond certification standard in the second quarter of 2019.