A new industry guideline that could lead to the standardisation of China and Hong Kong green bond investment is likely to drive larger issuance sizes and also attract foreign investors currently sceptical about China’s ESG commitment, industry experts say.

The Hong Kong Monetary Authority (HKMA) released a guideline on May 4 that provides subsidies for eligible bond issuers and loan borrowers to cover their expenses on bond issuance and external review services. Called the Green and Sustainable Finance Grant Scheme, it will be effective from May 10 and lasts for three years.

Earlier on April 21, the People’s Bank of China also took further steps with its own green investment guideline, releasing its latest rules on green bond issuances, which revises its 2015 version.

Investors said the new guidelines – coupled with the large amount of green bonds currently being issued – were good news while others - especially those with higher in-house ESG requirements – would need to look more closely at the details before investing in them.

Gregory Suen, APG

"We would not invest in a green bond if its issuer did not meet our ESG requirements,” Gregory Suen, head of China fixed income at APG, told AsianInvestor. The $570 billion Dutch pension has been closely monitoring fixed income assets in the country.

"For example, if a company uses its green bond proceeds to invest in green projects but on the other hand expands its high-emission production capacity, resulting in higher carbon emission overall, then the company’s ESG score would still be negatively impacted," he said.

"Thus, even though issuing green bonds is generally an ESG-positive action, we would not simply conclude that the bond and its issuer are good investments from an ESG perspective," he added. 

The new China green investment catalogue removes controversial coal investments such as “clean” coal use, coal-fired power, coal mining and coal washing.

China’s green bond market has soared to $164.9 billion as of November 2020 from less than $1 billion at end-2014, and over 80% of the existing green bonds were issued in the onshore market, according to a Fitch Ratings’ report published in December last year. The country contributed around one-fifth of global new green bond deals in 2019, ranking top in the world.

Arthur Lau, PineBridge

Arthur Lau, head of Asia (ex-Japan) fixed income at PineBridge, told AsianInvestor that in the post-Covid landscape, more emphasis will be put on ESG issuances and creating greater supply in green bonds.

“The nation’s push will certainly help promote issues; companies will focus more on this area – from adhering to standards and criteria to ensuring their projects obtain green certification that brings the overall industry to a higher standard,” he said.

While both governments are pushing guidelines that promote green bond products, analysts say it’s likely to take time before China become a go-to destination for quality green bonds as its products struggle with diversification and ESG involvement levels.


Lau said the majority of proceeds from Chinese green bonds were being used to finance projects in low-carbon transport, renewable energy, and sustainable water and currently were a mere fraction of the total green bonds being issued.

“That said, steps are being taken to harmonise local standards with globally accepted taxonomy, which we believe should enhance the market’s attractiveness to foreign investors,” he said.        

Xuan Sheng Ou Yong, green bond and ESG analyst from BNP Paribas Asset Management, echoed his views, adding that China’s new green bond catalogue went one step further.

Xuan Sheng Ou Yong,

“It’s a big move that boosts the credibility of the catalogue among the international investor community. Furthermore, the guidelines that came with the new green bond catalogue encourages existing green bond issuers to disclose how they will adopt the new catalogue.”

Both Xuan Sheng and Lau said they wouldn’t be surprised to see an increase in volume of Chinese green bonds issuance in the near future.


While investors may be concerned about how to balance China investment with ESG, Lau told AsianInvestor that in times of financial stress, investing with an ESG lens could help fortify portfolios through heightened risk management.

“China’s pivot to renewable energy has already created opportunities in fixed income and with the potential increase in supply of China’s issuance of green bonds in the near future, we see this opportunity growing,” he said.

While more of China’s firms have begun offering ESG data to investors, despite low adoption, regulatory risks remain a concern. These became particularly apparent following the abrupt scrapping of online finance group Ant Group’s planned IPO last year, which caused deep market ripples.