ADB official : China should play bigger role in unifying global standards for green bonds

(5) Maturity mismatches between bonds and return period

If we see from scale of green loan from banks, green development still lacks of fund; and also there’s a potential risk that the loan period of green credits usually could not match with return period of projects. So currently the great scale of green bonds’ issuing in the future may help make up these two bottlenecks.

Jurgen said it’s never easy to mobilize resources and long-term funding is particularly scarce. However, the savings rate in China and most other Asian countries is still very high, so the challenge is to organize financial intermediation in a way that ensures savings find their way in the most productive projects and make environmental considerations be taken more seriously.

As to maturity mismatches, in contrast to bank loans, bond are tradable, which is why they have longer maturity periods but still shorter than the project live, that brings in refinancing risk. Various financing techniques could help, including structured finance, securitization, and also guarantee schemes.

(6) Government subsidy may distort the market

Jurgen said that usually issuing a bond is more expensive than get bank loan, bond is essentially the financial instrument to be issued by big companies. SMEs should depend more on self-financing and bank loans.

Anyone who tries to attract green financing, one thing fundamentally is that doing thing environmentally is more expensive,especially the business model. Throwing the trash away without proceeding is cheap for the companies but expensive for the society. So the government should not make the issuing extra expensive or adding more requirements. A compromise should be found.

Government could also come up as the guarantee schemes, certification of issuance site, even subsidy. But this should come as the last way, cause the subsidy always distort the competition and are expensive for government.

(7) A collective learning process could help educate investors and market

Investors who’re interested need have better analytical skills and risk management, while it remains as a huge challenge, especially in China.

Jurgen said a collective learning process may help. A crucial element of the learning curve at this stage is the dialogue between potential issuers and the providers of second/third party assurances, and then the dialogue between stakeholders could be conducted during roadshows, for instance. However, for future generations, learning needs to start earlier at schools. The objective would be raising awareness for the environmental more broadly.

Conclusion

Rising star need time and space to grow mature, what government could and should do right now is to cultivate the market in a relative regulative way, so to foster the confidence from various stakeholders naturally. Jurgen said his wish is that this year, China should take the valuable chance. During G20, China act as presidency and should help to put forward defining a international standard for issuing of green bond. A better coordinated effort at G20 level. If something guideline and principle come from G20, then all other governments and organizations within the G20 framework can draw on that. And also the guideline should be translated into international law, and fits the feasibility.

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