China Issues First Operating Guidance for Green Bond Evaluation Agencies

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China Issues First Operating Guidance for Green Bond Evaluation Agencies

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China Green Bond Standard Committee (CGBSC) released the first operating guidance to regulate the domestic green bond evaluation market on September 24, according to the press on the National Association of Financial Market Institutional Investors (NAFMII) on the same day. The guidance will focus on three aspects, which are to quantify the business ability of assessment agencies from multiple dimensions, introduce diversified appraisal institutions and experts, and enhance inspections on operations of those agencies.

Compared to normal bonds, green bonds encourage third-party professional organizations to evaluate and certify whether the funds raised are used for green purposes and measure expected and actual environmental benefits. Starting in 2015, the number of outstanding green bonds in China reached 992 by the end of August 2021, including green asset-backed securities (ABS), amounting to RMB1.5tr and ranking second globally. In the meantime, there are nearly 20 green bond assessment agencies operating in the country. However, with the market development, problems were also exposed, such as no unified green bond standards, inadequate information disclosures, lack of standardized green bond evaluation business, and uneven abilities of evaluation agencies.

Considering those issues, PBoC and CSRC released guidelines for green bond evaluation and certification in December 2017, pushing towards the establishment of GBSC in December 2018 for the self-regulation of the domestic green bond market. NAFMII serves as the head of the committee, which has eight permanent member units and 16 non-permanent members, including China Foreign Exchange Trade System (CFETS), China Central Depository & Clearing (CCDC), Shanghai and Shenzhen stock exchanges, ICBC [1398:HK], Bank of China [3988:HK], China Construction Bank [0939:HK], and other financial institutions. Through releasing the new guidance, the committee aims to cultivate a number of independent and professional third-party assessment institutions for improving the quality and international influence of Chinese green bonds.