China’s real estate industry has thrown its full support behind the country’s commitments to the global fight against climate change, harnessing the green bond market to raise funds for its sustainable projects.
Established in 2015, China’s green bond market has grown to become the largest in emerging markets globally in terms of issuance and outstanding amount. Last year it recorded the third largest volume of outstanding green bonds (about US$115 billion) after the United States and France, according to an International Finance Corporation report.
The prominence of Chinese green bonds on the global stage is in line with the country’s net-zero ambitions. Chinese President Xi Jinping has pledged to make the country carbon-neutral by 2060 with an aim to reach the peak of its carbon emissions before 2030.
To help achieve China’s carbon-neutrality pledge, property developers have been establishing green financing frameworks to guide their journey towards sustainability. CIFI Holdings Group published its first green financing report this July to review the performance of its first dollar-denominated green bonds issued in 2020. Longfor Group made its way to the Hang Seng ESG Index after establishing its own green finance framework and setting up an environmental, social and governance (ESG) committee at the board level.
The issuance of green bonds should come naturally for many property developers as buildings are major consumers of energy. Globally, the construction and operation of buildings make up 39% of all energy-related carbon dioxide emissions, according to the World Green Building Council’s 2019 report.
As of July, at least 12 Chinese property developers have issued around US$4.7 billion senior green bonds this year, most of which are US dollar-denominated. High-profile names include Redsun Properties Group, CIFI Holdings Group, Zhenro Properties, Central China Real Estate, Yuzhou Group, and Yango Group. The notes bear an average interest rate of 6.97%.
Just recently, Agile Group tapped the international bond market with a US$314 million sustainable bond issuance, a first for the property company, which received sizeable orders from investors during the book-building process.
In April 2021, the People’s Bank of China, the National Development and Reform Commission and the China Securities Regulatory Commission jointly released the "Green Bond Endorsed Projects Catalogue” (2021 Edition), in a move to further harmonize the different green bond standards in the market.
The new guidelines expand the scope of sectors suitable for sustainable financing. At the same time, it relaxes the definition of green building and refines the technical screening criteria for the issuance of green bonds, making it possible for more property developers to become eligible for such financing.
To attract foreign investors, the catalogue addresses the issue of greenwashing by aligning the criteria with international ESG standards such as the European sustainable finance standards which exclude coal-related funding.
Around the globe, institutional investors are incorporating ESG standards into the investment preferences and decisions. According to a 2021 survey by Natixis, 72% of institutional investors and 77% of fund selectors are implementing ESG criteria in their investment processes, up from 61% and 65% respectively in 2019.
The global trend of sustainable finance is making its mark on the fundraising strategies of Chinese property companies, which are now actively aligning their activities with the overall goal of achieving carbon neutrality.