On December 22, 2015, the Green Finance Committee of China Society for Finance and Banking published the China Green Bond Endorsed Project Catalogue (2015 Version), which plays a fundamental role in building China’s green bond market, and will serve as a reference for green bond approval and registration, third-party evaluation of green bonds, green bond rating, and related information disclosure.

Green Bond Endorsed Project Catalogue

　　(2015 Version)

Compiled by the Green Finance Committee, China Society for Finance and Banking

The green bond market will become an important financing channel for green enterprises. The demand for green financing in China ishuge (perhaps may exceed that of any other country in the world), and the willingness of Chinese financial institutions and enterprises to issue green bonds is also very strong. Therefore, the establishment of a standardized Chinese green bond market to ensure its soundoperation is not only the requirement of Chinese green financial market, but also ofgreat significance to the sounddevelopment of the global green bond market.

Due to various reasons, non-green projects may be financed under the guise of green bonds if green bonds are not clearly defined, their uses and effects are not evaluated and relevant information is not disclosed after issuance.

The reasons in this regard include:

First, the issuance of green bonds will bring reputational benefits to the issuer (banks or enterprises).Second, some green investors will particularly favor green bonds, so green bonds are easily oversubscribed at a higher multiple, which gives green bonds an advantage in financing costs. Third, in order to support green financing, relevant departments may provide certain preferential treatments in terms of issuance approval and registration, issuance methods, and use of funds for green bonds.Fourth, in the future, relevant departments may also consider providing supporting measures such as interest discount and credit enhancement for green bonds.

If non-green projects are financed in the name of green bonds, or uses of such funds are changed to support polluting projects after obtaining financing, the green bond market may lose its credibility, and then real green enterprises will not be willing to participate in the market, resulting in the consequences of “bad money driving out good”. In such case, the green bond market will not be able to provide financing for real green enterprises.

Therefore, for the purpose of ensuring a healthy and standardized green bond market, it is an important and basic taskto prepare and publish a green bond endorsed project catalogue by an authoritative organization to clarify the scope of the use of green bond funds. This catalogue will serve as a reference for future green bond approval and registration, third-party evaluation of green bonds, green bond rating and related information disclosure.

International Standards

On March 27, 2015, the International Capital Market Association (ICMA) released the latest version of the Green Bond Principles (GBP) based on discussions with more than 130 financial institutions, which has been recognized by many market participants. Besides, The Climate Bond InitiativeTaxonomy-Definitions introduced by the Climate Bonds Initiative (CBI) in May 2015 also obtained a wide range of influence. In addition, Barclays Bank and MSCI have launched the Barclays MSCI Green Bond Index based on the GBP.

The “Second Opinion” or “Third-party Certification” institutions represented by the Centre for International Climate and Environmental Research (CICERO)and financial institutions represented by HSBC have also defined and classified green bonds based on the GBP.

These international defining standards for green projects basically include mitigation of and adaptation to climate change, pollution control, containing the depletion of natural resources, biodiversity protection and other aspects. Of course, there are differences between different standards. For example, the Barclays-MSCI Green Bond Index focuses on defining projects from comprehensive environmental benefits, while CBI pays more attention to addressing climate change. Different international classification systems differ in the defining standards and project coverage of green bonds, reflecting the different focus of different institutions, countries and regions on environmental benefits.

China’s Compilation Principles

The international defining standard and index directory of green bonds mainly reflect environmental concerns of developed countries, which are somewhat different from China’s resources and environment reality. Except for challenges from climate change, China is facing severe environmental pollution, aggravated resource constraints, and ecological degradation. Besides, China needs activefinancial policies to promote the transformation and upgrading of the economic structure.

Therefore, the research on China’s green bond endorsed project catalogue must follow the principles of studying and understanding the development stage of China’s economy and technology and the main environmental issues faced, and adhering to the orientation of multi-dimensional environmental benefits. In other words, the definition and classification of China’s green bonds must fully reflect China’s needs and conform to China’s actual conditions.

Based on the above considerations, the Green Finance Committee, China Society for Finance and Banking organized experts to carry out research on the definition and classification of China’s green bonds, and compiled the China Green Bond Endorsed Project Catalogue(2015 Version) based on the research.

The following basic principles were followed during the research and compilation process:

　　i.Conforming to national conditions: focusing on improving the ecological environment and easing resource pressure, and promoting economic transformation and upgrading, and following the lead of national industrial policiesat the current stage.

　　ii.Highlighting environmental benefits: supporting projects with remarkable environmental benefits and obvious positive spillover effects.

　　iii.Being simple and clear: taking into account the fact that most of the capital market practitioners are nonenvironmental professionals, thus employing simple definition and classification method that is easy to follow and operate.

　　iv.Making continuous adjustment: timely updating the Catalogue (currently released catalogue is the 2015 edition) according to development of industrial technology and changes in policies and standards.

　　v. In line with international practice and standards: taking international standards and practices as reference to facilitate international cooperation in green finance.

During the research process, the research group learned and compared various guidelines and catalogues related to environmental protection, green development, new energy and green credit published by the Ministry of Environmental Protection, the National Development and Reform Commission, China Banking Regulatory Commission, and China Energy Conservation and Environmental Protection Group, and referred to a series of latest technical standards for green projects and international green bond standards.

During the preparation process, the Research Bureau of the People’s Bank of China and the Green Finance Committee organized four seminars where relevant government departments, financial institutions and enterprises were invited for discussion.Opinions were solicited from more than 100 units, and feedbacks from all parties were fully considered.The Catalogue reflects the principle of supporting projects with significant environmental benefits, high degree of consensus and compliance with industrial policy orientation.Highly controversial projects are not included temporarily or are applied with more stringent conditions for inclusion.

Main Categories in the Catalogue

The Catalogue takes on projects with significant environmental benefits and are categorized into 6 categories (Level-I Category) and 31 sub-categories (Level-II Category), with detailed explanation and defining criteria. The criteria for defining specific items in the Catalogueare based on China’s national standard documents (orsectorstandard documents) and industrial policy documents issued by authoritative departments.

The Catalogue includes the following 6 categories of green projects:

　　i. Energy Saving: through constructing high efficiency facilities and conducting energy-saving improvement, to reduce energy/water resources/raw material consumption per unit of product or service, lower pollutants and GHG (e.g. CO2) emissions generated from resource consumption, and achieve resource conservation, GHG (e.g. CO2) emission reduction and pollutant alleviation.

　  ii. Pollution Prevention and Control: through constructing facilities for desulfurization, denitrification, dust removal and sewage treatment, as well as other forms of integrated environmental treatment, to reduce pollutant discharge, control environmental pollution, protect, restore and improve environment.

    iii. Resource Conservation and Recycling: through the exploitation and reuse of tailings and associated mines, reuse of industrial and agricultural waste, recycling and remanufacturing of waste metals and non-metallic, to improve resource utilization, save resources and reduce waste discharge and environmental damages.

    iv. Clean Transportation: including the construction of railway, urban rail transit and clean fuel production units, and promotion of new energy vehicles, withanaim to reduce GHG emission and pollutant discharge intensity in the transportation sector, achieving energy conservation and emission reduction.

    v. Clean Energy: substituting fossil energy consumption with renewable energy such as solar energy, wind energy, hydropower, geothermal energy, ocean energy, to reduce pollutants and CO2emitted from the exploitation, production and consumption of fossil fuels; through the utilization of low carbon energy such as natural gas, to reduce pollutant discharge and GHG emission.

    vi. Ecological Protection and Climate Change Adaption: through comprehensive treatment of soil erosion, ecological restoration, disaster prevention and control, natural reserve construction and other projects, to improve the ecological environment, prevent and reduce disasters, and enhance biodiversity conservation, etc.; through afforestation, forest tending and conservation, eco-agriculture, animal husbandry and fishery, and strengthened infrastructure construction, to adapt to climate change..

Promote Consistency in Standards

Important consensus on the development of green finance has been reached on the China-UK Economic and Financial Dialogue in October 2015. As indicated in the declaration of the China-UK Economic and Financial Dialogue, China and the UK will introduce more active green finance policies and support the International Capital Market Association (ICMA) and the Green Finance Committeeof China Society for Finance and Banking to jointly promote the consistency of global green bond standards.

On October 23, 2015, the Green Finance Committee, China Society for Finance and Banking and the London Stock Exchange Group co-hosted the first “China Green Bond Conference”. The picture is from GFC

As a green financing tool with great potential, the international green bond market is developing rapidly, and China’s green bond market will soon be launched too.

In 2015, the two green bonds successfully issued overseas by Goldwind Science Technologyand Agricultural Bank of China were oversubscribed multiple times, confirming the significance of China’s green bonds to international investors. Many international investors have also expressed great interest in participating in investing in green bonds to be issued in China in the future. Improving the consistency of green bond standards in different markets can help green investors avoid obstacles caused by different standards when investing across borders and the additional cost of green bonds having to be certified in multiple markets, enabling green projects in various countries to make full use of global funds thusacceleratingthe greeningof the global economy.

It is expected that after launching its domestic green bond market, China will more actively promote international cooperation in green finance and the globalization of the green bond market.