Chinese Companies See Surge in Offshore ESG Bond Issuance

Environmental, social and governance (ESG) bonds made up a far greater share of Chinese companies’ offshore issuances in the first half of this year, with the proportion of the securities jumping to 15.2% of the total from just over 1% in the same period of 2020.

Chinese companies issued $18.9 billion in offshore ESG-themed bonds in the first half, a more than fifteenfold increase from the $1.25 billion they issued a year earlier, according to data compiled by financial information platform Dealogic. Over the same period, the total value of their offshore bonds grew slightly to $124.6 billion from $112.7 billion.

ESG bonds primarily include green bonds, sustainability bonds and sustainability-linked bonds. Green bonds are considered green because the funds they raise usually have to be invested in climate-related or environmental projects. Funds raised from sustainability bonds are supposed to be invested in environmental protection or energy-saving projects, but the money can also be put into projects related to improving social welfare.

There are two reasons behind the surging investment in ESG bonds, said Mandy Zhu, head of China operations for global banking at UBS Investment Bank AG. One is that investors who value ESG are investing more. The other is related to newly established ESG investment fund products, particularly in Europe, she told Caixin.

The growing prevalence of the bonds is indicative of a broader trend of investors favoring ESG, with one recent survey finding that 92% of 146 China-based institutional investors plan to increase ESG-related investments this year.

Looking ahead, China and the EU are expected to finalize common classification standards for green projects by the end of this year, Zhang Bei, a deputy director of the finance institute of the People’s Bank of China, said in June at the Caixin Summer Summit in Beijing. Industry insiders expect this will help attract overseas investors who are eying China’s relatively high bond yields.

Contact editor Michael Bellart (michaelbellart@caixin.com)

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