Chinese Green Bond Principles Fail to Eliminate Greenwash Risk

Updated guidance brings Chinese domestic green bond issuances closer to international standards, but a lack of clarity on use of proceeds allocated to working capital, according to Fitch Ratings. Issued in July, the new China Green Bond Principles are closely aligned with the International Capital Market Association’s Green Bond Principles, setting out four core components: the use of proceeds, project evaluation and selection, management of proceeds, and duration of information disclosure. Fitch said the new principles provide greater transparency to investors on the differences between the four key types of green bonds available in China: bonds with a standard green use of proceeds, carbon-yield green bonds, green project revenue bonds, and green asset-backed securities. But Fitch said the policy objective for the principles of reducing greenwashing risks “may be undermined” because they do not specify the types of working capital and the percentage of proceeds that can be used to repay an issuers debt.

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