SGS bond to lift yuan's global profile

A renminbi-denominated bond that will fund sustainability-linked, green and social activities, has been listed in Frankfurt Stock Exchange, Germany, marking the latest step in boosting the global presence of the Chinese currency.

Bank of China, the issuer, said the SGS bond has received favorable responses from global investors. According to Xinhua News Agency, this is the first listing of a renminbi-denominated SGS bond.

Experts said the bond's successful issuance reflects renminbi-denominated assets' wide appeal among global investors and the potential for China to further internationalize its currency, also known as the yuan, by advancing international green finance cooperation and innovation.

The bond, listed in Frankfurt on Monday, was issued through BOC's Frankfurt branch on Aug 13.

With an issuance size of 2.5 billion yuan ($351 million) and a two-year tenor, the bond has a framework that adheres to latest market standards, ensuring that the funds raised are directed toward qualified SGS projects that cover a variety of loans for environmental, social and governance (ESG) projects.

ESG loans are special loans that encourage businesses to be on the right side of the environment, society and corporate governance by tying the loan terms to these best practices.

"The bond has offered international investors a new avenue to support ESG development," BOC, one of the largest banks in China, said in a statement.

The bond issuance has further promoted BOC's offshore renminbi business in Frankfurt and enhanced its participation in ESG financial innovation, it added.

According to a resolution adopted at the third plenary session of the 20th Central Committee of the Communist Party of China in July, efforts should be made to steadily and prudently advance the internationalization of the renminbi and develop offshore renminbi markets, while vowing to actively develop green finance.

Financial experts have pointed to green finance cooperation as the potential driver for renminbi internationalization, as China has one of the world's biggest green bond and credit markets.

China is collaborating with the European Union and Singapore to develop a new version of the Common Ground Taxonomy, which is a list of economic activities that are recognized both by China's and EU's green standards and which make it easier for borrowers from both jurisdictions to access green funding in each other's capital markets.

The new version, when unveiled, will upgrade the existing bilateral cooperation initiative into a multilateral project and further boost international green capital flows, said Ma Jun, president of the Institute of Finance and Sustainability.

Efforts will be made to facilitate foreign investment in Chinese green bonds, the country's central bank said in a guideline to support regional green development on Tuesday.

"We will guide financial institutions and enterprises in the Yangtze River Economic Belt to issue green bonds in accordance with domestic and international standards, and facilitate international capital investment in China's low-carbon transformation," the central bank said.

Huang Yiping, dean of Peking University's National School of Development, said China can outline a plan to provide commercial investments, low-cost funding and government aid to other developing economies to help them bridge a funding gap in achieving their green transition.

The plan will be a win-win as it will facilitate the global pursuit of carbon neutrality while helping bolster China's new energy exports and promote the internationalization of both Chinese financial institutions as well as the renminbi, Huang added.

Liu Zhihua contributed to this story.