In recent years, the capital market has strongly supported and encouraged green industries, with green bonds developing vigorously, and 'green stocks' also beginning to emerge.
What are the differences between green equity investments compared to ESG investments? Currently, green securities in China, including green bonds, green ETFs, and green stock indices, are developing rapidly. In this context, is it necessary to introduce green stocks? What is the significance of introducing green stocks? From the perspectives of market environment, institutional foundation, and market demand, does China currently possess the conditions to introduce green stocks? Dr. Wang Xin, Global Partner and President of Greater China at Frost & Sullivan (hereinafter referred to as 'Frost & Sullivan'), was interviewed by Securities Daily to discuss green equity investments.
Securities Daily
For a long time, China's green financial market has mainly relied on green credit, which is indirect financing. The proportion of direct financing such as debt and equity financing is not significant. However, in recent years, the capital market has strongly supported and encouraged green industries, leading to the vigorous development of green bonds, and 'green stocks' have also begun to emerge.
"At present, China has initially formed a multi-level green financial market system, with main products including green credit and green bonds. In terms of 'green stocks', there is no unified concept or standard in China," said Chen Li, chief economist and director of the research institute at Sichuan Finance Securities, in an interview with the Securities Daily reporter.
"Green stocks"
In the primary development stage
Currently, China's equity and bond markets are guiding more funds towards green and low-carbon industries, with green bonds occupying a mainstream position. Data from the official website of the Shanghai Stock Exchange shows that in terms of green securities, as of June 24, there were 454 green bonds listed on the exchange, with a custody scale reaching 308.3 billion yuan. Among them, there are 318 green corporate bonds, with a custody scale of 243 billion yuan; and 135 green enterprise bonds, with a scale of 64.3 billion yuan.
Public information shows that the concept of 'green stocks' was first developed jointly by the Swedish Bank and the international climate research center, an institution based in Norway. It was introduced and promoted in the European market in 2020. According to the official website of the Swedish Bank, 'green stocks' are a supplement to bonds, commercial paper, and loans. Companies labeled as green are required to have at least 50% of their income and investments coming from green activities.
"Unlike green bonds, which focus more on specific aspects, 'green stocks' are an evaluation standard for a company's 'green, low-emission, and low-carbon' levels, providing an authoritative 'qualification certification'. 'Green stocks' can convey a clearer assessment of the business status to investors by reflecting the company's specific performance, thereby enhancing the transparency of corporate information," said Wang Xin, Global Partner at Frost & Sullivan and President of Greater China, to the Securities Daily reporter.
"In recent years, 'green stocks' have made certain progress globally. However, due to the lack of a unified standard for concepts related to 'green stocks' and equity valuation worldwide, they are still in their initial development stage," Chen Li said. "As a new financial tool and product, 'green stocks' are highly relevant to low-carbon transformation and sustainable development and have significant growth potential in the future."
Securities market
Green equity financing has developed rapidly
At present, there is no separate classification of 'green stocks' in China. In a popular sense, 'green stock' financing (green equity) mostly refers to the equity financing of companies engaged in green and low-carbon industries, and has seen rapid development in recent years.
The 2021 Social Responsibility Report released by the Shanghai Stock Exchange indicates that the exchange has optimized green equity financing services, supported equity financing for green and low-carbon industries, and facilitated listing and refinancing for enterprises engaged in energy conservation, environmental protection, clean production, and clean energy. Relevant data shows that in 2021, there were 87 companies listed on the main board of the Shanghai market, raising a total of 1625 billion yuan, including five new energy and energy conservation enterprises such as Three Gorges Energy and Taihe Water, which raised 258 billion yuan through initial public offerings; there were 162 companies listed on the Sci-Tech Innovation Board, raising a total of 2029 billion yuan, including 20 new energy and energy conservation enterprises, which raised 328 billion yuan through initial public offerings.
"Green stock" investment places more emphasis on evaluating environmental friendliness and whether a company's operations comply with low-carbon standards, with clear directional requirements for energy conservation, emission reduction, low-carbon environmental protection, etc. Its rise is driven by both the gradual improvement of information disclosure systems and the fact that issuing quantifiable and comparable operational indicators is much more attention-worthy than proposing related concepts," Wang Xin told reporters.
Meanwhile, regulatory authorities are also broadening investment channels, launching green stock indices, and increasing support for green and low-carbon industries. The 'Opinions on Deepening the Reform of the Ecological Protection Compensation System' issued in September 2021 emphasize the establishment of 'green stock indices'. For example, the Guozheng Xiangmihu Green Finance Index released by the Shenzhen Stock Exchange is the first stock index in China that reflects the development of the green finance industry, further presenting the operational characteristics of listed companies in the green finance sector.
Basically available
Three major conditions for implementing "green stocks":
It can be seen that although 'green stocks' have not been officially launched, the securities market has already accumulated considerable exploration and practice in this area.
"From the perspectives of market environment, institutional foundation, and market demand, China has basically met the conditions to launch 'green stocks'," Wang Xin analyzed for reporters. In terms of the market environment, "since the release of the dual carbon policy, the awareness of green investment in the entire investment market has been continuously increasing. Many industries have taken significant steps into this field and gained sufficient experience. Under the window period of overall national industrial upgrading and transformation, investing in green industries means better imagination space and profit opportunities."
He stated that from the perspective of institutional foundation, the policy system regarding green finance is in a period of rapid development. Since 2020, the issue of financing for green industries has gradually been extended to the financial sector for consideration, and the overall importance has become self-evident. Most importantly, in advancing the 'dual carbon' goal, industrial transformation is an inevitable trend, and the continuous improvement of various guiding opinions is also foreseeable.
"From the perspective of market demand, the emergence of 'green stocks' is beneficial to all participants in the market," Wang Xin further analyzed. For enterprises with urgent financing needs, they require a 'label' that can clearly display their green characteristics and industrial advantages to investors in the financing market, thereby distinguishing them from non-green enterprises and attracting special investment to achieve their financing objectives.
Wang Xin believes that for investors, how to effectively distinguish whether the companies they invest in are truly 'green' or 'greenwashing' is a practical pain point. It is often difficult to make an effective judgment using existing evaluation criteria, which may lead to misallocation of green funds. The introduction of 'green stocks' can greatly solve this problem and help investors make effective decisions.
*This article is reprinted from the 'Securities Daily' news section, with reporter Xing Meng. The original article was titled 'Multi-level Green Financial System Gradually Taking Shape, Conditions for 'Green Stocks' Basically Met'.
