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New regional green bond index rules to take effect in March 2022

NEW RULES on green bond investments will take effect in March next year. — BW FILE PHOTO

MEMBERS of the Executives’ Meeting of East Asia-Pacific Central Banks (EMEAP) will adopt new rules on green investments through the Asian Bond Fund (ABF) by March 2022 to boost sustainable investments in the region.

“The EMEAP believes this initiative will help catalyze further deepening of local currency-denominated bond markets, in particular green bond markets in the region,” EMEAP said in a statement.

EMEAP members include the Bangko Sentral ng Pilipinas (BSP), Reserve Bank of Australia, People’s Bank of China, Hong Kong Monetary Authority, Bank Indonesia, Bank of Japan, Bank of Korea, Bank Negara Malaysia, Reserve Bank of New Zealand, Monetary Authority of Singapore and Bank of Thailand.

Earlier this year, the group tapped IHS Markit, the index administrator of the iBoxx ABF Index, to review the rules of the Index to promote the inclusion of green bonds.

In response, the IHS Markit clarified the definition of green bonds depending on whether they are recognized as such by the Climate Bonds Initiative or are self-labeled and externally reviewed as green in alignment with the Green Bond Principles of the International Capital Market Association.

The review also resulted in IHS Markit setting a lower minimum outstanding notional threshold for sub-sovereign green bonds issued in different markets.

Lastly, IHS Markit revised the sub-sovereign issuer limit to 10% per issuer in each single market index, from the current limit of 5 bonds per issuer.

These new rules will be effective by March 22, the EMEAP said.

“The EMEAP believes this initiative will help catalyze further deepening of local currency-denominated bond markets, in particular green bond markets in the region,” it said.

Based on the review, weights of markets in the region under the iBoxx ABF indices were also recalculated.

The market weight of the Philippines under the iBoxx ABF Pan-Asia index for 2021 effective Oct. 31 is at 6.65%, up by 5 basis points (bps) from 6.6% in 2020. Despite the increase, this is still the smallest among markets that include China (25%), Hong Kong (8.15%), Indonesia (8.24%), Malaysia (11.49%), Singapore (15.76%), South Korea (15.18%), and Thailand (9.53%).

The Philippines market weight in 2021 under the iBoxx Asia ex-Japan index also up by 5 bps from last year at 6.57%, also effective Oct. 31.

“The EMEAP will continue to explore ways to further contribute to the development of the local currency denominated bond market,” it said.

The BSP is continuing its push for a regulatory framework that supports sustainability. Earlier this month, it released Circular 1128, the second phase of its sustainable finance framework launched in 2020, which directs banks to monitor their environmental and social risks in their credit exposures and business operations.

BSP Governor Benjamin E. Diokno said the central bank’s investment in green bonds could reach $1 billion in the next two years.

To date, it has poured in $550 million into the green bond fund of the Bank for International Settlements, of which $200 million was placed earlier this year. — L.W.T. Noble

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