• Justin Seek, Credit Analyst
  • October 2, 2020
  • LinkedIn

Bank of China takes the lead in Asia with $940 million blue bond issuance

Plummeting fish stocks, garbage islands in the oceans and rising sea levels are – just to name a few – grave issues impacting our world today. Out of the 17 UN SDGs, SDG14 (Life Below Water) unfortunately receives the least attention from blended finance and impact investment.1 Currently, marine economies contribute an estimated $2.5 trillion to the global economy,2 and are expected to grow to $3 trillion by 2030.3 Asia is home to six of the ten largest fisheries globally, with approx. 34 million people either employed or dependent on the commercial fishing industry.4 It is imperative that more targeted financing is dedicated to sustaining this sector.

Bank of China’s (BOC) groundbreaking US$940 million equivalent dollar-renminbi issuance of blue bonds is a first step in Asia, moreover for a commercial bank, towards a more concerted effort to protect our oceans. Through this bond issuance, BOC will directly support projects related to “marine-based economies seeking to promote economic growth and preserve marine ecological environment, while ensuring sustainable use of marine resources.”5 This targeted objective draws many paralells with organisations like the World Bank’s and European Commission’s definition of the blue economy, “ the goal of the blue economy is environmental, social, and economic sustainability of sectors that impact and/or derive economic activity from the ocean.“6

The issuance is comprised of a three-year US$500 million bond, priced at 99.694% with a coupon of .950%, offering a yield of 1.054%, equivalent to US Treasuries plus 90, or the tight end of final guidance of 90bps to 93bps and well within the 130bps area guidance. The second tranche is a two-year CHN 3 billion (US$442.50 million) bond, which is priced at par to yield 3.15%, 35bps tighter than the initial range in the 3.5% area.7

BOC’s current blue bond nominated projects have been allocated to a total of 25 projects, 16 of which are marine related sewage treatment projects, and 9 are offshore renewable energy wind power projects. The majority of these projects are based in China, with token projects in the United Kingdom and France.  The expected environmental benefits from these projects are significant, with an increase in treatment capacity of over 6 million m3/day of sewage that flows into the oceans, and an increase in installed capacity of approximately 3,000 MW from the wind power projects.8

BOC has based the bond’s impact and monitoring framework on Green Bond Principles (GBP) 2018, engaging Ernst & Young Hua Ming to provide impact evaluation throughout the life of the bond to ensure best practices in project selection, management of proceeds, and reporting.9 For impact measurement, “BOC will adopt some quantitative measures, where feasible, and disclose them on an aggregated portfolio basis”.10 Reduction in GHG emissions and wastewater pollutants are currently the main indicators that will be used in monitoring. The information on the use of proceeds and impact performance of projects will be made available 3 months from the end of each fiscal year.11 Furthermore, BOC will review each project on a quarterly basis to determine their continued eligibility for the bond.12 

The new blue nomenclature might seem an unnecessary triviality of re-classification, as it falls under the wider umbrella of green financing. However, if one looks at the current funding – or rather lack of funding – for SDG 14, there is a clear need to identify and support projects focussed on improving our marine based economies. Without a dedicated categorization, marine projects might be overlooked in pursuit of other green projects that are considered more mainstream. For example, passing over cleaning up garbage islands or creating sustainable fisheries in preference for affordable housing projects.

As the world contends with numerous crises, including Covid-19, natural disasters and global social unrest, we must ensure that the case for the blue economy joins the ranks of these other pressing concerns. BOC’s blue bond is only the opening volley in Asia. As our oceans succumb to greater damage with each passing year, this bond sets a precedent for delivering viable, sustainable ocean projects to protect marine life, livelihoods and environmental ecosystems for future generations.