New World green bond issue offers a template for the future

A recent green bond issue in Hong Kong holds a series of valuable lessons for other companies contemplating raising finance through issuing green bonds

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At first glance it's easy to gain the impression that the recent US$2 billion green bond issue by New World China Land Limited (NWC) is just another green bond issue.

But a closer look indicates that this green bond issue by the flagship mainland China property arm of New World Development Company Limited (NWD) can be a template for similar green bonds or green financing projects by other Hong Kong property developers.

When taking a step back and putting things into perspective it becomes clear that no urgent reasons exist for Hong Kong developers and corporates to issue green bonds. Most of them are flushed with cash or have easy access to traditional financing methods. Also, unlike in Singapore, where the regulators are actively pushing local corporates into green financing, Hong Kong regulators are taking a hand-offs approach in keeping with the city's long-standing free market philosophy.

Hence, for a Hong Kong corporate to issue green bonds at this time, there must be other forces at play other than just raising financing.

In any case, for Hong Kong corporates, not just developers, it's worth looking at how NWD is rolling out its sustainability and green financing programme for lessons and guidance on implementing their own proposals.

Without getting too technical there are four basic elements in NWD's sustainability and green financing programme that can be applied universally regardless of whatever business sector the corporate operates in.

First up is a framework outlining the philosophy, rationale, and methodology behind the corporate's sustainability and ESG efforts in general. In the case of NWD, this framework is known as the "New World Sustainability Vision 2030" initiative.

An exhaustive document, the "New World Sustainability Vision 2030" basically states how the company supports green financing in line with China's goal to build an ecological civilization and Hong Kong's growth as a green finance hub.

"We have both financial strength and mature green building experience. Driven by the 'New World Sustainability Vision 2030' to infuse green and wellness elements into our businesses, we are confident that we can continue to deliver quality for our customers and create value for our stakeholders through this new bond issue," Adrian Cheng, executive vice-chairman and general manager of NWD says.

What's important about this framework is that it drills down in detail on how NWD plans to achieve its goals within the context of the property development industry in China and Hong Kong in particular. This is a significant difference to similar documents this writer has seen from other Hong Kong corporates, which tended to have similar goals but were rather short and vague on exactly how these laudable aims would be achieved.

That is the first lesson when drafting a sustainability and green finance framework: be clear in your goals and provide details on how you plan to achieve them.

Second, get an independent rating agency to evaluate the framework. In the case of NWD, Sustainalytics, a globally recognized ESG rating agency, evaluated the "New World Sustainability Vision 2030". Needless to say, a third-party evaluation of the sustainability framework is important for investors who may be interested in the green bond issue.

Third, there has to be accountability in the form of an entity at the top management level that can exercise oversight over the implementation of the framework.

In the case NWD, the company has a "green finance review panel" comprising representatives of various functional areas who will select and recommend eligible projects, and a "group sustainability steering committee" who will approve the projects.

"The eligibility criteria for projects include various environmental metrics such as the projected environmental performance assessed against relevant benchmarks and the energy performance data assessed by a third-party auditor, where feasible. This process is aligned with market best practices," says Ellie Tang, head of sustainability, New World Development Company Limited.

Last and by no means least, the fourth and perhaps the most important part of the template requires an experienced sustainability specialist who can push, supervise, and coordinate proper implementation of the framework.

In the case of NWD, this is Tang, who joined NWD in April 2016, and in her current position drives the implementation of the sustainability framework across the group as well as incorporating green, wellness, smart and caring strategies and initiatives into various businesses.

Tang has an MPA in environmental science and policy from Columbia University and before joining NWD did sustainability work for HSBC and the Link Reit.

"Hong Kong is zooming in more on green bonds and green loans for now. This is still at an early stage of refinancing, but I think there's a high potential of government and green finance associations pushing for more issuers and companies looking for different options," Tang says.

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Date

21 Dec 2018

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