Access to China's Green Bond MarketJune 2017

Main content

1. Current State of Green Bond Market in China

2. Features of CUFE-CNI Green Bond Index Series

Overview of the Market

• Top-level design of green finance to support development objective ØInnovative, Coordinated, Green, Open and Shared Development (13th Five-Year Plan)

ØAn annual investment of at least 2 trillion Yuan is needed to achieve the environmental targets

• Green Bond offers an efficient channel of financing environmental projectsØThe 3rd largest bond market (CNY 68 trillion) , and 2nd largest in corporate bond market (31trillion)

• National standard of green bond criteria have been publishedØGreen Finance Committee of China Society of Finance and Banking (GFC) established in April 2015

ØPBoC officially announced the  Green Bond Endorsed Project Catalogue  of GFC ( Dec 2015 )

• According to GFC Catalogue, the size of green bonds reached CNY 2.25 trillion as of May 2017

Category

GB1 Energy Saving

GB2 Pollution Prevention and Control

GB3 Resource Conservation and Recycling

GB4 Clean Transportation

GB5 Clean Energy

GB6 Ecological Protection and Climate Change Adaption

Defining Green Bond in China: GFC Catalogue

• 6 categories and 31 sub-categories of Green ProjectsØReporting on the use of bond proceeds

ü Conforming to national conditions

ü In line with international practice

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For more details, please refer to the appendix.

2 trillion green bond and use of proceeds

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* GBm : Mixed use of proceeds in line with at least 2 categories.

Clean Transportation

Clean Energy

As of May 2017; CUFE, CNI Index* Debt amount includes only the portion for green purpose usage.

Growing issuance, with improved transparency

6As of May 2017; CUFE, CNI Index* Debt amount includes only the portion for green purpose usage.

Main content

1. Current State of Green Bond Market in China

2. Features of CUFE-CNI Green Bond Index Series

Intro. of CUFE-CNI Green Bond Index Series

• Collaboration with International Institute of Green Finance , Central University of Finance and EconomicsØCUFE IIGF is a standing member of GFC

Øactively involved in setting green bond standard

• Designed to track the performance of labeled and unlabeled green bonds in ChinaØIncluding three total return indices

• Synchronously quoted in China and Europe (Luxembourg Stock Exchange)

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CUFE-CNI High Grade

Green Bond TR Index

(Index Code: CNB00013)

CUFE-CNI High Grade

Unlabeled Green Bond

TR Index(CNB00014)

CUFE-CNI High Grade

Labeled Green Bond

TR Index(CNB00015)

Highlights of the Index Methodology

• Strictly accordant with national standard of Green BondØUse only GFC Catalogue for green bond identification

ØBond specific analysis on the funding usage (CUFE IIGF) *

• Focusing on green bonds with the highest credit qualityØSelect only government-related bond and AAA credit

• Establishing the labeled and unlabeled green bond index separatelyØOverall and unlabeled index is traced back to 2011 EOY, and Labeled green bond back to 2016 EOY

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Index  Criteria and Calculation Methodology

Sample rangeUnlabeled and labeled green bond aligning the GFC Catalogue (CUFE IIGF), publicly-offered in China onshore bond market

Selection 

•Govt. Bond, Policy Bank Bond, and Credit bonds of AAA issuers, fixed-rate coupon and RMB denominated•Minimum maturity 91 days, and original term at issuance is between1 and 10 years (including)•Excluding floating rate, convertible bond and ABS/ABN

Weighting Adjusted market cap , which is the portion of bond proceeds used exclusively for green purpose

Rebalancing Once a month at month end

Pricing Market observed price, and CNI evaluated price

Base Date 2011-12-30 for CNB00013 and CNB00014;2016-12-30 for CNB00015

* In case funding usage of the bond is not available, it will also be treated as green if at least 90% of the issuers’ revenue comes from green sectors.

Index  Cum. Return(%)

Annualized Return (%) Volatility 

3-year 5-year 3-year

CNB00013 30.19 5.47 4.69 2.05

CNB00014 30.08 5.44 4.67 2.06

CNB00015 * -0.54 / / /

T-Bond Index 18.40 3.87 2.97 1.33

Performance of the Indices

10Source: CNI Index, as of May 2017*The cumulative return of labeled green bond index is traced backed to 2016-12-30. Due to the short history, it’s not displayed in above chart .

1.5 trillion Index Coverage, 85% Unlabeled

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Source: CNI Index, as of May 2017 (after EOM rebalancing)* The statistic is weighted by debt amount, and the charts show the split of index constituents by number of bonds.

Index N.O. of bonds

Debt Amt(0.1 billion)

WAVG* Maturity (yr)

WAVG*Coupon(%)

CNB00013 265 14802.9 4.67 4.39

CNB00014 224 12682.1 4.86 4.55

CNB00015 41 2120.8 3.51 3.44

Top 10 Issuers of Unlabeled Green Bond

• Dominated by Clean Transportation and Clean Energy

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Issuer N.O. of bonds Debt Amt (0.1 billion)

WAVG Maturity (yr)

WAVG Coupon(%) Note

China Railway 70 9646 5.26 4.52 Transportation

China Three Gorges Corp. 12 528 3.19 4.14 Electricity

State Grid Corporation of China 9 429 2.87 4.52 Electricity

Guangzhou Metro Group 11 340 4.13 4.67 Transportation

China Yangtze Power 5 165 5.34 3.75 Electricity

Beijing Infrastructure Investment 7 148 2.57 5.13 Transportation

Shanghai Shentong Metro Group 2 120 1.04 5.15 Transportation

Changsha City Rail Transportation Group 5 117 6.96 5.63 Transportation

Shenzhen Metro Group 3 110 4.85 5.97 Transportation

Huadian Fuxin Energy Corp. 6 90 4.04 4.10 Electricity

Source: CNI Index, as of May 2017 (after EOM rebalancing)

Top 10 Issuers of Labeled Green Bond

• Growing rapidly, commercial and policy banks are most active

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Issuer N.O. of bonds Debt Amt (0.1 billion)

WAVG Maturity (yr)

WAVG Coupon(%) Note

Industrial Bank 3 500 2.97 3.23 Commercial Bank

Shanghai Pudong Development Bank 3 500 3.05 3.16 Commercial Bank

Bank of Communications 2 300 3.81 3.15 Commercial Bank

Bank of Beijing 2 150 3.28 4.34 Commercial Bank

China Development Bank Corp. 2 100 4.82 4.03 Policy Bank

Agricultural Development Bank of China 1 100 2.56 3.79 Policy Bank

State Grid Corporation of China 2 100 3.39 2.90 Electricity

Harbin Bank 3 50 3.31 4.74 Commercial Bank

Bank of Nanjing 2 50 3.30 4.44 Commercial Bank

China Energy Conservation and Environmental Protection Group 4 50 6.76 3.21 Industrial

Source: CNI Index, as of May 2017 (after EOM rebalancing)

Perspective of Green Bond Fund

• Green bond index funds and ETF are gaining popularity in global market

• The CUFE-CNI indices offer transparent exposure to the Chinese green bond market, with attractive yields

Green Bond Fund Fund Manager Location Established

TIAA-CREF Social Choice Bond Fund Teachers Advisors, Inc US SEC registration 2012

Calvert Green Bond Fund Calvert Investment Management, Inc US SEC registration 2013

AXA World Funds Planet Bonds AXA Investment Managers Paris Luxembourg-SICAV 2015

State Street Green Bond Index Fund State Street Global Advisor Luxembourg-SICAV 2015

Mirova Green Bond Global Natixis Asset Management / Mirova France-SICAV 2016

Green Bond Index ETF Van Ereck US SEC registration 2016

Amund-IFC Green Bond Fund Amundi France-SICAV 2017

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Appendix: GFC Catalogue

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Level I  Level II Category Note

GB1: Energy Saving

1.1.Industrial Energy Saving 1.2 Sustainable Building 1.3 Energy Management Center 1.4 Urban and Rural Infrastructure Construction with Energy Saving Efficiency

through constructing high efficiency facilities and conducting energy-saving improvement, to reduce energy/ water/ raw material consumption per unit product or service, lower pollutants and GHG (e.g.,CO2) emissions generated from resource consumption, and achieve resource conservation, GHG emission reduction and pollutant alleviation.

GB2: Pollution Preventionand Control

2.1 Pollution Prevention and Control 2.2 Environmental Restoration Project2.3 Clean Utilization of Coal

through constructing facilities for desulfurization, denitrificaiton, dust removal and sewage treatment, as well as other forms of integrated environmental treatment, to reduce pollutant discharge, control environmental pollution, protect, restore and improve environment.

GB3: Resource Conservation and Recycling

3.1 Water Saving and Unconventional Water Use3.2 Redevelopment and Integrated Utilization of Tailings and Associated Mine3.3 Recycling and Utilization of Industrial Solid Wastes, Exhaust Gas, and Effluent 3.4 Recycling, Processing and Utilization of Renewable Resource3.5 Remanufacturing of Electromechanical Products 3.6 Recycling and Utilization of Biomass Resource

through the exploitation and reuse of tailings and associated mines, reuse of industrial and agricultural waste, recycling and remanufacturing of waste metals and non-metallic, to improve resource utilization, save resources and minimize environmental damages.

Appendix: GFC Catalogue (cont.)

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GB4: Clean Transportation 

4.1 Railway Transportation 4.2 Urban Rail Transit 4.3 Public Urban and Rural Transportation 4.4 Waterway Transportation4.5 Clean Fuel4.6 New Energy Automobile4.7 Internet Application on Transportation

through constructing high efficiency facilities and conducting energy-saving improvement, to reduce energy/ water/ raw material consumption per unit product or service, lower pollutants and GHG (e.g.,CO2) emissions generated from resource consumption, and achieve resource conservation, GHG emission reduction and pollutant alleviation.

GB5: Clean Energy

5.1 Wind Power Generation5.2 Solar Photovoltaic (PV) Power Generation5.3 Smart Grid and Energy Internet5.4 Distributed Energy Resource 5.5 Solar Thermal Application 5.6 Hydropower Generation5.7 Other New Energy Application

substituting fossil energy consumption with renewable energy such as solar energy, wind energy, hydropower, geothermal energy, ocean energy, to reduce pollutants and CO2 emitted from the exploitation, production and consumption of fossil fuels; through the utilization of low carbon energy such as natural gas, to minimize pollutant discharge and GHG emission reduction.

GB6: Ecological Protection and Climate Change Adaption

6.1 Natural Ecological Protection and Protective Development of Tourism Resource6.2 Ecological Agriculture, Husbandry and Fishery6.3 Forestry Development 6.4 Emergency Prevention and Control of Disaster

through comprehensive treatment of soil erosion, ecological restoration, disaster prevention and control, and natural reserve construction, to improve the ecological environment quality, strengthen disaster prevention ability, and enhance biodiversity conservation, etc.;through afforestation, forest tending and conservation, eco-agriculture, animal husbandry and fishery, and strengthened infrastructure construction, to mitigate or adapt climate change and reduce the adverse effects of climate change on social and economic development.

Disclaimer

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This document has been compiled by the Shenzhen Securities Information Co., Ltd. (“SSIC”) for information purpose only. SSIC has attempted to ensure that the information in this document is accurate, but is not guarantee the accuracy, timeliness, completeness, performance or fitness for a particular purpose of the document or any of the information in it.

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