The Executives’ Meeting of East Asia-Pacific Central Banks (Emeap), the group of 11 central banks and monetary authorities in the region, on Monday finalized the plan to promote increased investments in green bonds through the Asian Bond Fund (ABF).
The group – made up of the 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, Bangko Sentral ng Pilipinas, Monetary Authority of Singapore and Bank of Thailand – says the initiative “will help catalyze further deepening of local currency-denominated bond markets, in particular green bond markets in the region”.
The development come after the IHS Markit, the index administrator of the iBoxx ABF Index, reviewed the rules of the index to promote the inclusion of green bonds at the request of Emeap.
The move is seen as an effort to develop a market for funding sustainability projects in the region by injecting more green bonds in the ABF initiative, which was established in 2005 to support the development of local currency-denominated bond markets in the region. The passively managed ABF, which is comprised of the Pan-Asia Bond Index Fund and eight single-market funds, tracks the iBoxx ABF Index.
- defining green bonds as those that are labelled green by Climate Bonds Initiative or bonds self-labelled and externally reviewed as green in alignment with the Green Bond Principles of the International Capital Market Association
- setting a lower minimum outstanding notional threshold for sub-sovereign green bonds issued in different markets
- changing the sub-sovereign issuer limit to 10% per issuer in each single market index, up from the current limit of five bonds per issuer.
The new rules will take effect from the index rebalance date of March 31 2022 when all new bonds will be added and the new thresholds for sub-sovereign green bonds become effective.
Meanwhile, sub-sovereign bonds that will become eligible for index inclusion by end-March 2022 will be included through monthly rebalancing over the course of six months, each with equal weight, to facilitate a smooth transition.
