Common Ground Taxonomy: Chinese green issuance in euro finds a shared vocabulary

Green bond markets in the European Union and in China grew up with different rulebooks. The European taxonomy is built around technical screening criteria and a do-no-significant-harm test; the Chinese catalogue is built around a list of eligible projects that has been revised several times to remove the categories European investors objected to most. The Common Ground Taxonomy does not merge the two. It lays them side by side and marks the activities that both call green.

For a debt capital markets desk in Luxembourg that arranges euro funding for Chinese issuers and places it with European asset managers, that mapping is more useful than any harmonisation project would have been. Harmonisation takes a decade and produces a compromise nobody drafted for. A mapping takes a year and tells an issuer, activity by activity, where the argument about eligibility is already over.

Eligibility was never the expensive part

When a Chinese issuer first comes to the euro market with a green framework, the instinct is to spend the preparation budget on proving that the projects qualify. In our experience that is rarely where the deal stalls. European investors have become adept at reading Chinese frameworks, and a renewable generation or rail electrification portfolio is green under any taxonomy anyone has written. The friction sits downstream: in the frequency of allocation and impact reporting, in whether the verifier is one the investor’s own committee recognises, and in whether the impact metrics are calculated on a basis the investor can compare across its portfolio.

The mapped taxonomy sharpens this. If an activity is on the common list, an investor who still asks bespoke eligibility questions is spending its own time badly, and most have stopped. What they ask instead is how the issuer will report, how often, and who checks it. Issuers who arrive with an annual allocation report, an impact methodology referenced to a recognised standard and a verifier with a European client base clear the book-building conversation quickly. Issuers who arrive with a project list and a promise do not.

The Common Ground Taxonomy has ended the eligibility conversation for most of the activities that matter. What remains is a data conversation, and data is a management question rather than a legal one.

China Everbright Bank Europe — Debt Capital Markets

Two opinions or one that speaks to both

A practical pattern has emerged in the deals we see. Rather than obtaining a second-party opinion against the Chinese catalogue and a separate one against European expectations, issuers are increasingly commissioning a single opinion that addresses both frameworks explicitly and states, activity by activity, where the mapped taxonomy applies. Investors prefer it because the reconciliation is done once by a party they can hold to account, and issuers prefer it because it costs less than two reviews and removes an obvious question from every investor call.

• Reference the mapped activities by name in the framework rather than describing them in the issuer’s own words.
• Commit to an allocation report within twelve months of issuance and to impact reporting on a stated methodology.
• Choose a verifier whose opinions European investment committees already read; the name on the opinion is part of the pricing.
• Where an activity is green under one framework only, say so, and be prepared to exclude it from the euro tranche.

The European issuer going the other way

The mapping works in both directions. European corporates with Chinese operations are beginning to raise onshore renminbi against green frameworks that were drafted for the European market, and the same question arises in reverse: which activities does the Chinese investor base recognise without further argument? For a European issuer the answer is usually generous, but not universal, and the exceptions tend to sit in transition activities that the European framework admits and the Chinese catalogue treats more cautiously.

Our debt capital markets and sustainable finance teams work across both sides of that mapping. We would rather an issuer spent a month getting the reporting architecture right than a month arguing about whether a wind farm is green. The first conversation determines the price; the second was settled some time ago.