MANILA, Philippines—The organization of central banks in the Asia-Pacific region on Monday (Nov. 8) announced that the plan to promote investment in so-called green bonds through the Asian Bond Fund has been finalized.
In a statement, the Executives’ Meeting of East Asia-Pacific Central Banks (Emeap) said it believes the initiative “will help catalyze further deepening of local currency-denominated bond markets, in particular green bond markets in the region.”
“The Emeap will continue to explore ways to further contribute to the development of the local currency denominated bond market,” it added.
Emeap had requested IHS Markit, the index administrator of the iBoxx ABF Index, to review the rules of the index to promote the inclusion of green bonds. With the completion of this review, IHS Markit has decided to make the following adjustments to the index.
These included:
- Setting the definition of green bonds as those that are labelled green by Climate Bonds Initiative
- Defining green bonds, too, as those that are 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 percent per issuer in each single market index, from the current limit of five bonds per issuer.
The new rules will take effect from the index rebalance date of March 31, 2022, on which date all new bonds will be added and the new thresholds for sub-sovereign green bonds become effective.
The sub-sovereign bonds that become eligible for index inclusion will be included through monthly rebalancing over six months, each with equal weight, in order to facilitate a smooth transition.
Emeap is a group of 11 central banks and monetary authorities in the East Asia and Pacific region:
- 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
- Bank of Thailand.
The Asian Bond Fund initiative was established in 2005 to support the development of local currency-denominated bond markets in the region. This fund, comprising the Pan-Asia Bond Index Fund (PAIF) and eight single-market funds, tracks the iBoxx ABF Index and is managed passively by private-sector fund managers with the Bank of International Settlements as the administrator.
It invests in local currency-denominated bonds in the EMEAP economies other than Japan, Australia and New Zealand.