Social bonds and sustainability bonds could be introduced in Taiwan by the end of this year at the earliest, as the Financial Supervisory Commission (FSC) encourages companies to secure proceeds for their environmental or social projects, Securities and Futures Bureau (SFB) Director Sam Chang (張振山) told a forum on Taiwan’s capital market on Friday.
The bonds are the commission’s latest effort to provide new tools for companies to raise funds to meet their environmental, social responsibility and governance (ESG) objectives, after allowing them to issue green bonds on the over-the-counter market in 2017.
The decision came after FSC Chairman Thomas Huang (黃天牧) in May said that green finance would be promoted as a way for companies to fulfill their social responsibility and create “win-win” situations for the economy and the environment.
Photo: Tu Chien-jung, Taipei Times
Unlike green bonds, where the proceeds are to be used on green investment projects such as the development of renewable energy resources and carbon reduction, social bonds are fund-raising instruments for projects that contribute to positive social outcomes, such as helping minorities or social housing, Chang told the 2020 Taiwan Capital Market Forum in Taipei’s Neihu District (內湖) hosted by the Chinese-language Liberty Times (the Taipei Times’ sister newspaper).
The proceeds of sustainability bonds are used for projects that simultaneously help the environment and society, Chang said.
While the nation’s green bond market has stabilized, with a total of 43 bonds worth NT$115.3 billion (US$3.91 billion) as of Monday last week, the commission expects companies to utilize the two new tools to fuel their ESG projects, he said.
Sales of social bonds have grown quickly in the past few years in Europe and the US, which could be attributed to an increasing appetite among investors for responsible investment, while with the COVID-19 outbreak, issuers could use the funds to address pandemic-related issues, such as supporting affected companies, Chang said.
Some overseas pension funds even follow an investment strategy that sets a minimum exposure to social bonds, he added.
“Given that social bonds and sustainability bonds are popular overseas, Taiwan’s bond market is likely to continue advancing after these instruments are included,” he said.
The FSC would ask the Taipei Exchange, which operates the over-the-counter market, to establish new guidelines for issuing social and sustainability bonds, which would be slightly different from its current green bond guidelines, Chang said.
It expects to see companies issue Taiwan’s first sustainability bonds or social bonds by the end of this year, Chang said.
In his speech, Taiwan Securities Association (券商公會) chairman Ted Ho (賀鳴珩) urged Taiwan Depository and Clearing Corp (台灣集保) to share its data via the cloud without violating personal data protection, so that securities houses could design more products suitable for consumers.
“Since we aim to boost the nation’s financial positions, we should have a more open attitude and allow more products to be launched in the market,” Ho said.
The commission could review its wealth management policy, as it is incomprehensible that retail investors cannot buy a bond with a low rating, but are allowed to buy into a fund that invests in 10 low-rating bonds, he said.
Grand Fortune Securities Co Ltd (福邦證券) chairman Michael Lin (林火燈), a former president of the Taiwan Stock Exchange, told the forum that although the government has vowed to keep its regulations in line with international rules, some issues continue to bother investors because no one has provided answers.
“We spent so much time deciding to expand the limit up and down, the maximum decline or rise permitted in individual stocks per day, from 7 percent to 10 percent, but does anyone dare to propose more relaxation or no limits at all, as in Hong Kong?” Lin asked.
The regular trading session for local stocks ends at 1:30pm, which is also different from many other nations, he added.
The commission should unveil a development roadmap for the local capital market so investors could clearly see what it envisions, he said.
Huang said that the commission would continue to negotiate with the International Association of Insurance Supervisors over a new solvency standard — the Insurance Capital Standard — after an insurance professor warned that life insurers and policyholders would be affected if the FSC implements the new rule without modifications.
Even though the new standard would likely make insurers stop offering long-term products, which local consumers are not used to, it would push insurers to strengthen their solvency, which would be good for consumers, Huang said.
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