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Green Finance / Treasury & Capital Markets
China solidifies global green bond leadership
Quality, credibility increase; UoP focused on energy, transport; GSS+ market maturing
The Asset 17 May 2024

In 2023, despite shrinking volumes globally, China led green bond issuance for the second consecutive year and increased its bond quality and credibility, according to a recent Climate Bonds Initiative (CBI) report.

While Chinese green bond volumes shrank by 3.5%, the quality and credibility have increased, with 63.6% deals included in CBI’s Climate Bonds Green Bond Database, an increase from 57.3% in 2022, finds the group’s Sustainable Debt State of the Market Report 2023, which describes the size of the green, social and sustainable, sustainability-linked and transition (GSS+) bond market, up until the end of 2023.

China issued US$131.3 billion worth (approximately 0.94 trillion yuan) of labelled green bonds in domestic and overseas markets in 2023, of which US$83.5 billion of the issuance volume met the CBI’s green definition making it the world leader. Germany took second place with US$67.5 billion, and the UK moved up from seventh to fourth with US$32.6 billion of green debt issued that met the CBI criteria.

Hong Kong was the market with the single largest increase, featuring on the group’s top 10 leaderboard for the first time, and growing by 173.3% year on year (YoY).

Another new trend, the report notes, is that second-party opinions (SPOs) continued to gain prominence in the Chinese green bond market, with issuers increasingly keen to demonstrate their credibility to investors through methods such as SPOs. More than half of the deals (55%) are disclosed with SPO reaching a historic rate of 66.4%.

Together, energy and transport-related financing accounted for a staggering 84% of total onshore green use of proceeds (UoP) for 2023, over 10% more than 2022.

On issuers side, 2023’s green bond market is dominated by repeat issuers, who account for near 84% of those included this year, an almost 40% YoY spike. The repeat issuers representing over 70% are from the financial, industrial and utilities sectors, of which close to 40% is attributed to financials.

Over 80% of green bonds come from state-owned enterprises (SOEs) each year, the report points out; and in 2023, provincial SOEs enjoyed an increase of over 24%. The contribution of non-SOEs declined by about 4% YoY.

Beijing remains the national leading region in green bond issuance in 2023, with an inclusion volume of US$37.4 billion, or a YoY increase of just over 10%. Shanghai experienced a 170% increase in green bond volume compared with 2022.

Issuers from other regions also experienced healthy growth in green bond issuance volumes, contributing to an impressive end of year total volume of over US$83.5 billion – a YoY increase of over US$7.7 billion.

Aligning with global standards

Adapting a 100% UoP approach, the Green Bond Standards Committee released in July 2022 the China Green Bond Principles, which were designed to promote high-quality green bonds in China and align the domestic green finance market with international standards. 

After their release, the UoP alignment rate of Chinese green bonds rose to over 98% in 2023. And CBI, the report shares, hopes that the Social and Sustainability Bonds Principle in China will soon pick up the 100% UoP rule as well.

On the taxonomy side, the Common Ground Taxonomy (CGT) was an in-depth comparison exercise between the green classifications of China and the European Union, mapping out the commonalities and differences between the two taxonomies, thus creating an important piece of policy infrastructure.

The market has seen more use cases of the CGT being incorporated into onshore and offshore green products. Since the first mention of the CGT by the Construction Bank of China Macau Branch in its December 2021 green bond issuance, there have been 219 green bonds that have met the CGT standard, with combined volume of US$41.9 billion. Among those, 59 deals worth US$7.6 billion) were priced in 2023.

S&S bonds peaked after Covid

The total issuance volume of social and sustainability (S&S) bonds originating from China rebounded in 2023 to US$13.7 billion – driven by a mix of private sector and governmental issuance on affordable infrastructure and equality  pushing deal counts beyond the 2021 pandemic recovery peak of 124 deals to 154.

And 61.9% of S&S bonds focused on affordable infrastructure, which typically includes projects like social housing or large public facilities. Equality, which refers to projects that advance gender or income equality, made up 11.6% of volumes and 42.8% of the deal count.

In 2023, the largest aligned sustainability bond by volume was from infrastructure company Fujian Zhangzhou City Investment Group, which in December financed affordable infrastructure and housing, and healthcare projects, worth US$537 million.

The second-largest sustainability deal was issued by the Province of Hainan in September, amounting to US$411.186 million for education, healthcare, social adaptation and resilience, and other projects.

SLB world leader

Sustainability-linked bonds (SLBs) aims to fund and encourage companies that contribute to sustainability, from an environmental, social or governance perspective.

For hard-to-abate sectors, China maintained its status as most frequent SLB issuer. Ever since the first-ever SLB was issued in China in 2018 by Beijing Infrastructure Investment Company, the number of deals originating from China has increased each year, reaching 53 in 2023, worth a total of US$5.7 billion. In 2023, China placed third for SLB volumes, behind Italy and Chile.

“We are pleased to see that China’s GSS+ bond market is maturing and becoming more aligned with the international market,” says Sean Kidney, CBI’s CEO. “We expect debt instruments to play a more prominent role in China’s green transition and a credible transition finance market to provide additional funding for the decarbonization of high-carbon-emitting sectors, such as power, steel, chemicals and agriculture. Financing climate resilience will become the top priority on the agenda.”

“There is still a lot of demand and investment opportunities for climate finance. And we look forward to seeing China continue to maintain its world leadership in sustainable finance in terms of policies, standards, product innovation and capacity building, which will not only help China achieve its dual carbon goals, but also contribute to the global response to climate change and the goals of the Paris agreement.”

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