BOFIT Viikkokatsaus / BOFIT Weekly 2020/24

With environmental friendliness part of China’s official growth strategy, the state has been actively developing and supporting green funding. In 2015, the PBoC announced guidelines for green financing schemes, which defined also criteria for green bond financing. These criteria were recently revised first time.

China used to have different criteria than those internationally accepted for green bonds. Notably, China initially classified investment in “clean coal” as a green funding category. China still produces the bulk of its primary energy from coal, and in its reluctance to leave coal has chosen instead to invest in technologies that reduce carbon emissions of coal use. International investors, in contrast, see no place for coal in the green bond space and consider talk of “clean coal” to be green-washing or an excuse for foot-dragging on clean forms of energy.

Chinese green bonds have mainly been sold to domestic investors, but now China wants to attract foreign investment as well. On May 29, the PBoC announced revised criteria for green bonds that specifically excluded coal-fired power plant projects. The move clarifies the situation and places China more in line with international practice.

There are as yet no uniform global standards for green bonds. One major international authority is the International Capital Markets Association (ICMA). Its committee on green bond principles includes representatives from for example the World Bank, the European Investment Bank and the European Bank for Reconstruction and Development (EBRD). Another key standards-setter and important source of statistical data is the Climate Bonds Initiative, an informal, non-profit organisation of investors. It certifies that green bonds conform to the goals of the Paris climate accord and their own criteria for issuance processes. There are also a number of regional standards. The IMF has called for uniform criteria that make it possible for investors to compare products and ensure that green bonds actually are used to finance projects that legitimately benefit the environment.

The Climate Bonds Initiative reports that last year China issued more than 30 billion dollars in green bonds, the second highest issuance amount in the world after the US. Less than half of the Chinese issues met international criteria. For those green bonds not conforming to international criteria, the majority were disqualified by the fact that more than 5 % of the money went to overhead unrelated to the project itself. For over a quarter of non-complying projects, the problem was non-greenness (e.g. related to coal-fired power plants).

The vast majority of China’s green bonds have only been issued domestically (85 % in the first half of 2019). The largest issuers are financial corporations, with the public sector only accounting for small fractions and that coming mainly from the local level. In the first half of 2019, more than a third of funding went to transport, more than a quarter to energy and about a fifth to water supply. With the May reforms to appease foreign investors, these ratios might change.


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