China continues to lead in the global green bond market, with a total of $131bn in labelled green bonds for both onshore and offshore deals originating from Chinese issuers in 2023, according to the latest Climate Bonds Initiative report.
The China Sustainable Debt State of the Market Report 2023 shows, although Chinese green bond volumes shrank by 3.5%, the quality and credibility have increased, with 63.6% of deals included in the Climate Bonds Green Bond Database (GBDB) – an increase from 57.3% in 2022. China was the biggest green bond market for the second year, recording $83.5bn in bond issuance aligned with the Climate Bonds Initiative’s GBDB methodology.
This can be attributed to a focus on energy and transport post-Covid, leading to record deals on sustainable and social bonds in an attempt to balance economic and social development.
Germany took second place in the rankings with $67.5bn, and the UK rose from seventh to fourth with $32.6bn of green debt issued.
The total issuance volume of Chinese social and sustainability bonds, meanwhile, rebounded in 2023 to $13.7bn, driven by a mix of private sector and governmental issuance on affordable infrastructure and equality. Deal counts exceeded the 2021 pandemic recovery peak (124 deals), hitting 154 deals.
Co-produced by CIB Research with support from the Standard Chartered bank, the report outlined the landscape of the green, social, and sustainable, sustainability-linked and transition bond markets – known collectively as the GSS+ bond market – up until the end of 2023.
Sean Kidney, CEO at the Climate Bonds Initiative, commented: “We are pleased to see that China’s GSS+ bond market is maturing and becoming more aligned with the international market. We expect debt instruments to play a more prominent role in China’s green transition and expect a credible transition finance market to provide additional funding for the decarbonisation 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.”
Aligning with international standards
Elsewhere, the report highlighted an increasing alignment with international standards. The China Green Bond Principles (CGBP), released in July 2022 by the Green Bond Standards Committee, were designed to support the introduction of high-quality green bonds in China and align the domestic green finance market with international standards.
According to the report, after the launch of CGBP, the use of proceeds (UoP) alignment rate of Chinese green bonds rose to over 98% in 2023. Climate bonds, encouraged by the social and sustainability bonds principle in China, will soon pick up the CGBP’s 100% UoP rule as well.
On the taxonomy side, more onshore and offshore green products have begun to incorporate the Common Ground Taxonomy (CGT), an in-depth comparison exercise between the green classification of China and the European Union. Since it was first mentioned by the Construction Bank of China Macau Branch in its December 2021 green bond, there have been 219 green bonds that meet the CGT standards, with a combined volume of $41.9bn. Among those, 59 deals worth $7.6bn were priced in 2023.
Lu Zhengwei, chief economist of industrial bank co, CIB, and chairman of the academic review committee, CIB Research, added: “In 2023, China continued to maintain its leading position in the global GSS+ debt market. While leading in market size and product innovation, thanks to the continuous improvement of China’s green bond policy system, the proportion of green bonds in China that meet international standards has also increased rapidly.
“Looking forward to 2024, the basic standards and top-level system of China’s green finance have been updated to adapt to the new stage of China’s green and low-carbon transformation development, which will also bring opportunities to China’s green and sustainable bond market.”
