China Green Bond Market Report 2021

Introduction

This report is the sixth iteration of the China Green Bond Market Report, co-produced by the Climate Bonds Initiative (Climate Bonds) with the China Central Depository & Clearing Company (CCDC Research), and with support from HSBC.

It describes the shape and size of China’s green bond market up to the end of 2021.

2021 was the first year after China announced carbon dioxide peaking by 2030 and carbon neutrality by 2060 (30·60 targets). It was also the starting year of the nation’s fourteenth Five-Year Plan period (2021-2025). The country’s action to expedite carbon emission reduction was reflected in the vigorous expansion of its green bond market during the year. Cumulative issuance of green bonds by Climate Bonds definition reached nearly USD200bn (RMB1.3tn) at the end of 2021. Annual issuance made a record high to USD68.2 (RMB440.1bn), up 186% from a year earlier.1 China ranked the second largest green bond market in the world by both accounts.

China’s green bond issuance grew the most among major markets in 2021. The surge was mainly spurred by the influx of new issuers, mostly non-financial corporates from the Industrials and Utilities groups. Issuance from non-financial corporates surpassed financial corporates to be the top supply of Chinese green bonds.2 Over 60% of overall Use-of- Proceeds (UoP) went to Renewable Energy, reflecting robust investments to transform the nation’s energy consumption structure. China aims to increase the share of non-fossil fuel use to about 20% by 2025 from 15.9% in 2020. The International Energy Agency (IEA) projected that the country is likely to reach carbon peaking before 2030 if it meets its short-term energy targets.

About Climate Bonds Initiative

Climate Bonds Initiative is an international organisation working solely to mobilise the largest capital market of all, the USD100tn bond market, for climate change solutions. The mission is to help drive down the cost of capital for large-scale climate and infrastructure projects and to support governments seeking to increase capital market investment to meet climate goals. The Climate Bonds Initiative carries out market analysis, policy research and market development. It advises governments and regulators and administers a global green bond certification scheme.

Various research shows that the current level of green and low-carbon investment cannot support China’s carbon neutrality goal and a much larger scale is needed. We expect the growth momentum seen in the 2021 green bond market to continue, with the support of further reform in green financial policy and surging demand from investors. Further refinement in all mechanisms covering standards, disclosure, incentives, products, and international cooperation will materialise and lay a solid foundation to nurture a scaling market to support ambitious climate goals.

To deliver its net-zero goals, China faces the urgency to fundamentally boost transitions from carbon-intensive industries. New financial products such as transition bonds and sustainability-linked bonds are welcoming examples to support that. As innovations continue to evolve, it is equally crucial to stress the importance of a consistent approach in setting standards. Climate Bonds’ Frameworks to Assess Transition, highlighting five Core Principles, lays the groundwork for a transition label that assists decisive investments to finance credible transitions in coming years.

As China further opens up its capital market, international cooperation in green finance also plays a role in facilitating cross-border fund flows. The EU-China Common Ground Taxonomy (CGT) supports the expansion of China’s green bond market and makes it easier for Chinese entities to issue green bonds overseas. The implementation of the CGT will be further explored by the market.

Globally, the annual issuance of USD1tn in green bonds is expected to be in sight by the end of 2022. China will certainly be a sizable component of that.

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