China’s Green Bond Catalogue and Green Finance

The Green Bond Endorsed Project Catalogue represents the most up-to-date, unified, and clear green definitions at the activity and project level in China. Therefore, the Green Bond Endorsed Projects Catalogue is referred to as the 'Chinese Taxonomy' and used as China’s equivalent to the EU Taxonomy for the purposes of comparison.

China’s Green Finance and the Green Bond Catalogue

The updated edition of the Green Bond Catalogue came into effect on July 1st, 2021, with the objectives of building a green financial system, regulating the green bond market further, promoting structural transformation, accelerating the ecological civilization construction, and facilitating sustainable economic development in cohesion with other existing frameworks.

The Green Bond Catalogue has achieved three breakthroughs:

It establishes more scientific and precise definitions of green projects.
It sets out improvements in the method of bond issuance and management.
It provides a framework with stability and flexibility for domestic green bond development.

For example, the catalogue defines green bonds as ‘Marketable securities that are specifically used to support green industries, green projects, or green economic activities that meet certain requirements, which are issued in accordance with legal procedures and repay principal and interest as agreed.’

The Green Bond Catalogue also classifies green activities in six key areas:

Energy conservation
Pollution prevention and control
Resource conservation and recycling
Clean transportation
Clean energy
Ecological protection
Climate change adaptation

Common Ground Taxonomy (CGT)

As well as the Green Bond Catalogue, in 2020, the EU and China initiated a Working Group on taxonomies under the International Platform on Sustainable Finance (IPSF) to improve the comparability and interoperability of taxonomies around the world. The CGT undertakes a comprehensive assessment of existing taxonomies for environmentally sustainable investments and identifies the commonalities and differences in their respective approaches and outcomes.

China’s Green Finance Policies

Alongside the Green Bond Catalogue, China has released several legislative frameworks with respect to sustainable finance and a green taxonomy. This includes the following:

September 2016 - Guidelines for Establishing the Green Financial System
March 2017 - Opinions on Supporting Green Development of Private Enterprises
July 2018 - Green Investment Guidelines (Trial)
March 2019 - the Directive Catalogue for Green Industries
July 2020 - Green Financial Performance Evaluation Plan of Financial Institutions
August 2021 - Guidelines for Financial Institutions Environmental Information Disclosure
September 2021 - Green Bond Endorsed Projects Catalogue (2021 Edition)
April 2022 - - Guidance for enterprise ESG disclosure

China’s further green initiatives to facilitate green finance development

China’s green finance pilot zones

In addition to the national or macro level green finance policies, China has introduced 'green finance pilot zones', as part of the country’s efforts on the micro and municipal level to build a robust green financial system. The overarching objective of these pilot zones is to test out different approaches to green finance in regions that reflect different economic and development contexts accordingly, before rolling them out more widely.

Also, with respective distinct contexts and priorities, these selected pilot zones aim to raise awareness in the domestic financial system, innovate green financial instruments, strengthen policy frameworks, and incorporate environmental and climate factors into financial risk management. Zhejiang, Jiangxi, Guangdong, Guizhou, and Xinjiang were selected as the first group of green finance pilot zones in June 2017. Since then, China has added Lanzhou to the list in December 2019. In March 2020, Huzhou was named China’s first pilot city for the coordinated development of green buildings and green finance. In addition, further expansion and development of regional green finance pilot zones like the Greater Bay Area and the Yangtze River Delta offer a glimpse of the future for green finance pilot zones.

Carbon Emission Reduction Facility (CERF)

In November 2021, the PBOC introduced a carbon-emission reduction facility (CERF), which enables commercial and retail banks to access and borrow 60% of qualified green loans from the central bank at an interest rate of 1.75% vs. the normal PBOC loan prime rate close to 4%.

According to PBOC, the first batch of funds issued via the CERF was in support of financial institutions’ issuances of carbon emissions reduction loans of RMB 142.5 bn (USD 21.4 bn) in total, supporting more than 2,000 companies to cut carbon emissions by about 28.76 million metric tons.

China's Green Bond Market

With rapidly evolving policies, principles, and guidelines, China’s green bond market has been growing exponentially in recent years, and became the highest growing market globally in green bond issuance with USD 44.4bn (RMB286.3bn) more in 2021 vs. 2020, and ranked the second largest by cumulative volume with China USD199.2bn next to the US USD 305.5bn at the end of 2021.

This striking growth of green bonds well reflects the progress of China’s “Dual Carbon” goals and the commitment of transitioning to an initial low-carbon and eventually zero-carbon economy, which is to peak carbon emissions by 2030 and achieve carbon neutrality by 2060. The Green Bond Catalogue 2021 has been orienting domestic green bonds toward green and low-carbon development goals, empowering domestic green finance development with better clarity and precision and boosting cooperation on green finance internationally.

Looking forward, the PBOC, NDRC, and CSRC will guide and support eligible financial institutions and enterprises to issue green bonds in a bid to underpin eligible green projects.

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