INSIGHT by the Climate Bonds Initiative
The Climate Bonds Initiative’s (Climate Bonds) latest report reveals in 2023, China led green bond issuance for the second consecutive year. The flagship China Sustainable Debt State of the Market Report 2023 describes the size 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. This report is co-produced by CIB Economic Research and Consulting Co., Ltd. (CIB Research), with support from the Standard Chartered Bank.
| Higher international alignment showing both increasing quality and credibility
A total of USD131bn (RMB940tn) labelled green bonds for both onshore and offshore deals originated from Chinese issuers in 2023. Although Chinese green bond volumes shrank by 3.5%, the quality and credibility have increased, with 63.6% deals included in the Climate Bonds Green Bond Database (GBDB), an increase from 57.3% in 2022. China is the biggest green bond market for second year, recording volumes aligned with Climate Bonds’ GBDB methodology of USD83.5bn from onshore and offshore issuance.
Meanwhile, Germany usurped second place with USD67.5bn, and the UK moved up from seventh to fourth with USD32.6bn of green debt issued. Hong Kong SAR was the market with the single largest increase, featuring on the top ten leaderboard for the first time, and growing by 173.3% YOY.
Another new trend is that second party opinions (SPOs) continued to gain prominence in the Chinese green bond market, issuers are 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 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 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 USD37.4bn, or a YOY increase of just over 10%. Shanghai experienced a 170% increase in green bond volume compared to 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 USD83.5bn – a YOY increase of over USD7.7bn.
| Further alignment with international standards
Adapting an 100% UoP approach, the China Green Bond Principles (CGBP) was released in July 2022 by the Green Bond Standards Committee, designed to promote high-quality green bonds in China and align the domestic green finance market with international standards.
After the launch of CGBP, the UoP alignment rate of Chinese green bonds raised to over 98% in 2023. Climate Bonds encourages 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 classification 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 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 combined volume of CNY297.4bn (USD41.9bn). Among those, 59 deals worth CNY54.1bn (USD7.6bn) were priced in 2023.
| Social and Sustainability Bonds deals peaked after Covid
The total issuance volume of social and sustainability (S&S) bonds originating from China rebounded in 2023 to USD13.7bn (CNY106.4bn), 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. 61.9% of SnS bonds focused on affordable, typically includes projects such as social housing or large public facilities. Equality 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 in December, financing affordable infrastructure and housing, healthcare projects, worth USD537m (CNY3,858m). The second largest sustainability deal was issued by Province of Hainan China in September, with the amount of USD411.186m (CNY3bn) for education, healthcare, social adaptation and resilience, amongst other projects.
| World leader in Sustainability-linked bonds issuance
Sustainability-linked bonds aims to fund and encourage companies that contribute to sustainability, from an environmental and/or social and/or governance perspective.
For hard-to-abate sectors, China maintained its status as most frequent Sustainability-linked bond (SLB) issuer. Ever since the first-ever SLB was issued in China in 2018 by Beijing Infrastructure Investment Co, the number of deals originating from China has increased each year, reaching 53 in 2023 worth a total of USD5.7bn of debt. In 2023, China placed third for SLB volumes, behind Italy and Chile.
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