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April 25, 2024

In Charts: Capacity constraints and lack of awareness limit Chinese green municipal bond issuance

People cycle past the Tencent HQ in Shenzhen, Guangdong province, China
Out of the Chinese provinces with ‘medium to high green potential’ to pursue green bond certification, Guangdong issued the largest number of municipal bonds in 2021 (Photo: Qilai Shen/Bloomberg)

Nearly 20% of Chinese municipal bonds issued in 2021 could have been issued as certified green bonds, says Greenpeace East Asia

Limited awareness and a lack of capacity within Chinese local governments is weighing on issuance levels, according to non-profit Greenpeace East Asia.

Securing green bond certification for relevant municipal bonds could help lower the cost of issuance and attract investors that prioritise sustainable investment, Greenpeace East Asia senior analyst Liu Wenjie tells Sustainable Views.

“Despite a high percentage of municipal bonds with the potential to qualify in China, the issuance of green municipal bonds as a green financing mechanism is not being proactively pursued, due to a lack of awareness and capacity to expand financial resources and instruments,” says Wenjie. “This not only limits the financing available but also hinders the improvement of green projects.”

Greenpeace analysed more than 8,000 municipal bond projects conducted in 2021, applying a framework based on the International Capital Market Association’s “green bond principles” and China’s “green bond endorsed projects catalogue”, which defines projects that are eligible for green bond issuance.

Greenpeace found that 19 per cent of the bonds had “medium to high potential to pursue green bond certification”, with a market size of over Rmb800bn (€103bn). Yet green municipal bonds made up just 1 per cent of China’s green bond market, it said, citing Climate Bonds Initiative data.

Out of the Chinese provinces that issued municipal bonds with “medium to high green potential” to pursue green bond certification, Guangdong issued the largest number of bonds in 2021, according to Greenpeace. It was followed by Shandong and Zhejiang.

Greenpeace estimated that Guangdong’s GDP would benefit from added green investment of Rmb59.6bn resulting from municipal bonds with green potential, along with 103,011 additional jobs.

Of the Chinese municipal bonds issued in 2021 that had green certification potential according to ICMA standards, the most common use of the proceeds was for clean transport, followed by sustainable water and wastewater management, says Greenpeace.

Wenjie says that with extreme weather events occurring in China more frequently in recent years, “local governments should consider leveraging the green bond tool to invest in sustainable infrastructure and build climate resilience more systematically”.

A service from the Financial Times