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China’s goal to hit peak emissions by 2030 and reach carbon neutrality by 2060 is boosting the country’s green finance market. Photo: Reuters
BusinessBanking & Finance

Chinese green bond issuers must improve disclosures to ensure growth of sustainable finance market, report says

  • Only 65 per cent of green bond issuers in China revealed how green proceeds were used, compared with 77 per cent globally, a study showed
  • China had issued US$199 billion worth of sustainable bonds by the end of last year, the most after US$304 billion in the US
Banking & finance
Martin Choi
Martin Choi
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Chinese green bond issuers lag behind global peers in revealing how the proceeds are used, highlighting the need for improved disclosures in the world’s second largest climate bonds market, according to an industry report.

Improvement in terms of both availability and quality of disclosures in the green bond market was needed to ensure the continued growth of sustainable finance in China, according to the Post-Issuance Reporting in China’s Green Bond Market 2022 report by non-profit Climate Bonds Initiative (CBI) and consultancy SynTao Green Finance.

“Post-issuance reporting has been identified as among the most crucial elements to increase the appeal of the Chinese green bond market,” said CBI’s chief executive Sean Kidney on Thursday, referring to all publicly available information relevant to a green bond after the offering has closed.

“It adds transparency and credibility to an instrument and its issuer, confirming that the underlying projects were financed in line with commitments, ensuring accountability, reducing the risk of greenwashing, and enhancing investor confidence, all of which are conducive to healthy market development,” said Kidney.

Sean Kidney, CEO of Climate Bonds Initiative, said Chinese green bond issuers have to improve post-issuance reporting to increase the appeal of the country’s climate bond market. Photo: Felix Wong

Green bonds are fixed-income financial products designed to fund environmentally friendly projects.

Spurred by China’s commitment to hit peak emissions by 2030 and reach carbon neutrality by 2060, the country’s climate bonds market reached a cumulative US$199 billion by the end of 2021, growing 50 per cent from the previous year, according to CBI.

This put the country in second place behind the US, which issued US$304 billion in total at the end of last year.

The report covered a total of 627 bonds from 382 issuers worth US$163.2 billion, which were issued in China in the first half of 2021.

Hong Kong’s first retail green bond marks lacklustre trading debut

Some 65 per cent of green bond issuers in China revealed how those proceeds were used, representing 74 per cent of the total amount issued and 61 per cent of the number of deals. This showed that larger issuers were more likely to disclose how the funds were put to use, according to the report.

Meanwhile, 77 per cent of sustainable bond issuers globally reported their use of proceeds, according to a study by the CBI last May of green bonds issued between November 2017 and March 2019.

“Post issuance information disclosure, especially on the environmental impact generated from green bond’s use of proceeds, is of great significance to the dynamic growth of China’s green bond market,” said Raymond Zhang, CEO of SynTao Green Finance.

“A joint endeavour of issuers, regulators and investors is needed to further improve the quality of post issuance information disclosure.”

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