Good news for climate action. The green bond market is expected to continue its expansion now that China is in on the action.
A top producer of carbon dioxide, China has quickly become a big issuer of green bonds. The country issued EUR 30 billion of green bonds in 2016, or around 40% of the world total, up from almost nothing in 2015.
“China faces huge environmental challenges that must be taken seriously,” says Aldo Romani, the European Investment Bank expert who developed the first green bond a decade ago. “Green bonds are a way for China to establish a new link with international markets to help solve global problems.”
EIB officials visited China this year to reinforce the Bank’s support for climate projects there. The EIB expects to approve many climate projects across China this year in urban transport, forestry and energy efficiency. In 2016, the bank signed EUR 298 million in climate projects in the country.
The EU bank and the Chinese Central Bank agreed to work towards a shared framework for green bonds and to make it clearer what projects qualify. The two sides hope that a common language will lift the confidence of Chinese and international investors.
The importance of this work was highlighted by the EU-China summit in Brussels in June
, when officials underlined a joint commitment in the fight against climate change. The EIB has been cooperating in green bonds with the People’s Bank of China to contribute to what is known as the High-Level Expert Group on sustainable finance, an organization created by the European Commission to promote sustainability in EU policy.
The EU bank’s Aldo Romani says the success of green bonds was a long shot 10 years ago.
Memories of difficult days
If green bonds are flying high now, it wasn’t always clear they’d take off. Romani remembers the difficult days in his office a decade ago. Fixing the climate was becoming a hot topic in Europe, but few people thought the idea for a green bond could be one of the solutions.
Many experts believed it would be too hard or controversial to monitor and confirm that the money raised from each bond was actually spent to help the environment.
“Nobody had confidence in the endurance of green bonds in 2007 and people were wondering why the EIB was the only one talking about it,” says Romani, a manager in euro funding at the EIB.
Romani, who recently won an environmental funding award for the third year in a row from the financial news and data service Global Capital, developed the idea for green bonds because he and colleagues saw a potential in the markets to raise more money for the environment. “We knew that there was a chance to capture investor imagination and use the capital markets for a good purpose,” he says.
Today, as the EIB celebrates the tenth anniversary of its first green bonds, this market is one of the biggest success stories in climate finance.