On May 29, 2020, the China “Green Bond Endorsed Project Catalogue (2020 Edition)” Consultation Version was jointly released by the People’s Bank of China (PBOC), the National Development and Reform Commission (NDRC) and the China Securities Regulatory Commission (CSRC) for public consultation. It marks the beginning of a harmonization of domestic green bond definitions as well as the consolidation of the green bond market in China for the near future. Moreover, the removal of clean coal from the green bond taxonomy presented in the Catalogue constitutes a breakthrough in offering a more stringent, truly sustainable definition of green bonds in China.
China’s green bond market was officially launched in 2015 following the PBoC’s issuance of “Green Bond Endorsed Project Catalogue (2015 Edition) in December and NRDC’s announcement of “Green Bond Guidelines” in January 2016. In 2017, CSRC issued special guidelines for listed companies.
This caused two main problems in practice. First, the domestic standards for green bonds listed in the guidelines differed from their foreign counterparts, in particular with regards to the utilization of clean coal. Second, as China’s green bond market was governed by different supervisory authorities, disparate green bond standards applied to different types of issuing entities, which resulted in a highly fragmentated market.
In March 2019, seven ministries and commissions including the National Development and Reform Commission and the People’s Bank of China jointly formulated China’s first Green Industry Guiding Catalogue, which clarified the definition and classification of green industries and green projects and laid the foundation for the new green bond catalogue.
The introduction of the updated draft version of the Green Bond Endorsed Project Catalogue indicates that China is aiming for a unification of its green bond market, which is of great significance.
The draft catalogue (Green Bond Endorsed Project Catalogue) classifies green projects into six level-I industry categories, followed by 25 level-II, 48 level-III and 204 level-IV categories. The six level-I industry categories are named as follows:
- Energy-saving and Environmental Protection Industry,
- Cleaner Production Industry,
- Clean Energy Industry,
- Eco-environment Industry,
- Green Upgrading of Infrastructure,
- Green Services
It is worth mentioning that the new version of the Catalogue level-IV categories no longer includes the clean utilization of fossil fuel energy. As such, the updated categories reflect the overall alignment of China’s green finance with efforts on pollution prevention and the efficient use of resources whilst paying more attention to responding to climate change, which is consistent with China’s commitment to the implementation of the Paris Agreement. Moreover, the updated version also added categories for hydrogen, sustainable agriculture, green consumer finance, green services and manufacturing.
The green finance industry both within China and abroad had a very positive response to this change, which will help enhance China’s international voice in green bond standards and align the domestic taxonomy more closely with international practices. Last but not least, it will potentially attract more offshore institutional investment in China’s domestic market.