Beijing makes a big move into the green bond market — and gets support from the EU bank.

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.

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.

What makes a bond turn green?

Green bonds raise money to protect the environment, reduce emissions and help countries meet greenhouse gas targets. The EIB issues green bonds and then tracks the projects to monitor the disbursement of the money. The Bank then shares the projects’ results online in impact reports.

“The idea behind the EIB’s green bonds is very simple,” Romani says. “You allocate the money to projects that have a positive influence on the fight against climate change. At the same time, you enable people to monitor the work you are doing.”

The EU bank has financed projects in more than 40 countries using green bonds. Recent projects include solar power plants in Spain, Morocco and South Africa; insulation work in about 1,000 buildings in Bucharest; hydropower plants in France and Italy; and wind farms in England and Austria.

More than EUR 80 billion in green bonds was issued last year worldwide, compared with just a few billion five years ago and a little more than EUR 700 million in 2007. The Climate Bond Initiative, a nongovernmental group promoting green bonds, estimates that EUR 110-120 billion in green bonds will be issued this year. The EIB is the biggest issuer of green bonds in the world, with more than EUR 19 billion so far.