NN IP: China, decarbonization and the green bond market

NN IP: China, decarbonization and the green bond market

Energietransitie China
China 2.jpg

China’s economic growth over the last decades has been remarkable, but the environment often suffered under this growth. China became increasingly aware of the environmental cost and committed to reducing the carbon intensity of its growth in the 12th Five-Year Plan, in 2011. Then in 2015, it set a target to reach peak carbon emission around 2030.

The ‘Middle Kingdom’ delivered on its 2020 intermediate climate targets ahead of schedule and announced updated, more ambitious targets for 2030 and beyond. China’s progress is impressive. Its carbon intensity in 2020 was 48% lower than in 2005, which equals to a reduction of 5.8bln tonnes of CO2 emissions. In a document published in October 2021, titled ‘Responding to Climate Change: China’s Policies and Actions’, China documents its progress and reiterates its ambitions: The grand goal is to achieve carbon neutrality before 2060.

The decarbonization effort has also spurred the Chinese green finance market, and China’s green bond market is one of the largest globally. As of November 2021, China has 100.1 billion USD of green bond notional outstanding*. Over half of this, 55.2 billion USD, was issued this year*, illustrating the rapid growth of the market. Currently the investor base is mostly domestic, but China is improving the investability for western investors. One initiative is the Common Ground Taxonomy, in which China and the EU together examined their respective taxonomies and mapped the commonalities and differences of the taxonomies.

Joep Huntjens, Head of Asian Fixed Income at NN Investment Partners:

“China’s decarbonization success over the past decade has been impressive. Although the country remains the world’s largest carbon emitter and some might argue that the pace of decarbonization is not fast enough, China seems committed to becoming a carbon neutral country. To us as investors this provides opportunities due to the growth of the green bond market and several new ‘green’ industries.”