China, EU Set to Agree on Green Finance Definitions by Year-End, Official Says

The Caixin Summer Summit 2021 in Beijing. Photo: Caixin

China and the EU are expected to finalize common classification standards for green projects by the end of this year, which can help attract overseas investors who are eying China’s relatively high bond yields, officials and industry insiders said Thursday.

Experts working on the final version have agreed on a common taxonomy for environmentally sustainable investments in terms of types of projects and methodologies, Zhang Bei, a deputy director of the finance institute of the People’s Bank of China (PBOC), said at the Caixin Summer Summit 2021 in Beijing.

In April, China released an updated list of industries and projects eligible to be funded by green bonds that excludes “the clean use of coal and other fossil energy,” which aims to make China’s green bond standards stricter and align them with global mainstream standards.

Increasing coordination with other economies to attract overseas investments in domestic green projects is part of China’s broader efforts to meet its ambitious goals to achieve peak carbon emissions by 2030 and carbon neutrality by 2060.

China’s benchmark interest rates and bond yields are higher than in many other major economies, which in turn has lured yield-hungry global investors. Investor confidence has also been given a further boost by China’s strong recovery from the Covid-19 pandemic.

Prices of green bonds are positioned to remain relatively stable even if the bond market shows greater volatility, which will appeal to long-term investors, Darryl Chan, executive director of the Hong Kong Monetary Authority (HKMA), told the forum.

Converging taxonomies for green investments by China and the EU will make it easier for European investors to buy Chinese green bonds, said Lai Changgeng, CEO of BNP Paribas (China) Ltd., a subsidiary of French bank BNP Paribas SA.

Hong Kong plans to adopt the common standards for green projects after they are formalized, Chan said.

Currently, China’s green bond taxonomy is roughly 80% similar with the standards relied upon by the EU, PBOC Governor Yi Gang said in early June in a panel discussion at the Green Swan conference.

China is the world’s largest green financial market. By the end of 2020, the country had outstanding green loans of $1.8 trillion, ranking first in the world. The outstanding value of green bonds was $125 billion, the second highest.

Contact reporter Luo Meihan (meihanluo@caixin.com)

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