Gauri Gupta

On 02 April 2025, China's Ministry of Finance (MoF) issued the first sovereign green bond. The bond amount stands at USD 824 million yuan-denominated bond and is traded on the London Stock Exchange

What is the background?
The framework of China’s debut global green sovereign bond aligns with the China Green Bond Principles (2022 Edition) and the International Capital Markets Association (ICMA) Green Bond Principles (2021 Edition). The China Green Bond Principles (2022) highlights project classification, information disclosure, third-party verification, and post-issuance reporting, while the ICMA framework is structured around four key pillars: allocation of proceeds, procedures for evaluating and selecting projects, oversight and management of the funds raised, and transparent reporting practices. 

The integration of national and global frameworks is expected to help China channel financial resources into well-defined green projects, including the development of renewable energy, pollution reduction, and conservation of biodiversity. It synchronizes global investor expectations concerning the mitigation of climate risk. The sovereign bond framework includes clear metrics, such as energy saved per unit of GDP and COâ‚‚ emissions reduced per yuan invested, providing quantifiable outcomes. This dual alignment boosts the credibility and foreign acceptability of China's green finance product.

What are the components of this bond?
The Ministry of Finance (MoF) had released a Framework for Sovereign Green Bonds on 20 February 2025. It constitutes four pillars which guarantees its consistency with targets for environmentally sustainable development and open financial practices.

First, the proceeds will be applied only towards the six pre-specified environment sectors: clean transport, sustainable water and wastewater management, sustainable restoration and management of Land and natural resources, marine ecosystems conservation and restoration, pollution prevention and control, resource efficiency and recycling. The MoF will invest these funds to cover various fiscal budgetary costs for eligible green projects, either green new projects or existing ones. Direct investments, project operating costs, intergovernmental capital transfer, and tax refunds are all included in the framework.

Second, the MoF will be tasked with choosing and assessing green projects. A Green Expenditures List shall be formally set to determine whether projects are eligible. Disbursements will only be made by the needs of the bond and China's environmental policies. Regular reviews and annual disclosure will be done for maintaining compliance.

Third, the MoF will maintain an in-house register system to track the disbursal of proceeds to qualified expenditures for accountability purposes. Any proceeds that will not be disbursed at once will be kept according to the MoF's treasury, and this will not be invested in energy and pollution-consuming projects or fossil fuel resources. All of these proceeds will be disbursed in full in the current fiscal year, the next fiscal year, or a maximum of three previous fiscal years. At least half of the proceeds will be invested in green projects during the current or next fiscal year.

Fourth, the MoF will release the public annual report of the utilization of the proceeds on its website. The Ministry will be given periodic and timely information in the case of material events for funded projects. The disclosures will cover information on the quantifiable environmental effects of funded activities and proceeds distribution.

What does the above mean?
China has issued green bonds denominated in RMB. It is expected to encourage the growth of responsible financing and cross-border green investment by ensuring high transparency and adhering to international standards. It is also expected to increase confidence among investors and is also a price reference for future RMB green bond issuances. It is also expected to spur banks, companies, and local governments to search for green financing avenues and join the green bond market. It also encourages more foreign capital to flow into projects related to ecological restoration, clean energy, renewable energy, and resilience to climate change. 

About the author

Gauri Gupta is a Research Intern at NIAS.

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