China Races Ahead on Sustainable Finance

China’s growing green bond market has overtaken those in the West, helping the country sustain progress on clean energy and other green projects while the United States and Europe slow down.

In 2025, the country issued a record US$70.3 billion of bonds either certified or aligned with the Climate Bonds Initiative, according to calculations by the Financial Times. This helped China’s energy transition outpace other countries, “while the ESG movement—finance and investment to support the environment, sustainability and good governance—faces a backlash led by Donald Trump’s America.” China accounted for more than 17% of green bonds issued globally. The U.S. made up 3%.

“The U.S. is no longer there and Europe is struggling,” Alicia García-Herrero, chief Asia-Pacific economist at Natixis, told FT. “There’s a kind of fatigue in the European ESG market.”

Governments and companies issue green bonds to finance environmentally focused projects. For companies, buying or issuing green bonds helps demonstrate action toward environmental or ESG goals. But many companies in the West are avoiding green bonds now that ESG investing has become a political friction point.

In comparison, banks in China are able to publicly back green projects—without any pressure for markets to be regarded as politically neutral, Alain Naef, assistant professor at the ESSEC Business School in Cergy, France, told FT.

China has committed to peaking carbon emissions by 2030, and it is leading the world in renewable energy development, including by building three-quarters of global wind and solar projects. Ma Jun, a former People’s Bank of China (PBoC) chief economist and founder and president of the Beijing-based Institute of Finance and Sustainability, said PBoC “decided to create a green bond market, largely because of the mismatch of maturity problem for the banking system.” Large scale projects previously had trouble accessing long-term financing because banks were uncomfortable with the time horizons.

With cheap finance from bonds, green projects in China do not have to be as profitable as conventional ones, nor as profitable as green projects in other countries, Naef said.

The growth aided by green bond investing has also been important for China’s economy as it deals with a slowdown from the collapse of its real estate sector, FT says.

China has sought foreign investment in green bonds—most of its green bond investors are commercial banks, insurance companies, and asset managers. Now that its green bond taxonomy aligns with global standards, policy-makers hope it will finally happen. “China can distinguish itself to be a force for climate action compared with the U.S., which is a force for climate inaction,” said Christoph Nedopils Wang, director of the Griffith Asia Institute at Griffith University of Queensland:

Most of China’s sustainable investment still relies on bank loans rather than green bonds because borrowers for those projects tend to be small or medium sized businesses with credit ratings too low for the green bond market. PBoC data shows the country has $6.1 trillion of outstanding green loans, compared to about $280 billion in green bonds, reports FT.

Cover photo:  World Bank/flickr