Pakistan and Green Bonds: The China Factor

This is the second article on Pakistan and Green Bonds. This article is co-written by Cedric Rimaud (Earth Wake Co-Founder, Corporate Bonds and Green Finance Specialist), Yawar Arif Herekar (GCF Accreditation and ESS Policy Expert), Syeda Hadika Jamshaid (Climate Change Expert from the Ministry of Climate Change, Pakistan) on the role of China in the green bonds market and how Pakistan can benefit from this.

Why China?

Even as the COVID-19 pandemic looms large with thousands dead and millions infected the world over, many still consider climate change to be the greatest challenge of our times. The health crisis, which the WHO acknowledges is another piece of evidence that there is increasing pressure on our natural environment that causes disease to emerge, is a crude and real assessment of our everyday practices and of our lifestyles. Wuhan, the epicenter and thought to be the origin of the COVID-19 virus has not only recovered completely but bounced back stronger. With China’s ever-increasing role in global politics and as the second largest economy in the world, its efficient handling of the crisis is a testament on how to handle global catastrophes correctly and it is only apt that a closer look be taken at the role that China now plays in the climate crisis. It is known that China is firmly committed to tackling pollution and the reduction of carbon emissions. Having successfully reduced the role of fossil fuels in its own energy mix while becoming the world’s biggest investor in renewable energy, China is still considered to be the largest source of financing for fossil fuel projects in developing countries.

Why Pakistan?

Under China’s Belt and Road Initiative (BRI), the Chinese government is pouring money into the energy sector which is receiving the lion’s share of BRI investment. As one of the largest recipients of BRI funds, a quick look at the Government of Pakistan’s CPEC website paints a paradoxical picture: coal power plants being financed alongside wind energy projects and solar power (8 coal power plant vs. 7 renewable energy projects to be exact). The sheer magnitude of Chinese investments in coal fired generation also greatly surpasses that in the renewable energy space. This even after the argument that investing in fossil fuels is not just threatening for the environment and local ecology but it is also a bad bet economically as renewables such as solar and wind become cheaper and more popular.

Why green bonds?

Green bonds are a financial instrument in wide use for large-scale investments in clean energy. Some have hypothesized that green bonds will likely be one of the foremost channels that China will use to mobilize private capital with hopes to make the BRI into a ‘green’ initiative. The Chinese government and Chinese financial institutions remain a steady and growing proponent of them. With China having its own green bonds and taxonomy standards, which initially existed in several versions but have now been unified across regulatory agencies, rather than those accepted globally, it has led to skepticism in various quarters as to how China will identify BRI projects as being green when those considered green in one context would not be so in another. For example, retrofits of fossil fuel power stations, clean coal and coal efficiency improvements, and electricity grid transmission infrastructure carrying fossil fuel energy are permissible under China’s domestic green bond definitions; however, such guidelines are not in line with the expectations of international investors. To address concerns, Chinese banks and financial institutions have been working hard with other international investment players to mobilize capital through green bonds to gain acceptance. For instance, the Asian Infrastructure Investment Bank (AIIB), a development bank that was initially proposed and majority owned by China, assured participants at the Climate Bond Initiative conference held in September 2020, through its President Jin Liqun, that the AIIB would not finance any coal-fired power plant nor any project which is “functionally related” to coal going forward.  

How can Pakistan benefit from issuing a green bond given that it is now a part of China’s Belt Road Initiative (BRI)?

All-weather friends, Pakistan and China are collaborating on the China-Pakistan Economic Corridor (CPEC) which was valued at USD 72 billion as of 2017. Initially, it was feared that while undertaking these projects, environmental and social issues would not be factored in. This is not the case and has been denied vehemently by the offices of both countries who remain committed to sustainable development.

China on its part has stated that its goal remains committed to ensure clean energy provision and to make dirty projects cleaner, while taking into account the need and requirements of the Pakistani government. This might not fit a universal definition of ESG being factored into projects but this also means projects that might use “clean coal” — technologies such as coal washing and carbon capture that improve fossil fuel efficiency – would be counted. Chinese regulators recently proposed eliminating “clean coal” from the list of projects that can raise funds using green bonds, a step in the right direction. It is also pertinent to add that Chinese commitment to green projects has come from the highest levels of government with President Xi Jinping stressing the need to “green” the BRI.

The desire to attract more international investors is also leading Chinese market participants to adopt international practices more openly and incorporate them into the BRI. Casting apprehensions aside, one of the best ways that Pakistan can benefit from the green bonds experience is to launch such green bonds to finance projects under the China Pakistan Economic Corridor (CPEC). Not only is it a way for Pakistan to use this opportunity to meet its Sustainable Development Goals but green bonds are expected to be an indispensable financing instrument for development of infrastructure projects along the Belt and Road Initiative. To also improve the odds of these gaining international recognition and international investments, China can play its part by mandating environmental impact assessments for BRI investments which would make the initiatives more environmentally sustainable. While Pakistan on its part can slowly and gradually make a move towards this as well by asking its listed companies to disclose their ESG practices like China is asking those on the Shenzen and Shanghai stock exchanges to disclose their ESG practices to cater to the needs of international investors.

Will Pakistan align itself with China’s domestic green bonds principles or with international green bonds standards that are in place?

With China being the largest green bond market, it is only apt and justifiable that they have their own green bonds standards and guidelines. However, discrepancies still do exist between China’s local green bond guidelines and the international ones, especially when it comes to the eligibility of green projects and disclosures. Just to compare, it is known that international green bonds guidelines pay more attention to climate change mitigation and adaptation projects while China’s domestic guidelines emphasize environmental benefits such as pollution reduction, resource conservation and ecological protection, although the two sides are in the process of converging, with the Climate Bonds Initiative noting that “the proportion of green bonds that are in line with international green bond definitions has increased. In 2017, 38% of Chinese issuance failed to meet the international standards, which exclude coal and other fossil fuel-based technologies and limit the use of proceeds for working capital to 5%. In 2018, that figure fell to 26%.”.

As a close partner and with an ever-increasing relationship of trust and kinship with its larger neighbor, it would be wise for Pakistan to adopt Chinese green bonds guidelines as a start, but also encourage the adoption of international standards in order to maintain an open access to global investors. Some Chinese green bond issuers have themselves used offshore markets to raise financing, as in the case of ICBC Singapore issuing SGD 2.2 billion of green bonds in three currencies in Singapore, with an alignment with both international and domestic green standards and a second party opinion from CICERO. Exchange of information and expertise with China would help Pakistan in kick starting the process after which Pakistan can structure its own guidelines and taxonomy aligned with international best practices, while keeping the door open for an increased access to international green bond investors.

Works Cited

Goldfuss, C., & Podesta, J. (2019, October 10). A 100 Percent Clean Future. Retrieved September 18, 2020, From

Ministry Of Planning, D. (N.D.). Energy: China-Pakistan Economic Corridor (CPEC) Official Website. Retrieved September 18, 2020, From

Xiangrui Meng, A. (2018, December 13). More Than Just A BRI Greenwash: Green Bonds Pushing Climate-Friendly Investment. Retrieved September 18, 2020, From Https://

Farand, C. (2020, September 14). Asian multilateral bank promises to end coal-related financing. Retrieved September 21, 2020, from

Shepherd, C. (2020, June 05). China Green Bonds On Slow Boat To Global Harmonisation. Retrieved September 19, 2020, From

Liu, S. (2020, July 29). Will China Finally Block “Clean Coal” from Green Bonds Market? Retrieved September 21, 2020, from

Hale, T. (2020, June 05). Greater Disclosure To Open Doors For China Green Investors. Retrieved September 18, 2020, From https://www.ft.Com/Content/427c0d9a-8eab-11ea-Af59-5283fc4c0cb0

Xiangrui Meng, A. et. al (2018). China Green Bond Market. Retrieved September 17, 2020, from

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 Jun, M., Jialong, L., Zhouyang, C., & Wenhong, X. (2019, March 13). Chapter 7 Green Bonds. Retrieved September 18, 2020, From

Escalante, D., Choi, J., Chin, N., Cui, Y., & Larsen, M. L. (2020, August 10). Green Bonds in China: The State and Effectiveness of the Market / 中国绿色债券市场:趋势与分析. Retrieved September 21, 2020, from

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