The green transition in emerging economies: green bond issuance in Brazil and China

Abstract

ABSTRACT Green bonds have emerged as an innovative financial instrument that may be used to mobilise incremental resources for long-term financing projects focused on building sustainable infrastructure. In this regard, this article advances research on green bond markets in emerging economies (EEs) by comparing the evolution of the certified green bonds markets in Brazil and China. For this purpose, a mixed analysis was applied. The qualitative analysis is based on a literature review to contextualise the main drivers and barriers to the evolution of the green bond market in light of national policies and features of the financial system in each country. For the quantitative analysis, the certified green bond markets are assessed in terms of the amounts issued as a percentage of the debt securities markets, considering the participation of each issuer type and the allocation of revenue across eligible sectors. Information on certified green bond amounts issued and on debt securities’ markets was obtained from the Climate Bonds Initiative and BIS databases. The results show that the evolution of the Chinese and Brazilian certified green bonds markets remains negligible, in terms of the whole debt securities market. Although green bonds may be considered an important market solution, they still do not provide sufficient resources necessary for a meaningful green transition, especially in EEs. However, findings also show that in China, compared to Brazil, features of the financial system combine with more consolidated green policies to act in favour of scaling up and distributing revenue to crucial sectors to green transition. Key policy insights Without well-coordinated national green policies and appropriated institutional arrangements, the growth of the debt securities market in emerging economies (EEs) will not boost the certified green bond market. In EEs, notably in Brazil and China, the central government’s influence on the policy coordination and the financial system is fundamental in achieving green goals. Greater participation of state-owned financial institutions in EEs could improve the access to finance more emergent solutions (e.g. low carbon transport, water infrastructure, etc.) beyond more mature ones (the usual solar and wind energy) to promote the green transition.