Climate Policy

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The green transition in emerging economies:

green bond issuance in Brazil and China

Juliana Lima de Deus, Marco Crocco & Fernanda Faria Silva

To cite this article: Juliana Lima de Deus, Marco Crocco & Fernanda Faria Silva (2022) The
green transition in emerging economies: green bond issuance in Brazil and China, Climate
Policy, 22:9-10, 1252-1265, DOI: 10.1080/14693062.2022.2116381

To link to this article: https://doi.org/10.1080/14693062.2022.2116381

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CLIMATE POLICY
2022, VOL. 22, NOS. 9–10, 1252–1265
https://doi.org/10.1080/14693062.2022.2116381

RESEARCH ARTICLE

The green transition in emerging economies: green bond issuance in

Brazil and China
Juliana Lima de Deusa, Marco Croccoa and Fernanda Faria Silva b

a
CEDEPLAR, Economics Department, Federal University of Minas Gerais, Belo Horizonte, Brazil; bInstitute of Applied Social
Sciences, Economics Department, Federal University of Ouro Preto, Mariana, Brazil

ABSTRACT ARTICLE HISTORY

Green bonds have emerged as an innovative financial instrument that may be used to Received 10 February 2021
mobilise incremental resources for long-term financing projects focused on building Accepted 18 August 2022
sustainable infrastructure. In this regard, this article advances research on green bond
KEYWORDS
markets in emerging economies (EEs) by comparing the evolution of the certified Green bonds market;
green bonds markets in Brazil and China. For this purpose, a mixed analysis was emerging economies; policy
applied. The qualitative analysis is based on a literature review to contextualise the coordination; financial
main drivers and barriers to the evolution of the green bond market in light of system; Brazil; China
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.

1. Introduction
As part of the economic development process, global consumption and production patterns have been ques-
tioned due to growing concern about natural capital losses and greenhouse gas emissions, especially in Devel-
oped Countries (DCs). In contrast to DCs, Emerging Economies (EEs) are responsible for lower average annual

CONTACT Juliana Lima de Deus [email protected] CEDEPLAR, Economics Department, Federal University of Minas Gerais, Belo
Horizonte, Brazil
© 2022 Informa UK Limited, trading as Taylor & Francis Group
 CLIMATE POLICY 1253

emissions. However, EEs have significantly increased their CO2 emissions over time, mainly due to consumption
patterns of their higher socio-economic classes (Gore, 2015). Economic logic dictates that there are natural
limits on a planet with finite resources. Furthermore, the sustainability of economic development has, in
turn, been threatened by the indiscriminate and irrational use of nature (Vianna et al., 2009).
Over the last ten years or so, the process of transition from a high carbon economy to a more sustainable
one, coupled with financing possibilities to support such a transition, have become priority issues on the
national economic development agenda (Agliardi & Agliardi, 2019; Gianfrate & Peri, 2019; Vianna et al.,
2009). In addition, the 21st Conference of the Parties highlighted the need to think about new ways of pro-
duction and consumption, taking into account social and environmental factors (Caré et al., 2018). On this
occasion, countries committed themselves, through the signature of the Paris Agreement, to limit global temp-
erature increases to between 1.5 and 2°C below pre-industrial levels by the year 2050. This target is only poss-
ible with the reduction of CO2 emissions (Gianfrate & Peri, 2019).
The financial system has a crucial role in mobilising incremental investments1 needed to adopt clean
technologies, new sources of energy, low carbon infrastructure, industry, transport, and other adaptation
and mitigation solutions (CPI, 2021; Gianfrate & Peri, 2019). This transition will require a massive in-
vestment of US$4.13 trillion annually by 2030, which is at least 454% more than the investment
reached in 2019/2020 (US$632 billion) (CPI, 2021). According to Agliardi and Agliardi (2019) and Banga
(2018), green bonds are an important financial innovation that enables countries to raise the additional
resources required to meet their climate commitments and stimulate more sustainable production and
consumption patterns.
Some studies on green bonds markets raise essential questions regarding trends in green bonds
markets. These include the financial drivers and obstacles that exist to expand this market (Barua &
Chiesa, 2019; Deschryver & Mariz, 2020); green bonds’ characteristics, such as liquidity, premium, vola-
tility, return (Agliardi & Agliardi, 2019; Bachelet et al., 2019); and the potential of green bonds to
finance the green transition (Banga, 2018). However, there is still a gap in understanding the evolution
and alignment of the green bonds market concerning national policies and features of the financial
system in EEs. In addition, important considerations are the type of green bonds issuer to recognise
the leaders of the green bonds market and how they allocate the green bonds revenues among eligible
sectors. The indication of the sector to which the revenues will be allocated is one of the essential com-
ponents for bond certification.
The general objective of this paper is to answer the following questions: 1) Has the certified green bond
market shown significant growth, especially as a percentage of the debt securities market in Brazil and
China? 2) How can the features of financial systems in each of these countries explain green bond growth
trends? 3) Are national green policies in these countries capable of directing revenue allocation to key
sectors through certified green bond issuance?
Brazil and China have the largest green bond markets in terms of the amount issued and the most devel-
oped financial system compared to other countries with emerging economies, such as India, South Africa,
and Russia. China became the largest green bond issuer worldwide, considering self-titled and certified
green bonds. Although there are some similarities in terms of their bank-based financial system and the
greater participation of development banks and state-owned financial institutions, China has handled their
national green policies quite differently. In this regard, the Brazilian and the Chinese green bonds market
are chosen as the foremost case study.
The analysis of certified green bonds solely, rather than non-certified and conventional bonds, is because
these types of bonds can act as a counterbalance to greenwashing2, providing greater security to investors.
They also have characteristics, such as premium, liquidity and low volatility, which are more advantageous
for investors than non-certified and conventional bonds.
This article is organised into six sections, in addition to the introduction. Section 2 presents the qualitative
and quantitative methods applied in this paper. Section 3 provides an overview and the attributions of the
global green bond market, putting into perspective the main barriers and drivers of the green bonds market
evolution. Section 4 gives a brief outline of the green bond markets in Brazil and China, respectively. Finally,
Section 5 presents the main results; Section 6 the discussion; and Section 7 draws conclusions.
1254 J. L. DE DEUS ET AL.

2. Methods
This section presents the mixed methods utilised in order to analyse the Green Bonds Market in EEs by compar-
ing the evolution of Brazilian and Chinese certified green bond markets.
The qualitative analysis is based on a literature review that contextualises how the green bonds market is
evolving, considering its main drivers and barriers, in light of the national policies and the features of the
financial systems, especially in Brazil and China. In addition, the quantitative analysis examines both the
amount issued in certified green bonds in relation to the whole national debt securities market, as well as
the issuer type and their revenue allocation from green bonds to eligible sectors. The issuer type is an indicator
of the leaders, who underpin the certified green bonds development in each country; and the allocation of rev-
enues to each sector suggests how effective the certified green bonds market is to target key emitting sectors.
The aim here is to compare the evolution of the certified green bond markets in China and in Brazil. As noted,
the analysis is in terms of amount issued (CGB) as a percentage of the Debt Securities Market (DSM); it uses
annual flow data from 2016 to 2019, taking into consideration the participation of each issuer type, be it a cor-
poration (CORP), a state-owned financial institution (SOFI), or a private financial institution (PFI) (Figure 1). The
measure of the market evolution in each country (c), by issuer type (i) per year (t), is:

CGBt,i
CGB Issuerct,i = c
∗100.
DSMtc


CGBM evolutiontc = CGB Instct,i
i

where CGB_Issuert,i t
c is the participation of each issuer type (i) in CGB, as a percentage of DSM. CGBM_evolutionc is
t,i
the sum, by (i), of CGB_Issuerc or, in other words, the total CGB/DSM. All of them in each country (c), per year (t).
The debt securities market incorporates all debt instruments designed to be traded on both domestic and
international financial markets, such as bonds, debentures, etc., and which give suitable weight to national
efforts to finance low carbon activities through certified green bonds. Although Brazil and China have a

Figure 1. Amount issued in Certified Green Bonds/Debt Securities Market in Brazil and China by type of issuer (CGB_Issuert,i c )¹. Note: ¹ Each bar
illustrates both CGB_Issuerc t,i and CGBM_evolutiontc in each country (c), per year (t).; SOFI: state-owned financial institution; PFI: private financial
institution; CORP: corporation/company. Source: Authors’ elaboration based on data from Climate Bonds Initiative (2020d) and BIS (2021).
 CLIMATE POLICY 1255

bank-based financial system, the debt securities market has shown significant growth, which has also enabled
the development of the green bond market in these countries.
In addition to the comparison between the evolution in the Brazilian and Chinese green bond markets, the
analysis also examines eligible sectors that have received the highest percentage allocations of certified green
bonds revenue (Figures 2 and 3). The amount issued in certified green bonds (CGB), in each country, as a per-
centage of debt securities market (DSM), in terms of issuer profile (i), per year (t), in each eligible sector (s) will
also be subject to analysis. The measure is given by:
CGBt,i,s
CGB Sectorct,i,s = c
∗100.
DSMtc


Sector Evolution t,s
c = CGB Sectorct,i,s
i

where CGB_Sectort,i,s
c is the CGB allocated in each eligible sector (s), as a percentage of DSM, by each issuer type
(i), per year (t), in Brazil and China. Sector_Evolutiont,s t,i,s
c is the sum of CGB_Sectorc by (i), that is the total CGB/DSM
allocated in each eligible sector (s), per year (t) in each country (c).
The CBI considers some activities and installations that may receive revenue from the bonds, such as solar,
wind and marine energy generation; low carbon transport and buildings; water infrastructure; recycling and
waste disposal; land use; industry and information; communication technology (ICT), etc. The following analysis
seeks to ascertain whether national green policies in Brazil and China have been capable of allocating resources
towards such sectors.

2.1. Data
The qualitative analysis is based on a review of specialised literature and primary source documents. For the
quantitative analysis, information on amounts issued yearly on the debt securities market in Brazil and
China, in US$, is available from the Bank for International Settlements’ statistics database (2021), whilst data
on the annual quantity of certified green bonds issued, also in US$, and the type of issuer may be found on
the Climate Bonds Initiative (CBI) database (2020d). The CBI only classifies as green bonds those that have at

Figure 2. Amount issued in the Certified Green Bonds/ Debt Securities Market in Brazil per eligible sector by type of issuer (CGB_Sectort,i,s c )¹.
Note: ¹ Each bar illustrates both CGB_Sectort,i,s
c and Sector_Evolutionc in Brazil, per year (t). SOFI: state-owned financial institution; PFI: private
t,s

financial institution; CORP: corporation/company. Source: Authors’ elaboration based on data from the Climate Bonds Initiative (2020d) and BIS
(2021).
1256 J. L. DE DEUS ET AL.

Figure 3. Amount issued in the Certified Green Bonds/Debt Securities Market in China per eligible sector by type of issuer (CGB_Sectort,i,s
c )¹.
Note: ¹ Each bar illustrates both CGB_Sectort,i,s
c and Sector_Evolutionc in China, per year (t). LCT: Low Carbon Transport; LCB: Low Carbon Build-
t,s

ings; MRE: Marine Renewable Energy; SOFI: state-owned financial institution; PFI: private financial institution; CORP: corporation/company.
Source: Authors’ elaboration based on data from Climate Bonds Initiative (2020d) and BIS (2021).

least 95% of their assets allocated to activities in line with the objectives of sustainable development, according
to the Climate Bond Standards. The analysis here considers only information produced between 2016 and 2019,
as beyond this period the CBI database does not have sufficient records regarding certified green bonds issued
by Brazil and China.

3. An overview of the green bond market in the transition to a low carbon economy
Over a decade ago, green bonds emerged, intending to mobilise incremental resources for long-term project
financing in order to reduce the national carbon footprint and build sustainable infrastructure in alignment
with a public commitment to climate objectives (Bachelet et al., 2019; Ketterer et al., 2019). There is no
common standard for defining what green bonds are. Still, the International Capital Market Association
(ICMA) has developed a guideline entitled Green Bond Principles (GBP) that defines them as ‘[…] any type
of bond instrument3 where the proceeds will be exclusively applied to finance or re-finance, in part or in
full, new and/or existing eligible green projects […]’ (ICMA, 2018, n. p.).
Supranational institutions have played an important role in encouraging the financial community to
broaden the scale of the green bonds market and highlight the importance of developing countries’ partici-
pation in actions against climate change (World Bank, 2015). In practice, the European Investment Bank was
the pioneer, issuing in 2007 EUR600 million worth of bonds with climate objectives, such as financing projects
related to energy efficiency and the use of renewable energy. The following year, the World Bank, through the
International Bank for Reconstruction and Development, issued its first green bonds with a value of approxi-
mately US$400 million (Deschryver & Mariz, 2020; Flammer, 2020; World Bank, 2015).
At the end of 2013, the Swedish company Vasakronan inaugurated corporate green bond issuance, having
raised EUR145 million to finance improvements in the construction, information technology, and financial
leasing sectors (Hay, 2013). Bank of America and Électricité de France soon followed this trend. In 2014,
although the European Investment Bank was the largest issuer of green bonds (in terms of absolute
numbers), the highest percentage of issues came from corporations rather than state-owned or private
financial institutions (CBI, 2014).
Public and private institutions’ number and amount of green bond issuances have grown rapidly. In 2014,
the introduction of Green Bond Principles by the ICMA was a catalyst for market growth (Fender et al., 2019).
 CLIMATE POLICY 1257

Along with the GBP, another international standard for bond certification was the Climate Bond Standard
(issued by the Climate Bonds Initiative). This certification requires the bond to receive a green label, indicating
that its revenues will be used to finance projects aligned with environmental or climate demands; this reduces
the risk of greenwashing (Deschryver & Mariz, 2020; Fender et al., 2019). The GBPs include four crucial com-
ponents for bond certification: i) an indication of the sector to which the earnings will be allocated; ii) clear com-
munication with investors; iii) management of earnings; and iv) reports providing information on fund
availability and application updates (ICMA, 2018).
From June 2015 to June 2016, the green bonds market grew by 92% in terms of the amount issued, surpass-
ing what had been registered in previous years (CBI, 2017). In 2019, the green bond market reached a new
global record of US$257.7 billion in emissions, 17% taken up by certified green bonds. In the same year, the
major issuers were the United States, with US$51.3 billion; China with US$31.3 billion4; and France, with US
$30.1 billion (CBI, 2020a).
Although the market has shown significant growth in terms of the amount issued, in 2018 it represented a
share of less than 0.5% in relation to the bond market as a whole, which indicates that the market remains small
when considering the challenges it is intended to face, as shown by Deschryver and Mariz (2020) and Ketterer
et al. (2019). Significant barriers to market growth have included: the lack of institutional arrangements for the
management of green bonds; the issue of minimum size; and high transaction costs (Banga, 2018; Deschryver &
Mariz, 2020).
However, FiBraS (2021) points out that the transition to a low carbon economy is a costly financial process,
especially for institutions in economically and industrially less developed countries. In these states, problems
concerning basic human needs, such as health, safety, income, education, and so on and so forth, are priority
issues for financing. Moreover, from a short-term perspective, polluting energy sources, such as coal, are still
cheaper and more advantageous for production (Markkanen & Anger-Kraavi, 2019; Wang et al., 2020).
Despite the factors constraining green bonds issuance, there is potential for green bonds markets to gain
scale. According to Barua and Chiesa (2019), public or private institutions need to be encouraged, through
public policies at national or international levels, to look for alternative forms of finance for sustainable projects.
The issuance of green bonds is one alternative already in place. In addition to incentives on the supply side,
investors also need to perceive that the green bond market is more advantageous than regular bonds. Accord-
ing to Fender et al. (2019), these advantages can be perceived through comparative analysis between green
bonds and their respective non-green counterparts, according to three important eligibility aspects: return,
liquidity, and security.
The return on a bond refers to the percentage of remuneration the investor receives, at each regular period,
as a percent of the amount invested and is related to the interest rate determined by the issuer, as highlighted
by Neto et al. (2019). Liquidity, in turn, is associated with the instrument’s ability to be traded quickly and with a
low impact on price. This will depend on at least two factors: the stock of instruments available for investment
and the transaction cost. The stock of available instruments depends on the size (amount issued in bonds) and
diversification (currencies in which the bonds are issued) of the green bond market (Fender et al., 2019). With
respect to transaction costs, these are incurred by issuers to obtain green certification and include contracting
second opinion agents5, producing the documents that contain the necessary information for certification, as
required by international standards, and the cost of following up on the use of the proceeds (Banga, 2018;
Fender et al., 2019).
For the third eligibility criterion, which concerns the security level of green bonds, the credit risk profile is
considered. This is associated with the issuers’ ability to honour their financial commitments. Fender et al.
(2019) points out that although the safety of security goes beyond credit risk analysis, central banks, for
example, restrict their portfolios to the best rated credits. In this sense, credit rating is one of the factors
that most significantly determines the greenium, which is defined as the difference between the yield of con-
ventional and green bonds having the same characteristics (Agliardi & Agliardi, 2019; Zerbib, 2018). Table 1
summarises the main drivers and barriers, pointed out by the existing literature, to the green bonds market
evolution.
In addition, the determinants and barriers to the greater growth capacity of the green bond market, and the
convenience of issuing the instrument should be analysed, taking into account differences in the financial
1258 J. L. DE DEUS ET AL.

Table 1. Main drivers and barriers to the green bonds market evolution from investors and issuers sides.
Drivers Barriers
From Perception of greenium in the primary and secondary market Perception of specific risks due to uncertainties arising from
investors (Löffer et al., 2021; Zerbib, 2018) the development of green technologies and investments
side Perception of greater security through the certification of (Löffer et al., 2021)
the green bonds (Flammer, 2020) Aversion to risk of greenwashing (attributed to issuers)
Perception of more liquidity, low volatility, and greater (Bachelet et al., 2019; Deschryver & Mariz, 2020)
return (compared to conventional and non-certified green
bonds) (Fender et al., 2019; Flammer, 2020; Zerbib, 2018)
Positive effects of pro-environmental preferences on bond
yields (Löffer et al., 2021)
From issuers¹ An institutional arrangement conducive to the issuance of High credit rating requirement (AA or AAA) (Escalante et al.,
side green bonds in the country where the issuer resides (Löffer 2020; Fender et al., 2019)
et al., 2021)
Gains of reputation, branding, legitimacy and license to Higher issuance and transaction costs (compared to
operate (especially to corporations) (Deschryver & Mariz, conventional and non-certified green bonds) (Banga, 2018;
2020; Flammer, 2020; Löffer et al., 2021) Deschryver & Mariz, 2020)
Diversification of the investor base, providing the potential Incipient secondary market (Banga, 2018; Fender et al.,
to enjoy long-term price advantages (Bachelet et al., 2019) 2019)
Introduction of international standards (e.g. Green Bond
Principles, Climate Bonds Standard) (Deschryver & Mariz,
2020; Fender et al., 2019)
Note: ¹Issuers include governments, financial institutions, corporations, etc. Source: Author’s elaboration.

arrangements in each country. Developing countries often lack well-functioning bond markets, making access
and issuance difficult, nor do they have well developed financial markets capable of managing and monitoring
projects with climate and environmental goals (Banga, 2018; Barua & Chiesa, 2019).
Furthermore, according to the Climate Bonds Initiative (2018), financing for sustainable growth, despite
being available, is underused, in part because of the low levels of knowledge of financial institutions in relation
to the eligibility criteria of assets and instruments that are available.
Overall, there is a paucity of work analysing green bonds market and how they are evolving in emerging
economies. In light of this, the next section briefly contextualises the Brazilian and Chinese green bond
markets, highlighting the main characteristics of both and the challenges faced when issuing this instrument.

4. A brief contextualisation of the green bond market in Brazil and China

China, the largest developing economy in the world, is also the biggest CO2 emitter both globally and per
capita. Economic growth has been driven by low-cost polluting energy sources such as coal, accompanied
by high environmental costs associated with its adopted development pattern (Gore, 2015; Wang et al.,
2020). In its 12th Five-Year Plan (FYP), which ran from 2011 to 2015, China introduced ambitious measures
requiring a major mobilisation of capital, designed to increase the number of industries aligned with environ-
mental objectives and to reduce the environmental stressors caused by its development model (Kidney et al.,
2014). In addition, China started improving efficiency in government investment, whilst also attracting greater
private participation and reforming its financial system to maintain more sustainable economic growth and
meet climate objectives (Kidney et al., 2014).
China’s first green bond issuance was conducted in 2016 through the Shanghai Pudong Development Bank
and the market has since become established as the largest in the world, in terms of the volume of certified and
self-titled bonds issued (CBI, 2019; CBI, 2020b; Wang et al., 2020). Besides that, in 2015, the Green Finance Com-
mittee of the China Society for Finance and Banking developed the Green Bond Endorsed Project Catalogue
(GBEPC), which is the Chinese taxonomy6, under the supervision of the People’s Bank of China (PBOC) and
in line with PBOC Catalogue (Schipke et al., 2019). The GBEPC included the clean use of coal as one of the eli-
gible categories; this limited investment in Chinese green bonds due to the fact some investors found that the
financing of this sector was unacceptable (Deschryver & Mariz, 2020). In 2020, the People’s Bank of China, the
Central Bank of China, and other national institutions announced the exclusion of fossil fuels from their taxon-
omy and now it is under revision in order to reconcile it with the EU Taxonomy7 (CBI, 2020c; FiBraS, 2021).
 CLIMATE POLICY 1259

In the same year, President Xi Jinping declared that by 2060 the country would attempt to achieve carbon
neutrality (zero CO2 emissions) through the adoption of more robust public policies (Machado, 2020; Stern &
Xie, 2021). Through its 14th Five-Year Plan (2021-2025), the government is emphasising the need for the
country to adopt a new development path, based on resilience, sustainability, and stimulated by investments
in low carbon technologies (Stern & Xie, 2021).
In Brazil, the green bond market has also been the target of attention, in part due to its growth potential. The
first issuance of the instrument was in 2015 by BRF S/A, a food company, which raised EUR500 million on the
international market (Borges, 2019). The following year, Suzano Papel e Celulose S/A, a paper and pulper pro-
ducer company, made its first issuance of green bonds on the domestic market, worth US$294 million (CBI,
2016). Since then, Brazil has issued green bonds worth more than US$5 billion and the number is expected
to grow considerably, due to their role in agribusiness financing (Borges, 2019).
Although expectations for green bond market growth in Brazil have been bullish, Borges (2019) noted that
the market’s underperformance with investor positions have a tendency to favour the short-term. This is
perhaps a consequence of long periods of national political and economic instability and inflation. The
green bond market consequently needs to overcome some fundamental challenges and, as such, in order to
assess this market, it is necessary to take into account the economic context and situation (FEBRABAN, 2015;
Wolf et al., 2018). The Brazilian Federation of Banks (FEBRABAN) has also identified further obstacles to the
growth of the Brazilian market which include: i) the additional cost of placing green bonds on the market; ii)
the lack of incentives for the underwriter8 to structure a green bond instead of a conventional one; and iii)
the investor’s perception of greater risk in relation to the financing of new technologies.
To address such problems, FEBRABAN proposed two ways of boosting the development of the green bond
market in Brazil. The first involves the creation of uniform guidelines for the framing of green bonds. Here the
idea is that if the bonds of the issuing company are aligned with the guidelines, the issuance process should
become less bureaucratic and more streamlined. The second measure involves the development of local
second opinion agents and guarantees, which in turn should lower the investors’ perception of risk.
Similar to the obstacles identified by FEBRABAN (2015), Masullo et al. (2018) noted that issuers were less
likely to raise finance through the instrument, due to the incipient secondary market (Banga, 2018; Fender
et al., 2019) and the need for technical support, among other factors cited. This is based on information gath-
ered by questionnaires targeted at potential issuers and investors in the green bond market. From an investors’
point of view, Masullo et al. (2018) concluded that the main barriers have been related to the secondary
market’s failure to promote security and liquidity, as well as limited offerings in the market segment in
which the investor operates and a lack of specific regulatory incentives.
As a practical action, in 2020, the Ministry of Agriculture, Livestock and Supply (MAPA), the Ministry of Infra-
structure (MInfra), and the Ministry of Regional Development (MDR) came to an agreement with CBI to incor-
porate some environmental and climate criteria, that their projects could be included in the green certification
(FiBraS, 2021). This occurred even though Brazilian green policies are not fully coordinated amongst ministries
or centrally driven.

5. Results
The Chinese green bond market is one of the largest in the world, and the Brazilian market is promising (Borges,
2019; CBI, 2020a; CBI, 2020b; Flammer, 2020). However, the results presented in Figure 1 show that the certified
green bond markets in Brazil and China are significantly small in relation to their debt securities market. The
market characteristics and evolution thus indicate that there are challenges to overcome if the instrument is
to be made more mainstream and attractive to potential issuers and investors and, consequently, enable sig-
nificant market growth.
Despite such challenges, the Chinese certified green bond market demonstrated positive growth in terms of
the amount issued up to 2018, surpassing Brazil’s performance. Although the Brazilian certified green bond
market had experienced a significant evolution from 2018 to 2019, it remained considerably smaller in relation
to the debt securities market; it also seems unattractive to potential issuers and investors, as noted by the
Masullo et al. (2018).
1260 J. L. DE DEUS ET AL.

Considering the type of issuer, the analysis of the allocation of revenue obtained through the green bonds to
eligible sectors can promote a better understanding of the certified green bond market in Brazil and China.
Figures 2 and 3 aim to present the capacity of national green policy to drive the allocation of revenues. The
sectors considered for this analysis follow the Climate Bonds Initiative eligibility criteria and include low
carbon transport (LCT); water infrastructure and buildings -residential or industrial- (LCB); and solar, wind
and marine energy generation (MRE). In contrast, the recycling and waste disposal; information and communi-
cation technology (ICT);, land use; and industrial sectors were not financed by green bonds revenue in either
country from 2016 to 2019.
As presented in Figure 2, Brazilian energy corporations (such as AES Tietê, Omega Energia, Rio Energy, Eólica
Serra das Vacas, and CPFL Energias Renováveis) were the only certified green bonds’ issuers.
In 2019, from the solar energy sector, AES Tietê made its first issuance of certified green bonds totaling R
$820 million, in order to finance the largest solar energy projects in the sub-national state of São Paulo –
the Guaimbê and Ouroeste plants (Coimbra, 2019). Results from the same year showed that the wind sector
had not received finance through certified green bonds, which could be explained by the fact that the main
renewable energy companies had already accessed this market. It is also worth mentioning that the issuance
of green bonds involves costs that are unaffordable for small companies (World Bank, 2015).
In the case of China, as Figure 3 shows, a high share of certified green bond revenue is allocated to the low
carbon transport sector, which is one of China’s main sources of national carbon emissions. Various factors
can explain this relatively high allocation. Firstly, the state-owned China Railway Corporation, one of the
most prominent railroad infrastructure builders in the world, has also been among the largest emitters of
self-labeled green bonds globally. In addition, the sector is directed by the government, which has increas-
ingly seen the urgent need to establish a low-carbon energy transport system (Huang et al., 2016; Stern &
Xie, 2021). Secondly, many railroad sector emitters already have a track record of issuing conventional
bonds (CBI, 2014).
In relation to the renewable energy sectors (solar and wind), China was the country that most attracted
record level investment in 2018, accounting for 33% of worldwide solar and wind investment (IRENA, 2020).
According to the Global Wind Energy Council (2019), China has the largest market for wind power generation
in the world, having connected 23.8 gigawatts (GW) to the onshore grid and totalling 230 GW in national
capacity. Government policy has provided the conditions that permit the renewable energy sector, especially
wind, to grow and be financed through the financial system, which has impacted amounts of issuances and
revenue allocation from certified green bonds.
The Chinese solar energy sector accounted for more than 60% of global production of solar panels in 2018,
and in the following year, the largest world producers were also Chinese (Machado, 2020). In addition, renew-
able energy and low carbon transportation sectors have received a great deal of attention in Chinese develop-
ment policies, with measures formulated to consider these sectors’ technological bottlenecks and market
structures (IRENA, 2020).

6. Discussion
In terms of amounts issued in certified green bonds, the results showed that China’s performance is also
superior to Brazil’s. We infer that, from the literature review, this performance can be related to the features
of the Chinese financial systems, in which the power of the state has been extended to guarantee national
development. In contrast, the modest evolution of the green bond market in Brazil from 2018 to 2019 indicates
the need for national policies to be coordinated, along with planning and industrial policies to guarantee more
significant investment in green sectors (i.e. those that will reduce emissions in otherwise high carbon sectors).
The period analysed in this paper, from 2016 to 2019, corresponds to the Chinese 13th Five-Year Plan that
prioritised the green transition, the development of renewable energy, and the creation of employment associ-
ated with low carbon technologies. In summary, there was a concerted attempt by the government to signifi-
cantly reduce traditional fossil energy sources (Aglietta et al., 2021; Ji & Zhang, 2019).
The Chinese financial market also gradually became one of the foundations for global economic develop-
ment, especially after the 2007 financial crisis (Petry, 2020). Furthermore, in China, the use of financial
 CLIMATE POLICY 1261

instruments formulated to achieve economic objectives is centralised and has strengthened state influence
over the economy (Pan et al., 2020; Petry, 2020).
Pan et al. (2020) outline the following main institutional factors necessary for understanding the strong role of the
financial system in the Chinese economy. Firstly, the state controls the financial system, as are most financial insti-
tutions (banks, brokerage houses, and insurance companies). Secondly, the financial system endured a reform and
opening promoted by the state. Thirdly, the Chinese state strongly intervenes in economic development through
the provision of finance, especially via development banks, supervision, and the financial system’s monitoring.
By the same token, in China, the state commended the financial system and economy’s ‘regulated’ reform
through the deregulation of financial markets. Such measures have encouraged an increase in the financial
instruments available for development financing and stimulated the unification of the securities market,
making the Chinese financial system the most developed and internationally integrated as a whole (Aglietta
et al., 2021). As a consequence, the green bonds market in China has also benefited (Schipke et al., 2019).
In contrast, in Brazil, the financial system has been conditioned by the precepts of neoliberalism and is con-
sequently characterised by a decreasing role of the state (Bruno et al., 2009; Lavinas et al., 2017).
The Brazilian state’s intervention in the financial system has also been quite different from China’s. According to
Teixeira and Pinto (2012), state-directed development lost prominence as a developer when the import substitution
model became exhausted in the late 1980s. For Bruno and Caffe (2017), the Brazilian state acted under strong
pressure from neoliberal policies, marked especially by structural reforms and austerity. The policies produced
greater macroeconomic instability, increased external vulnerability to international financial market shocks, and
resulted in a stop-and-go growth pattern. Since then, high interest rates were used to persistently attract foreign
capital and to discourage capital flight, which exploded external and especially internal public debt.
As stated by Teixeira and Pinto (2012) and Bruno and Caffe (2017), in Brazil the financial sector is more pro-
minent than the productive sector. As a consequence, the state becomes an institutional instance organising
the economic spaces necessary for the development of wealth accumulation, giving priority to the interests of
high finance, even at the expense of social needs and national development.
For this reason, the lack of a solid national green policy in Brazil and the characteristics of the Brazilian
financial system, explain the modest evolution of its certified green bond market, particularly compared to
China. From this analysis, it is clear that the fixed income market in Brazil, especially the green bond market,
needs greater regulation and guidance (Wolf et al., 2018) to make instruments with long-term yields more
attractive to investors. In addition, economic policies that – as is the case in China – are designed to raise
national awareness and address the climate issue should also be prioritised.
Concerning the profile of green bonds issuers, the certified green bond market in China has experienced a
change from corporate to state-owned financial institutions. It indicates, among other aspects, that the require-
ment of green bonds’ high credit ratings (A- or superior) impedes or imposes some extra conditions (e.g.
additional guarantees) on many private corporations’ access to this market, as pointed out by Escalante
et al. (2020). In this sense, the financial institutions in China, mainly the state-owned (large entities with
strong credit ratings), act as intermediaries that raise capital for end-users, e.g. institutions with low green
bonds credit ratings, potential issuers that face some adversities to define which productive sector will be priori-
tised by the green bonds revenues, etc. (Escalante et al., 2020).
Chinese financial institutions are increasing their participation in the green bond market, reinforcing their
support to the green transition (Escalante et al., 2020). From 2016 to 2019, more than three-quarters of
green bonds in China have an AAA rating and 65% of the amount issued was from financial institutions (Esca-
lante et al., 2020). In addition, according to the data analysed from the Climate Bonds Initiative database, in
2019, the two major players and biggest issuers in terms of quantity were the Bank of China and the China Con-
struction Bank, in which the issuance totaled more than US$1 billion in certified green bonds.
In summary, China has drawn on its state-owned financial institutions, aligned to national green policy guide-
lines, whilst in Brazil only corporations have issued certified green bonds and subsequently accessed this market.
The Brazilian National Bank for Economic and Social Development (BNDES), a state-owned financial insti-
tution, has never issued a certified green bond. However, in 2017, it did issue US$1 billion in self-labelled
green bonds that were exclusively intended to finance the wind energy generation sector (BNDES, 2018).
According to Bhandary et al. (2021, p. 6), ‘NDBs not only have directly provided concessional finance to
1262 J. L. DE DEUS ET AL.

firms, but can also leverage more private finance through de-risking and learning spillovers by helping new
entrants build track records, or even by creating markets that didn’t exist before.’
Considering the strong Chinese public strategy, Liang et al. (2017) evaluated the effects of government debt
on corporations’ leverage in China, empirically. As a result of this study, their findings showed that Chinese gov-
ernment debt is crowding-in the leverage of state-owned enterprises (SOEs) and crowding-out the leverage of
non-SOEs. However, in terms of the certified green bonds market, it is not possible to infer precisely if the public
participation is crowding-in or crowding-out the private sector’s green bonds issuance, even by the open data
and studies restrictions on this issue.
When considering the sectors financed from 2016 to 2019, China showed greater diversity than Brazil. This result
follows several driving factors. In the case of China, national green strategies and policies sought to privilege critical
sectors in the transition to a low carbon economy. Additionally, the state-owned financial institutions have had a
pivotal role in the certified green bonds market; features of the financial system in China allows the state to
finance investments not only in mature sectors, but also in emerging ones on the pathway to sustainability.
All the green bonds revenues raised by Brazilian companies were allocated in the solar and wind energy
sectors, which can be explained by two factors. Firstly, the low carbon transition in Brazil followed a market
trend, concentrated in the most mature sectors. Secondly, even though oil is the main source of energy, the
Brazilian supply matrix has demonstrated remarkable growth in renewable energy participation in the last
decade as a result of national policies in this sector (Losekann & Tavares, 2020).
Although there has been green bonds funding from the Brazilian energy sectors, there has been no diversifica-
tion in the sectors where resources have been allocated. This finding suggests that there are few economic devel-
opment policies oriented to emerging emitting sectors (e.g. water infrastructure, low carbon transportation and
construction, etc.). Moreover, about half of the Brazilian CO2 emissions have come from the agriculture and land
use sectors (CBI, 2018), which up until 2018 received no financing whatsoever through certified green bonds.
The results achieved in this paper from the quantitative analysis are neither conclusive nor sufficient to indi-
cate a causal relationship between the features of the financial systems, the national green policies adopted in
Brazil and China, and the certified green bonds market evolution in these countries. However, through thought-
ful analysis of the gathered data, one may conclude that it is possible to compare the relative and absolute
evolution of the Brazilian and Chinese certified green bonds market and deduce that the market leaders
(from the type of issuer), as well as the sectors privileged with the green bonds revenues allocation from
2016 to 2019. Furthermore, this work was supported by a literature review and open data in order to better
understand the drivers and barriers of the certified green bonds’ evolution in emerging economies.

7. Conclusion
The economic development model adopted by primarily developed countries has been questioned, due to the
loss of natural capital, high greenhouse gas emissions, and growing inequalities across countries and regions,
especially in EEs, among other challenges. The green transition process requires the need to generate instru-
ments and incentives to shift financing and investments from polluting to green activities.
A little over a decade ago, green bonds emerged as an innovative financial instrument designed to engender
and mobilise investment in clean technologies, necessary for the decarbonisation of the economy. The financial
system as a whole has the potential to expand investment in sustainable practices through access to this new
source of funding, delivering environmental benefits.
This work has aimed to advance research on the green bonds market in EEs by comparing the scale of the
Chinese and Brazilian certified green bond markets between 2016 and 2019, taking into account the partici-
pation of each issuer type. Despite Brazil and China’s promising results in the certified green bond markets,
both account for less than 0.1% of the entire debt securities market. Moreover, in the period analysed, the
issuer’s profile in China changed from corporations to state-owned financial institutions, whereas in Brazil cor-
porations remained the only issuers.
Furthermore, in China, the resources raised from the issuance of certified green bonds have been allocated
to six eligible sectors (solar energy, wind energy, low carbon transport, low carbon buildings, marine renewable
energy, and water infrastructure). In Brazil, solar and wind energy has been the sole recipient.
 CLIMATE POLICY 1263

In addition, the qualitative analysis, through a literature review, contextualised green bonds evolution in
Brazil and China, considering their national green policies and the features of their financial systems. As high-
lighted in this study, China has also extended initiatives, instruments, and incentives for the green transition
whilst, in contrast, Brazil has experienced a lack of policies enabling the country to finance the decarbonisation
of its most polluting sectors. It can be concluded, therefore, that China has been more effective in scaling up the
green bonds market than Brazil.
Finally, the policy implications of these findings may be generalised to other emerging economies. The
results strongly suggest that the growth of certified green bonds markets is boosted by well-coordinated
green national policies, by the state’s ability to intervene in the financial system in order to implement these
policies, and by the capacity to also create a market for key eligible sectors, some of which may be less
mature than others.

Notes
1. The financial system has the potential to expand the investment – which is not enough yet – made by the State in sustainable
practices, bringing environmental benefits through access to other sources of funding (Borges, 2019).
2. Greenwashing is a practice that involves misleading or unfounded company claims as to the benefits of its products, pro-
cesses, technologies, among others, to the environment. It also refers to when greater time and money is spent on green
advertisements than on the effective adoption of sustainable practices (Deschryver & Mariz, 2020).
3. This definition refers only to instruments classified as securities, given that there are other financial mechanisms aiming to
mitigate impacts caused by climate and environmental changes. An example is the ‘Debit for Nature Swap’, which has
returned to the debate due to the growing debt of developing countries, exacerbated by the Covid-19 pandemic (Steele
& Patel, 2020).
4. Figures for China include only emissions in line with international definitions – Climate Bond Standards or Green Bond Prin-
ciples (CBI, 2020a).
5. Second opinion agents are specific institutions that evaluate and certify if the projects are in fact aligned with sustainable
objectives and also provide investors with details about the projects in order to increase the reliability of the security
issued (Febraban, 2015). The cost of these agents can be from US$10 thousand to US$100 thousand (Ketterer et al., 2019).
6. Taxonomy is a complementary system to the sustainable finance definition that aims to identify through a defined measure a
list of projects and activities aligned with social, environmental, and economic objectives (FiBraS, 2021).
7. The EU Taxonomy came into effect in June 2020, and it is characterised by large economic coverage, all the investment
market, and is different from the Chinese Taxonomy which only covers the green financial products, such as bonds and
credits (FiBraS, 2021).
8. Underwriters are institutions chosen by issuers to act as the leading coordinator of the bond issue operation, being respon-
sible for developing the structure (characteristics of the bonds, such as maturity and payment coupon), price and issue of the
bonds on the market (FEBRABAN, 2015).

Disclosure statement
No potential conflict of interest was reported by the author(s).

Funding
This work was supported by Fundação de Amparo à Pesquisa do Estado de Minas Gerais (FAPEMIG) [grant number 5.18/2022] .

ORCID
Fernanda Faria Silva http://orcid.org/0000-0003-0871-4502

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