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Green finance has faced headwinds, particularly from fossil fuel incumbents and various policy circles in the United States. But major Asian markets continue to expand their use of green finance — led by China.
The region’s approach is driven by a pragmatic understanding that climate change and environmental degradation are independent of political views and risk accelerating if we do not rapidly reduce greenhouse gas emissions. The consequences of inaction are severe, exposing societies and economies to escalating risks from extreme weather events — floods, storms, wildfires and droughts that threaten housing, agriculture, industry and natural ecosystems.
Financial institutions, as commercially driven, ‘rational’ actors, are increasingly focused on understanding and managing climate-related risks while identifying opportunities to invest in sustainable activities. This, at its core, is the essence of green finance.
To facilitate this shift, most Asian markets, as well as Australia, have established green finance taxonomies to classify eligible projects and implemented environmental disclosure standards to improve risk transparency. They have collectively issued nearly US$1 trillion in green financial products, including green bonds. Yet, the funding gap remains vast — the G20’s Global Infrastructure Hub estimates that Asia and Oceania will require US$54 trillion in sustainable infrastructure investment by 2040, with more than 30 per cent earmarked for energy-related projects.
Among the Asian countries championing green finance, China stands out. In 2013, China pioneered the development of a green credit system for its banks, setting a precedent that later inspired global financial regulators to establish the Sustainable Banking and Finance Network. As of September 2024, China’s green credit portfolio had reached 35.75 trillion yuan (approximately US$4.9 trillion), a 19 per cent increase from September 2023. The proportion of outstanding green loans in total loans rose to 13.9 per cent, as reported in a 2025 China Green Finance report.
China expanded its green finance program in 2016 by becoming the first country to introduce a green bond taxonomy, which has been updated twice to better align with international standards. This taxonomy influenced similar frameworks in the European Union in 2020, ASEAN in 2021, Indonesia in 2022, Singapore in 2023 and Australia in 2025.
With a plethora of taxonomies emerging, China and the EU collaborated to create a Common Ground Taxonomy, aiming to provide a higher quality and transparent tool to attract international investors. Between 2020–24, Chinese green bond issuances consistently accounted for about 60 per cent of the green bonds issued across ASEAN+3 countries. Despite a slight decline in 2024, China’s green bond issuance still reached nearly 700 billion RMB (approximately US$95 billion), with over 20 per cent of its bonds issued under the Common Ground Taxonomy.
Beyond domestic initiatives, China has also extended its green finance efforts globally. In 2020, China became the first country to support a green finance guidance and taxonomy for its overseas investments, particularly targeting its Belt and Road Initiative (BRI). The document provides an innovative traffic light system (labelling fossil fuels as ‘red’ and solar as ‘green’) and an accompanying 10 point guidance to improve environmental risk management. In 2021, China announced its exit from building new coal plants under the BRI and in 2024, China’s engagement in green energy projects across 149 BRI countries surged to over US$11.8 billion.
China was also a founding member of the Central Banks and Supervisors Network for Greening the Financial System, which since its establishment in 2017, has grown to over 144 members from 90 countries.
China is also exploring financial tools to decarbonise ‘hard-to-abate’ sectors, such as steel and cement production. In 2024, Hebei province — which alone produces 11 per cent of the world’s steel — released comprehensive guidelines for transition finance in the iron and steel industry, and the People’s Bank of China is preparing to roll out a national transition taxonomy in 2025. Corporate use of transition financial instruments increased by over 50 per cent from 2023–24 — albeit from a low level.
China’s dominance in green finance aligns with its expanding leadership in green technologies, including solar panels and batteries. In 2024, China set a record for renewable energy installations, reaching 370 gigawatts — a 25 per cent increase from 2023 — representing more than 50 per cent of the world’s new renewable energy capacity. Yet China remained the world’s largest emitter in 2024, and started construction on 94.5 gigawatts of new coal plants — a 10 year high. This exemplifies China’s ‘Panda–Dragon’ approach — simultaneously espousing the fastest green and brown growth.
The rapid growth of China’s green economy contributed US$1.9 trillion, or 10 per cent of its GDP, in 2024 — a figure comparable to the entire Australian economy.
Given the urgency of the green transition, enhanced and efficient regional collaboration on green finance is imperative. This means fostering stronger regional integration with the most invested and proactive Asia and Oceania economies leading the charge.
Countries like Singapore, Indonesia, Thailand, Australia and China have already demonstrated various levels of leadership in shaping green finance standards. The expansion of the Common Ground Taxonomy is an example of how practical and effective collaboration can drive progress without excessive coordination costs.
Whether the future expansion of green finance is driven by, inspired by, or even in competition to China’s development, Asia should build on the momentum to accelerate its green finance transformation and espouse mutually beneficial collaboration on green finance standards to enable cross-border financial flows. Asia can set a global example for sustainable economic growth where the laws of physics — not politics or ideology — dictate the urgency of climate action. The earlier that finance aligns with this reality, the better.
Christoph Nedopil is the Founding Director of the Green Finance & Development Center and Associate Professor at the Fanhai International School of Finance at Fudan University in Shanghai, China.
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