China has dominated global issuance of "green" bonds for two straight years — a trend that will likely continue as the world's top carbon-emitter tries to play a larger role to contain climate change. The Asian economic giant burst onto the scene in 2016 to take the crown as the world's largest issuer of green bonds — a debt instrument with proceeds that are used to finance activities that benefit the environment. China is set to retain its top spot in 2017.

Data source: Dealogic By the end of November 2017, China led global green bond issuance with 66 deals that raised $24.89 billion, according to data firm Dealogic. The country's dominance in that particular debt market followed its 2016 record of 43 deals totaling $33.17 billion, which allowed it to leapfrog traditional green financing giants such as the United States and France. "China is one of the countries most exposed to pollution, particularly air pollution. Following the Paris 2015 United National Climate Change Conference, they have shown keenness to fight climate change," said Alban de Fäy, a portfolio manager at Amundi Asset Management who handles socially-responsible, fixed-income investments.

China is one of the countries most exposed to pollution, particularly air pollution. Alban de Fäy SRI Fixed Income Portfolio Manager, Amundi

And as countries come together to try to keep the world from warming by more than a total of 2 degrees Celsius, China certainly has a big role to play. The country emits 10.36 billion metric tons of carbon dioxide per year, according to the Global Carbon Project. To many observers, China's status as a leading issuer of green bonds signals its commitment to address the environmental problems that have come with the country's rapid industrialization over three decades. The agreement reached in Paris came into effect in November 2016, and is designed to prompt nearly 200 countries including China to cut greenhouse gas emissions. The huge pact has stirred greater interest in green bonds among investors. Global green bond issuance leaped by 120 percent in 2016, to a record $93.4 billion, according to ratings agency Moody's. Green bonds hit $94.5 billion in the first nine months of this year and are on course to exceed $120 billion for the full year, the agency added.

The future of green finance in China

The growth of China's green capital market has come largely as a result of better government support, analysts said. The second-largest economy in the world needs around 2 trillion yuan a year ($305.46 billion) in investment to meet government targets of reducing pollution, its central bank estimated in 2015. But that year, the country issued just 3 green bonds that raised $1.29 billion, Dealogic data showed.

Since then, regulators of the country's banking, corporate and securities sectors have issued guidelines that define a "green" project and outline the eligibility criteria for green bond issuers. China's Green Finance Committee is reportedly working with the European Investment Bank to identify differences in China's green bond standards from what's practiced internationally. Closing those gaps can help China to attract more overseas investors, said Neeraj Seth, BlackRock's head of Asian credit.

But how is the money being used?