Insight

ESG investing opportunities in China from an industry perspective

ESG investing opportunities in China from an industry perspective

Executive Summary

In September 2020, President Xi Jinping announced that the People's Republic of China will “aim to have CO2 emissions peak before 2030 and achieve carbon neutrality before 2060” - called the 30/60 target for short. Since the announcement, China’s government and enterprises have been working diligently towards this target, through both top-down and bottom-up approaches.

With ESG criteria being more and more explicitly reflected in China’s policies and regulations, we believe the regulatory environment in China is becoming stricter in this area and anticipate more detailed and aligned execution measures to be put in place in the near term.

Growing momentum in the investment universe and fund flows of ESG funds in Asia and China shows that technical support for this asset class remains strong, suggesting that China’s commitment and potential on the sustainable development front are well recognized by global investors.

As one of the largest countries in the world, China’s economy is driven by a complex mix of industries, each of which plays a distinct but crucial role in the transition journey to a sustainable world. The drive toward international alignment of Chinese ESG standards is progressing quickly with significant implications for cross border financing flows. In this piece, we summarize the ESG state of play of three industries, financials, industrials, and TMT, and provide case studies of key players in these sectors. 

Prevailing trend of ESG integration into China’s policy discourse

Progress on ESG in China cannot be achieved without top-down policy enforcement and implementation. In recent years ESG topics have been mentioned more and more frequently in China’s policy discourse, either in top level country-wide policy, or industry-specific guidance.

Released on October 16, 2022, the Report of the 20th National Congress of the Communist Party of China elaborated the concept of “Chinese-style Modernization”, whose development goals are highly integrated with ESG. In terms of environmental pillar, the report emphasizes the requirements of carbon peaking, carbon neutrality, climate action, and biodiversity several times. In terms of social pillar, the reiteration of “common prosperity” and “rural area revitalization” stands out. For the governance pillar, there are topics around anticorruption, equity, equality, discipline system, etc. During the 2023 National People's Congress (NPC) and the Chinese People's Political Consultative Conference (CPPCC) in March, ESG topics was also highlighted by Premier Li Keqiang in the Report On The Work Of The Government. Besides, several proposals on green buildings investing, ESG information disclosure, and infrastructure construction were heatedly discussed by the representatives and attendants to the meetings.

Aside from high level policy, several functional regulatory authorities also issued ESG-related policies in 2022. These advocate ESG concepts in different sectors and look to accelerate the process of standardizing ESG instruments, diversifying products, enforcing mandatory information disclosures, and integrating international cooperation. Taking the financial industry as an example, new policies and regulations were enacted to shift the economy towards sustainable, carbon-neutral, and green finance. More than 20 documents were issued in 2022 on sustainable financing by major regulators including the People's Bank of China (PBOC), China Securities Regulatory Commission (CSRC), China Banking and Insurance Regulatory Commission (CBIRC), etc. (Table 1). There is no doubt that market participants across various sectors are facing increasing scrutiny around ESG-related issues.

Table 1 – China sustainable finance policy overview (2022)

Date

Issued by

Policy Title

E

S

G

1/5/2022 Ministry of Ecology and Environment, Ministry of Guidelines for Ecological and Environmental Protection of Foreign Investment Cooperation and Construction Projects Y Y Y
1/26/2022 CBIRC Guidelines on the Digital Transformation of Banking and Insurance Industries Y Y Y
2/8/2022 PBOC, CBIRC, CSRC "14th Five-Year" Development Plan for Finance Standardization Y Y Y
2/9/2022 CBIRC Regulatory Data Standard for Banking Financial Institutions     Y
2/11/2022 CSRC Provisions on the Regulation of the Depositary Receipt Business under the Stock
Connect Scheme between Domestic and Overseas Stock Exchanges
    Y
2/18/2022 PBOC, NDRC Several Policies for Promoting the Recovery and Development of Hard-hit sub-industries in the Service Industry   Y Y
3/4/2022 PBOC, CBIRC Notice of Strengthening Financial Services for New Urban Residents   Y Y
3/16/2022 NDRC, etc. Opinions on Promoting Green Development under the Belt and Road Initiative Y    
4/6/2022 CBIRC Notice of Further Strengthening Financial Support for the Development of Micro and Small Enterprises in 2022   Y Y
4/12/2022 CSRC Announcement on Issuing Four Financial Industry Standards Including the Carbon Financial Products, etc. Y Y  
4/15/2022 CBIRC Notice of Financial Support for Freight Logistics to Ensure Smoothness   Y  
4/18/2022 PBOC, SAFE Notice of COVID-19 Containment and Strengthening Financial Services for COVID-19 Containment and Socio-Economic Development   Y  
4/26/2022 CSRC Opinions on Accelerating the Promotion of High-Quality Development of the Industry of Publicly Offered Funds     Y
5/11/2022 CBIRC Notice of Issuing the Insurance Industry Standardization Plan for the "14th Five-Year Plan" Period     Y
5/20/2022 CSRC Measures for the Supervision and Administration of Managers of Publicly Offered Securities Investment Funds     Y
5/24/2022 State Council Notice of Issuing a Package of Policies and Measures to Firmly Stabilize the Economy   Y  
5/26/2022 Ministry of Finance Notice of Maximizing the Guiding Role of Fiscal Policies and Providing Financial Support for the Alleviation of Difficulties and Development of Market Participants   Y  
5/27/2022 State Council Work Plan for Improving the Quality of Listed Companies Controlled by Central Enterprises     Y
6/1/2022 CBIRC Guidelines on Green Finance for the Banking and Insurance Industries Y   Y
6/2/2022 CBIRC Notice of Further Effectively Providing Financial Services for Enterprises in Difficult Industries Affected by the COVID-19 Outbreak   Y  
7/28/2022 CBIRC Provisions on the Administration of Insurance Assets Management Companies     Y
8/19/2022 PBOC, NDRC, etc. Overall Plan for the Construction of the Chongqing Green Finance Reform and Innovation Pilot Zone Y   Y
10/28/2022 NDRC Opinions on Further Improving the Policy Environment and Increasing Support for the Development of Private Investment   Y Y
11/10/2022 CBIRC Notice of Issuing the Statistical System for Green Insurance Business Y   Y

Source: Government publishments, White Paper on ESG Development and Innovation in China 2022, consolidated by Invesco, as of Dec 2022. May not be a full list. Note: NDRC: National Development and Reform Commission; SAFE: State Administration of Foreign Exchange.

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