Regulatory, policy and market support are catalysing the sustainable finance revolution
After decades of rapid growth, China’s government has in recent years begun to focus on making the country’s economy more sustainable. Now, with the publication of its most recent Five-Year Plan, China has set a goal of reaching carbon neutrality by 2060.
The move comes as sustainable finance – and attitudes to sustainability more generally – undergo a transformation in China.
China still faces challenges. But the combination of more robust regulatory and policy support, a buoyant green and sustainable market, and a flexible and pragmatic approach by issuers and investors point the way to a bright future.
This sense of change is evident in the responses of 200 China companies – that are active on the capital markets – and institutional investors, who we surveyed on the topic of sustainable financing and investing. This is the second year we have run this China survey.
Sustainability shifts to strategic priority
Issuers’ and investors’ focus on sustainability in their organisations, in industries, and across supply chains, has strengthened in the past 12 months, provoked by the experience of the pandemic, supportive government policy, and regulatory efforts to deepen and develop the sustainable finance market. For a fifth of issuers sustainability has even become their most important strategic priority.
Issuers and investors seek to develop and fund net zero transition plans
Responding to the government’s net zero 2060 commitment, issuers and investors are increasing their focus and attention on what they need to do, including developing their own net zero plans, and seeking extra investment to enable their low carbon transition.
Sustainable finance evolves and matures but challenges remain
Across products and markets, development continues apace, and most issuers see no obstacles to using sustainable debt financing. However, while half of investors say the same, half do see serious difficulties, including on pricing, the work involved in investing in such products, and in trading such securities on the secondary market.
Broad support for policy initiatives to grow sustainable finance
Issuers and investors are showing broad-based support for various China central bank’s green finance and climate change mitigation initiatives, with most (30%) showing complete alignment on incorporating climate change into policy and seeing this as the most important initiative to develop green finance in China over the next two years.
Issuers and investors see benefits in greater disclosure
Should the government require companies to disclose more information on environmental and social issues, issuers say two of the main benefits would be helping them internally to be more sustainable, and helping their investors better understand their sustainability activities. For investors, most believe it would help them choose between more and less sustainable companies, and that it would make it easier for them to invest sustainably.
Barriers to investment fall but skills gap emerges
While 59% of respondents this year say they see no obstacles to investing in the green and sustainable economy – a significant shift from last year when just over half said the opposite – some 41% do see issues, and top among them a lack of the necessary ESG skills and understanding. Other prominent issues include the long term nature of projects, too much risk (especially for issuers), and internal investment policies preventing investment in these areas (particularly for investors).
Green and sustainable investment opportunities evolve
Over the next five years, issuers and investors believe clean coal, improved electricity grids, energy efficiency in industry and in buildings, as well as recycling and the circular economy, are among the most attractive investment opportunities, replacing areas such as carbon capture and renewable energy technologies that were in focus last year.
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