Summary
Julia Qian Mao, Director of International Cooperation at the International Institute of Green Finance (IIGF), explored the perceptions that China has of sustainability. Specifically, she discussed how ESG (Environmental, Social and Governance), climate finance, and green finance concepts are understood, and how relevant activities are led by different ministries and other stakeholders. The current focus of ESG is mostly on corporate disclosure, with increasing requirements from the State-owned Asset and Administration Commission (SASAC) and National Administration of Financial Regulation (NAFR), previously known as the CBIRC (China Banking and Insurance Regulatory Commission). Most green finance related work, i.e. green finance pilots, are driven by China’s central bank, the People’s Bank of China (PBoC).
Key Takeaways
- 2016 was a critical year for ESG and green finance in China because of the release of guidelines establishing the Green Financial System. This important policy had implications for businesses and stimulated increased engagement from major stakeholder groups, including regulators, the central bank and the insurance industry.
- Key risks for organisations relating to China’s net zero transition have been identified. These include regulatory and policy risks from changing ESG-related regulation, as well as reputational and legal risks for businesses engaging in unsustainable or controversial projects which will impact investor choices.
- Clear opportunities for green finance and investment are emerging in China. Opportunities are opening up within renewable energy, energy efficient buildings and green infrastructure, as well as from a general expansion of ESG-related services, transition finance and green finance- related services.
- There is a huge data and capability gap for ESG-related disclosure and action in China. This presents a significant opportunity for ongoing expansion of the ESG services industry to support businesses to address these gaps.
Conclusion
China is at an early stage of understanding ESG with broad regulations and guidelines in place and voluntary rather than mandatory requirements for businesses. Awareness of the importance of the net zero transition among businesses is growing; they are beginning to hire independent consultants to support them in their climate disclosure and understanding of ESG and to address the capability and data gaps relating to ESG. As a result, the ESG professional services industry has grown considerably over the past few years. At the same time, China also needs to balance needs across different issues including poverty and rural-urban development gaps as well as environmental issues.
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