Key Investment Trends in Ethical Finance in China 2025
In 2024, China made significant strides in Environmental, Social, and Governance (ESG) disclosure, with the Shanghai, Shenzhen, and Beijing stock exchanges issuing sustainability reporting guidelines. This marked a pivotal moment in the country's commitment to sustainable finance.
The scope of ESG ratings is expanding beyond listed companies, reaching bond issuers, private companies, bank lending, equity investments, supply chain assessments, and government incentives. This broadening of focus reflects China's determination to integrate ESG considerations into all aspects of its financial sector.
One key area of focus is pension finance, identified as one of China's 'five key areas' of financial development. This encompasses pension fund management and investment in elderly care, with ESG growth expected through pension funds and Investor Relations (IR) management.
China's ESG rating industry is maturing, with market share concentrating on a few rating providers and growing standardization and transparency in rating methodologies. This maturation is crucial for fostering trust and confidence in the ESG ratings system.
Carbon reduction and ESG disclosure policies are driving financial institutions and corporations to prioritise carbon accounting, including Scope 1, Scope 2, and Scope 3 emissions. This focus on carbon accounting is a critical step towards achieving China's carbon peak and neutrality targets.
Climate change poses significant risks to human safety and business assets, and there is a growing emphasis on adaptation measures in China. In response, initiatives such as the Action Plan on Early Warning for Climate Change Adaptation (2025-2027) and the National Action Plan on Health Adaptation to Climate Change (2024-2030) were released in 2024.
The Central Economic Work Conference's call for a moderately loose monetary policy is expected to drive the growth of green loans and investments. This monetary policy shift, coupled with the emphasis on ESG disclosure and carbon accounting, could accelerate China's transition to a greener economy.
The rise of protectionism globally is affecting ESG development, with the US facing political polarization and adopting a 'greenhushing' approach. Despite these challenges, China remains committed to collaborating with other countries, particularly the European Union, on sustainable finance. The expected collaboration includes the Common Ground Taxonomy (CGT).
ESG compliance will become increasingly critical for Chinese firms seeking to expand internationally. As Chinese products accelerate their entry into global markets, manufacturers must prioritize ESG compliance in international trade and overseas operations.
Looking ahead, the Taskforce on Nature-related Financial Disclosures (TNFD) is expected to grow in discussion, with the release of its recommendations and guidance in September 2023. In 2025, institutions such as the Hong Kong Green Finance Association (HKGFA) will use the TNFD recommendations and publish related reports, leading in integrating nature-related risks into financial decision-making and promoting green and sustainable finance in the region.
The report by Syntao Green Finance and the China Sustainable Investment Forum forecasts trends in responsible investment in China for 2025. With the continued growth and maturation of China's ESG sector, these forecasts promise an exciting future for sustainable finance in China.
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