Emerging Investment Trends in China's Ethical Finance Sector for 2025
In 2025, China is set to continue its commitment to sustainable development, with a focus on small and beautiful projects that prioritise the well-being and satisfaction of local communities in overseas investments. This aligns with the country's overarching direction to coordinate the advancement of pollution and carbon emission reduction, green space expansion, and economic growth, as the green transition dominates China's landscape.
The Sustainable Markets Initiative (SMI) is collaborating with the China Sustainable Investment Forum to identify the top trends in responsible investment in China. Together, they will host the first SMI China Forum in Beijing, alongside the China Chamber of International Commerce (CCOIC), to drive sustainable innovation and global cooperation.
Cooperation between China and the European Union is of paramount importance in achieving the United Nations Sustainable Development Goals (SDGs) and the Paris Agreement. The EU has introduced sustainability-focused legislations such as the Corporate Sustainability Reporting Directive (CSRD), Corporate Sustainability Due Diligence Directive (CSDDD), and the forthcoming EU Deforestation Regulation (EUDR).
China's ESG rating industry is maturing, with market share concentrating on a few rating providers and growing standardization and transparency in rating methodologies. The scope of ESG ratings is expanding from listed companies to bond issuers and private companies, with applications extending to areas such as bank lending, equity investments, supply chain assessments, and government incentives.
ESG compliance will become increasingly critical for Chinese firms seeking to expand internationally. Chinese manufacturers, particularly in emerging industries like electric vehicles, lithium batteries, and photovoltaic products, must prioritise ESG compliance in international trade and overseas operations due to EU regulations.
However, protectionism in Europe, particularly in areas such as electric vehicles and critical minerals, could lead to trade frictions, with some ESG factors potentially being used as trade barriers. This is a concern that could overshadow global ESG development, as the rise of protectionism affects the progress in this area.
In response, China is expected to expand its national carbon market beyond the power sector to include sectors such as steel, cement, and aluminium, covering around 60 per cent of total national greenhouse gas emissions and boosting market vitality. This move is part of China's commitment to its carbon peak and neutrality targets, despite economic pressures.
Every year, a report on the top 10 trends in responsible investment in China is jointly released by Syntao Green Finance and the China Sustainable Investment Forum. In 2025, the report is expected to highlight the significant growth potential of ESG ratings on supply chain, particularly in sectors such as textiles, electronics, and renewable energy.
Meanwhile, overseas financing also faces ESG requirements from financial institutions, such as ESG rating and information disclosure. This trend is likely to continue, as ESG compliance becomes increasingly important for firms seeking to expand internationally.
Interestingly, the United States faces political polarization that is likely to continue for years, leading many US institutions to adopt a 'greenhushing' approach, avoiding overt discussion of ESG and net zero targets. This contrasts with China's commitment to sustainable development and its efforts to drive global cooperation in this area.
Lastly, pension finance, one of China's 'five key areas' of financial development, encompasses pension fund management and investment in elderly care. Recent tax incentives for private pension schemes benefit the third pillar of China's pension system. The development of transition finance is expected to grow significantly in China, with standards and statistical methodologies gradually being established.
The future of sustainable investment in China is promising, with collaboration between China and the EU expected to further sustainable finance, such as the Common Ground Taxonomy (CGT). As China continues to prioritise sustainable development, it is poised to play a significant role in shaping the global green transition.
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