Policy briefing: Asset owners, ESG and carbon neutrality in China - Current practices and policy recommendations

Download English or Chinese PDF

This policy briefing reviews major Chinese asset owners’ public disclosures about their sustainable investment practices and conducted targeted interviews with some of the largest asset owners and industry associations. Based on market research and interview feedback, this report highlights key market trends and practices and identifies key challenges and barriers for future developments. It also makes recommendations for areas of potential policy reform to support Chinese asset owners’ responsible investment activities.

Key findings

Main drivers of asset owners’ responsible investment practices in China include the national strategy and government policies, cross-market ESG disclosure requirements, increasing expectations from stakeholders and opportunities for alpha creation.

Existing responsible investment practices for asset owners in China include the setting of overarching policy, strategy and senior-level oversight; the development of proprietary ESG database and evaluation systems; a focus on fixed income as a priority for insurance companies; the integration of ESG issues into external manager selection; an increasing focus on stewardship and active ownership; and the development of training and market education.

Existing practices of responsible investment related to climate change mitigation and the low-carbon transition in China include explicit references to climate change in sustainable investment policies, the use of climate stress testing, setting portfolio decarbonisation targets and transition plans, engaging with investee companies on climate change and specific climate-related disclosures.

Challenges and barriers for responsible investment and climate transition in China include varying interpretations of current energy/carbon policy, lack of quality ESG and climate data, lack of standards and technical guidance, lack of expertise and lack of clear regulatory guidance on stewardship. 

Key recommendations

China’s regulatory landscape on sustainable investment has been developing, yet gaps still exist compared to leading regulatory practices in other markets. Informed by feedback from the interviewees, this report also outlines policy recommendations that would support and incentivise Chinese asset owners to adopt sustainable, green investment practices and promote the sustainable development of China’s real economy. These include:

• Clarifying investors’ duties to consider and address material sustainability-related factors, including ESG issues, into investment processes.
• Publishing detailed investment guidance on asset owners’ ESG integration for all asset classes.
• Publishing detailed technical guidance for green product classification and labelling for wider asset classes.
• Updating existing evaluation and reporting standards to require investor disclosures regarding their strategies for and performance of sustainability-related factors.

To address the main challenges and barriers encountered by investors while implementing sustainable investments and a climate transition, we also need detailed facilitating policy tools to support investors’ actions:

Supporting recommendations: detailed facilitating policy tools

• Introducing a mandatory, standardised corporate ESG disclosure requirement.
• Strengthening regulatory support for stewardship.
• Promoting international collaboration and investor education across markets.