China now accounts for over 11% of the world’s $103trn equity markets, and is ranked the second largest in the world. Yet, its enthusiasm for dedicated ESG funds has lagged other regions.
“In 2020, sustainable investing assets made up 35.9% of all professionally managed assets in the major developed countries. If 35.9% of the capital in China’s equity market flows into sustainable investing, the AUM would be $4.3trn,” said Johnnie Yung, managing director of Haitong International Asset Management, at a roundtable this week.
Yung identified three key drivers for the growth of investment in China ESG.
First, with more foreign institutional investors focusing on China A shares, there will be greater pressure for Chinese companies to improve their transparency and disclsoure of information to meet global ESG standards.
Second, strong policy support from the Chinese government is evinced by Beijing’s setting climate transition goals to reach carbon peak in 2030, and net-zero in 2060, said Yung.
For instance, China has also been calling for more regulations on environmental disclosure and development since 2016. Last year, the government stipulated guidelines for mandatory ESG disclosures.
During the fifth plenary session of the 19th central committee of the Communist Party of China, the party pledged to make progress in building an “ecological civilization, optimize the development and protection of territorial space, and achieve notable results in green transformation of production and lifestyles”.
Finally, there is a growing awareness of ESG investment in China. The economy is shifting from high-risk low-opportunity ESG sectors such as energy and materials to low-risk high-opportunity sectors such as medical, technology and consumer services, said Yung.
New ESG funds
There is also a trend of growing ESG adoption in China, with over 100 ESG funds available now in the country, the asset manager noted.
Haitong International Asset Management currently manages the Haitong MSCI China A ESG ETF and the Tabula Haitong Asia ex-Japan high yield corporate US dollar bond ESG UCITS ETF.
It is planning to launch its third China ESG fund, Wang Shengzu, managing director, global head of asset management of Haitong International told the press at the same event. The proposed fund will be an actively managed China A-shares ESG fund, but no launch date has been announced.