China’s green transition: Financial institutions boost investments in sustainable projects
China’s green transition: Financial institutions boost investments in sustainable projects | Insurance Business Asia
Insurance News
China’s green transition: Financial institutions boost investments in sustainable projects
What progress have businesses made so far?
Insurance News
By
Jonalyn Cueto
China is intensifying its efforts to foster a green transition across economic sectors and promote financial instruments aimed at supporting environmentally sustainable practices. Recent guidelines issued by the Communist Party of China Central Committee and the State Council emphasize the nation’s commitment to this green agenda, as reported by Xinhua News Agency.
The People’s Bank of China revealed that by the end of 2023, the balance of green loans, encompassing both local and foreign currencies, had reached $4.1 trillion (30.08 trillion yuan). This figure represents a year-on-year increase of 36.5%, surpassing other loan types.
Concurrently, domestic issuance of green bonds in China approached $498 billion (3.62 trillion yuan). These bonds predominantly fund the green transition in the energy, construction, and mining sectors, according to a study by the International Institute of Green Finance.
Financial institutions in China are also playing a key role in this shift towards sustainability. Many have launched investment funds focused on environmental, social, and governance (ESG) criteria.
By the end of 2022, there were 296 mutual funds with a focus on sustainability, managing assets totaling $55.5 billion (403.7 billion yuan), as reported by the Asset Management Association of China.
Shift towards greener investments
E Fund Management Co., Ltd. (E Fund), the largest mutual fund manager in China, is at the forefront of this movement. E Fund has embraced ESG principles by becoming one of the first signatories of the Principles for Responsible Investment (PRI) in China. The firm has also introduced several ESG-related products, including the E Fund Environmental Theme Flexible Allocation Hybrid Fund and the E Fund Carbon Neutral 100 ETF.
The recently issued guidelines encourage not only the optimization of investment mechanisms but also greater involvement of social capital in green and low-carbon projects. In response, leading institutions like E Fund have developed comprehensive ESG research databases and methodologies. E Fund has enhanced its proprietary ESG rating framework to align more closely with the characteristics of China’s A-shares market. According to a news release, this framework evaluates portfolio companies based on environmental impact, management, and opportunities.
Furthermore, E Fund has published a climate risk management framework designed to effectively monitor and manage the effects of climate change on investments. This initiative highlights the firm’s commitment to integrating climate risk considerations into its investment strategies.
Established in 2001, E Fund is a prominent mutual fund manager in China, overseeing nearly RMB 3.3 trillion (US$ 454 billion) in assets. The company provides investment solutions to a diverse client base, including central banks, sovereign wealth funds, social security funds, pension funds, insurance companies, and corporations.
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