China’s fund industry lags behind Europe’s when it comes to ESG investing standards
China’s fund industry lags behind Europe’s when it comes to ESG investing standards © Getty Images

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China’s central bank has revealed that it is co-operating with the European Union to converge green investment taxonomies across the two markets, aiming to implement a jointly recognised classification system for the environmental credentials for businesses by the end of this year.

Yi Gang, the governor of the People’s Bank of China, said at the China Development Forum in March that the primary goal of the central bank over the next five years was to implement and standardise a green finance system in the country in co-ordination with global partners.

The bank said it was an “urgent” task to fulfil the goals of having domestic carbon emissions peak before 2030 and turn carbon neutral by 2060, as pledged by Chinese President Xi Jinping last September.

To achieve those objectives, the head of the central bank said China was working with the EU to push for greater convergence of taxonomies of green finance and investments.

This article was previously published by Ignites Asia, a title owned by the FT Group.

Yi said deepening international co-operation on green finance, including discussing details on the adoption and incorporation of a globally recognised green taxonomy would be discussed at the upcoming G20 summit, which is scheduled to be held in Rome in October.

During the summit, the PBoC plans to set up a sustainable finance study group, with the US Treasury Department as a co-chair, to establish co-ordination on building a road map for advancing sustainable finance.

“We will deepen the co-operation with Italy, US and other G20 members, to discuss and design an overall road map of sustainable finance, to further discussions with various parties about topics such as reporting and disclosure, as well as green taxonomy,” Yi said.

The commitment from China to co-operation on establishing universal approaches to green investment came just days after the EU's Sustainable Finance Disclosure Regulation came into force on March 10 for fund houses operating or selling products in Europe.

The European SFDR rules require asset managers to disclose any negative environmental and social impacts of their investments, and categorise their products accordingly, but many asset managers in Asia have been left unsure over the extent to which they need to comply.

China’s fund industry is behind Europe’s when it comes to developing a standardised framework for environmental, social and governance investing.

In 2019, China’s self-regulating body, the Asset Management Association of China, gave the ESG industry a kickstart by asking asset managers to carry out a self-assessment on their green investing practices, in a move to further encourage responsible investing in the country.

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However, according to AMAC's latest report issued this February only 40 per cent of 37 sampled retail fund companies reported that “green investing” has been incorporated into their strategic planning.

Meanwhile, just one-third of the sampled retail fund firms had set up green investing business targets and only 38.5 per cent of them followed up to disclose whether they have fulfilled their internal goals.

Nevertheless, ESG, and green finance particularly, is progressing quickly, with Chinese asset owners and managers stressing their desire to develop proprietary approaches that are better suited to their home market, and in some respects differ from standard practices in global markets.

One example was China’s insurance giant, Ping An, which announced last year that it would create a “China-specific ESG smart rating system” that it claimed could help promote responsible investing in the country.

Within the ESG universe, a framework for environmentally focused investment standards is likely to be one area where Chinese and European authorities are most easily able to find common ground to help advance a mutual cause.

The EU’s long-term goal is to be carbon neutral by 2050, in line with commitments under the Paris Agreement on climate action.

In addition to the China-EU initiatives, a UK-China pilot scheme to encourage climate and environmental information disclosure was launched in 2018 by the PBoC and Bank of England.

The pilot, which was due to run for four years, covered all financial sectors including banking, asset management and insurance, with China’s E Fund Management, the country’s second-largest retail fund manager, being among the first batch of participants.

*Ignites Asia is a news service published by FT Specialist for professionals working in the asset management industry. It covers everything from new product launches to regulations and industry trends. Trials and subscriptions are available at ignitesasia.com.

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