How China can build a more sustainable financial system


Chinese investors should integrate environmental, social and governance concerns into their investment decisions in order to fulfil their duties to their beneficiaries and support the development of China’s Ecological Civilization, according to a new report.

Investor duties should also reflect and align with the Chinese government’s Guidelines for Establishing a Green Financial System, the report found.

Investor Duties and ESG Integration in China, published in March, is the joint work of the UN Environment Finance Initiative (UNEP FI), the Principles for Responsible Investment (PRI), The Generation Foundation, and the International Institute of Green Finance (IIGF). It is available in both English and Chinese 中文.

“This report outlines important recommendations for creating a more sustainable financial system in China,” said Al Gore, former US Vice President and Chairman of Generation Investment Management. “As part of our Fiduciary Duty in the Twenty-first Century project, the work of the Generation Foundation, along with the PRI and UN Environment Finance Initiative, is helping investors everywhere consider what drives value in investment decision making, including important ESG considerations.”

Building on the recent achievements of the national Green Finance initiative in China, the report discusses the development of an investment and regulatory environment that promotes consideration of financially material environmental, social and governance (ESG) issues, consistent with investor obligations and duties.

Domestic and international capital markets are expected to play a significant role in financing China’s green transformation and growth. Sitting at the top of the investment chain, asset owners, and specifically State pension funds, are of critical importance to this process. Through their investment practices and through the signals they send to the wider investment market, they have the ability to cascade and drive green and sustainable capital through the investment chain.

Aligning investment practice with sustainability goals will be key to establishing a green financial system. The report considers how responsible investment regulations can contribute to achieving China’s long-term vision of balanced, inclusive and sustainable development.

Based on an analysis of interviews with key stakeholders in China and the stated priorities and objectives of the Chinese government, the report makes recommendations on policy guidance, pension regulatory guidance, corporate disclosure, standardized labels, and investor education:

  1. The China Securities Regulatory Commission (CSRC) and the Asset Management Association of China (AMAC) should publish guidance on green and sustainable investment that articulates how institutional investors and their investment managers should implement the Guidelines for Establishing a Green Financial System (GEGFS);
  2. The relevant Chinese government branch is recommended to issue regulation for pension funds to integrate ESG issues, encourage high standards in investee companies and disclose on ESG practices and performance;
  3. The government and the CSRC should continue to enhance ensuring and monitoring the effectiveness of the mandatory environmental disclosure framework for companies, and aligning with international disclosure standards for ESG issues;
  4. Investment managers, with support from the AMAC and regulators, should expand a standardized offering of green and sustainable investment products and comprehensive tools to support their market uptake; and
  5. The AMAC and investment managers should support investor education and ESG investment research.

Acknowledging the significant progress in China over the past decade in green and sustainable finance, the recommendations aim to accelerate the rate at which China’s investors align their practices with the goals of green finance and sustainable development.

“This project, driven by the progress of green finance and a rising interest in ESG integration in China, builds knowledge and shares experience among policy makers and investors on how integration of material ESG factors contributes to long-term sustainability,” said Eric Usher, Head of the UN Environment Finance Initiative.

“China is emerging as an unequivocal driver of global climate change mitigation, sustainability and green finance. Their bold efforts at addressing climate change, as well as transforming the country’s economic structure, are leading the global agenda,” said Fiona Reynolds, CEO of the Principles for Responsible Investment.

“As part of aligning financial markets with China’s development goals, asset managers are increasingly integrating ESG factors into their investment decisions,” said Wang Yao, director general of the International Institute of Green Finance.

“The comprehensive approach of this report is an important contribution to this agenda, providing tangible recommendations within guidance, regulation, disclosure, standards, and investor education.”

The project is part of the Fiduciary Duty in the 21st Century Programme from UN Environment Finance Initiative, the PRI, and The Generation Foundation to clarify investors’ obligations and duties at national and international levels in relation to the integration of ESG issues in investment practice and decision-making. The programme has delivered so far eight country studies, extended the research to six Asian markets, and engaged with the European Commission High Level Expert Group (HLEG) on Sustainable Finance.

UN Environment