China x Asia: The impact of China’s sustainable finance development on Asia’s financial hubs

China’s promise to reach peak carbon emissions by 2030 and net zero by 2060 has put its decarbonisation ambitions firmly in the spotlight. Outside of the United States and Europe, the economic titan presents itself as one of the largest markets for sustainable investment.

For investors with a focus on environmental, social and governance (ESG), China’s pledges signalled opportunities that will be afforded by its move away from carbon-intensive sources of power to an economy that uses cleaner energy and technology. The enactment of policies and regulations are expected to compel companies to play their part.

As we witness more robust action towards environmental disclosure and management, green investments are gaining ground in Chinese financial markets. Green bonds are now key assets in China’s market with issuance breaking a new record last year and with brisk growth in January likely to set the tone for the months ahead.  

Meanwhile, the sustainable finance momentum is seen in Asia’s traditional financial markets such as Hong Kong and Singapore, where climate-related financial disclosure standards are set to impact even non-financial industries. While more work is to be done to address the quality of ESG disclosures that investors seek, observers expect a tightening of capital flows going to high carbon assets, but also fresh interest in the green finance instruments.  

Some important questions remain: What is the impact of China’s sustainable finance mechanisms on the rest of Asia? How will the region’s taxonomies and disclosure standards impact on the increasingly stringent expectations from global investors? What more needs to be done to enable financing to achieve Asia’s sustainable development goals?