China’s institutional investors are embracing the country’s climate solutions opportunity

It’s been five years since China first launched its ‘dual carbon’ strategy. The aim was to have carbon emissions peak by 2030 and achieve carbon neutrality by 2060. Beijing’s ability to deliver on its ambitions were inevitably linked to a rapid renewable energy roll-out in the years that followed.

To that end, the government set its eyes on a combined wind and solar power capacity of 1200 GW by 2030. That target was achieved in July last year, six years ahead of schedule. The pace and scale of China’s renewable energy rollout have resulted in a widening climate solutions investment prospectus.

Research from the Asia Investor Group on Climate Change (AIGCC) shows that amongst China’s institutional investors, a recognition of this climate solutions opportunity is on the rise.

Mainstream

A renewable energy roll-out at an unprecedented pace brought with it a widening set of investment opportunities. From solar power development and offshore wind farms to energy storage and grids, investors now have access to a Chinese climate solutions smorgasbord.

AIGCC’s research surveyed 30 institutional investors across China with a collective US$19.7 trillion in AUM.

The findings show that 73% of investors now recognise the financial materiality of climate change. For these investors, the AIGCC research finds, integration of climate change is now ‘mainstream’.

“We are encouraged to see Chinese investors demonstrating a growing awareness and action on the financial implications of climate change. Investors are pivotal in achieving China’s energy targets”, said AIGCC chief executive Rebecca Mikula-Wright.

Climate mandates

AIGCC’s research also shows climate materiality is increasingly steering the flow of capital. 50% of Chinese investors are now integrating climate factors into their investment policies.

The implications of mainstream climate materiality are wide-reaching. One of which is climate-driven mandates for asset managers based in China.

“We are encouraged by the performance of Chinese asset managers but asset owners, as stewards of capital, are positioned to be the best drivers of climate action”, says Mikula-Wright.

“Their mandates provide a catalyst for asset managers’ investment decisions and stewardship practices that will help accelerate China’s climate transition”, she adds.

For Invesco Great Wall Fund Management, a Sino-American asset manager, these mandates shape their climate offering.

“As an institutional investor based in China, we recognise our role in supporting our clients who have investment objectives to contribute to China’s climate goals and capture opportunities in climate solutions”, commented Su Yingying, head of ESG research at Invesco Great Wall Fund Management’s investment department.

Opportunity set

The climate solutions opportunity set is visible in the funds on offer, often through the listed equities channel.

BlackRock, for instance, offers exposure to Chinese transition opportunities through its China Environmental Tech Fund. Its largest holdings include Chinese battery manufacturer CATL and electric vehicle manufacturers XPeng and BYD. Along similar line, 4.3% of Ninety One’s All China Equity Fund is invested in CATL. Robeco’s Chinese Equities Fund is classified as an Article 8 fund under the EU’s SFDR regulation – implying that its portfolio management ‘promotes’ environmental factors.

These portfolios benefit from many of the current climate solutions behemoths having participated in the China’s stock market boom in the early 2000s.

Coal fleet

There is, however, a pinch of salt that goes with Chinese climate solutions – phasing out the country’s coal fleet.

Researchers at the Global Energy Monitor (GEM) and Centre for Research on Energy and Clean Air (CREA) estimate that in the first half of the year, China commissioned nearly 25GW of coal power. That is lower than previous years, but it brings the number of new and revived coal power projects to their highest level in a decade.

For investors integrating climate materiality into their portfolios, the future trajectory of these figures will be crucial.

AIGCC’s findings show that Beijing’s renewable energy plans have delivered a climate solutions opportunity investors are paying attention to. To that end, the country’s energy transition has resulted in a visible side-effect: the mainstreaming of climate materiality.