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New investor group aims to decode China’s energy transition

Both domestic and foreign investors could use more knowledge sharing to improve mutual understanding of the energy transition in the world’s second-largest economy.
New investor group aims to decode China’s energy transition

The Asian Investor Group on Climate Change's (AIGCC)’s new China working group is expected to foster mutual understanding between foreign and domestic investors to jointly address the country’s Rmb139 trillion ($20 trillion) funding gap facing its energy transition.

AIGCC launched its first working group on China on April 24, aiming to facilitate the sharing of expertise in key climate change-related practices among China-based investors and international investors active in China.

It is AIGCC’s seventh working group and second country-specific such group following its establishment of a Japan working group. Other groups are focused on themes such as engagement and land use.

“This kind of cross-border collaboration and knowledge sharing really helps to improve confidence in the narratives and in investing [in China’s energy transition],” Ou Yong Xuan Sheng, a green bond and ESG analyst at BNP Paribas Asset Management, told AsianInvestor.

Ou Yong Xuan Sheng,
BNP Paribas
Asset Management

China requires more than Rmb139 trillion of investment, equating to a long-term funding gap of Rmb1.6 trillion annually, to reach its dual-carbon targets of peak carbon emissions by 2030 and carbon neutrality, or net-zero, by 2060.

That's according to the country's Ministry of Ecology and Environment, which attended the inaugural meeting of the China working group. 

The launch and development of major policies in China, such as the China Emissions Trading System and the China-EU Common Ground Taxonomy-Climate Change Mitigation have contributed to the urgency among investors on climate change and ESG investing.

"Investors are keen to provide input into these processes," a spokesperson of AIGCC noted.

In the first year following its launch, the working group will be open to Chinese investors that are not currently AIGCC members to encourage discussions on climate change.

So far, no mainland China-based asset owners or managers have become AIGCC members. Its asset owner members include large life insurance companies, Korea's National Pension Service (NPS), and Singapore's GIC.

As energy transition efforts accelerate globally, investors are also increasingly seeking to reduce exposure to climate risks in China.

“Through the China working group, we're keen to foster an environment for conversations amongst investors with an interest in the development of climate policy in China and are looking to deepen their engagement in the market,” said Valerie Kwan, AIGCC's director of engagement.

Valerie Kwan, AIGCC

LOCAL CONTEXT

After three years of Covid-19 restrictions, foreign asset owners and managers are interested in finding out about the latest developments in China’s energy transition-related policies and regulations.

“Interest in China is always there," Ou Yong said. "I think people are being cautious, due to some non-energy transition-related policy changes … clients are cautiously optimistic.” 

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“The story of the energy transition and carbon neutrality is still very much intact," Ou Yong said. "They understand it. The question is how you invest in it and what kind of risk profiles and return profiles they are looking at. 

“So, it takes some time for them to be again comfortable with the macro and the idiosyncratic situation. But whenever we talk to clients, China is always among the top three topics,” he said.

In a separate development, China Investment Corporation (CIC) President Ju Weimin recently met with BNP Paribas chairman Jean Lemierre and exchanged views on China-France investment cooperation, the global macro landscape, and the challenges and opportunities of the energy transition.

Ou Yong said that generally speaking, one of the challenges for foreign investors investing in China’s energy transition was understanding the local landscape and ecosystem.

This included understanding companies and issuers they invested in, having sufficiently developed local networks to make them comfortable investing, and mutual understanding of context when Chinese asset owners were trying to invest overseas.

One of the risks of investing in China’s energy transition involves investing in companies or issuers that claim to be engaged in green projects but which are actually developing polluting assets at a faster pace.

This is where initiatives by AIGCC and others, such as the EU-China Common Ground Taxonomy, become very useful, Ou Yong said. 

He emphasised that BNP Paribas Asset Management remained convinced that investments it had made in China’s energy transition through public equities and bonds would pan out in the future to contribute to closing the funding gap and help to address climate change issues globally.

Echoing Ou Yong’s remarks, AIGCC’s Kwan told AsianInvestor that China also needed to enhance the role of private capital in its green transition as the country had become a large green bond issuer globally.

Meanwhile, she stressed that Chinese regulators should take more steps to prevent greenwashing by implementing climate disclosure standards and climate taxonomies, and by developing standards for product and fund labelling, alongside ESG rating systems.

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