On January 6, 2025, SynTao Green Finance and the China Sustainable Investment Forum (China SIF) jointly released the Top 10 Trends in Responsible Investment in China 2025, offering insightS into trends, strategies, and market directions.
Trend 1: The Rise of Protectionism Affecting Global ESG Development
Globally, ESG progress is being overshadowed by geopolitical conflict and rising protectionism. In the U.S., ESG faces political polarisation that is likely to continue for years. As a result, many U.S. institutions have adopted a "greenhushing" approach, avoiding overt discussion of ESG and net-zero targets, even though they still consider climate issues in practice, particularly in markets outside the U.S.
This also makes China-EU cooperation more important in achieving the UN Sustainable Development Goals (SDGs) and the Paris Agreement. It is expected that China and Europe will further sustainable finance collaboration such as the Common Ground Taxonomy (CGT). However, signs of protectionism in Europe, particularly in areas such as electric vehicles and critical minerals, could lead to trade frictions, with some ESG factors potentially being used as trade barriers. This warrants careful navigation.
Trend 2: Green Transition and Monetary Policy Drive ESG Growth
Despite economic pressures, China remains committed to its carbon peak and neutrality targets, adjusting the pace, approach and intensity as needed. The coordinated advancement of pollution and carbon emission reduction, green space expansion and economic growth, will dominate the green transition.The development of transition finance is expected to grow significantly, with standards and statistical methodologies gradually being established.
This foundation will pave the way for more market-driven incentives. The Central Economic Work Conference's call for moderately loose monetary policy is expected to drive the growth of green loans and investments, pushing the scale of ESG-related assets to new heights.
Green transition will also stimulate carbon finance, green equity finance, green leasing and green trusts. By 2025, China's national carbon market is expected to expand beyond the power sector to include sectors such as steel, cement and aluminium, covering around 60% of total national greenhouse gas emissions and boosting market vitality.
Trend 3: Climate Adaption Actions to Address Extreme Weather Risks
Climate change poses significant risks to human safety and business assets by intensifying extreme weather events such as heatwaves, floods, cold waves and storms. Historically, mitigation strategies have dominated climate action, but there is now a growing emphasis on adaptation.
In 2024, China released initiatives such as China's Action Plan on Early Warning for Climate Change Adaptation (2025-2027) and the National Action Plan on Health Adaptation to Climate Change (2024-2030). Cities such as Beijing and Shanghai also unveiled localised climate adaptation strategies, signalling that more adaptation measures will be taken in 2025.
Financial institutions and climate-sensitive sectors will increasingly prioritise physical risks in climate risk analysis, assessing impact pathways, risk probability and impact assessment. Sectors such as agriculture, transportation, construction and renewable energy will need to improve monitoring, invest in technological upgrades and adopt sustainable practices to build resilience. Businesses dependent on water, land or marine ecosystems should pay attentions to assessing physical risks and improving infrastructure resilience.
Trend 4: Standardisation and Expansion of ESG Disclosure
2024 was a landmark year for ESG disclosure. The Shanghai, Shenzhen and Beijing stock exchanges issued sustainability reporting guidelines, while the Hong Kong stock exchange introduced new climate disclosure regulations.The International Sustainability Standards Board (ISSB) standards began to take effect and the Chinese Ministry of Finance issued the Basic Standards for Corporate Sustainability Disclosure. In addition, the Hong Kong Institute of Certified Public Accountants (HKICPA) issued HKFRS Sustainability Disclosure Standards (HKFRS S1 and HKFRS S2).
With these strong policy signals, ESG reporting is expected to increase in quantity and improve in quality. The demand for report assurance will also increase, enhancing their credibility.
While the mandatory disclosure requirements of most policies apply to financial year 2025 and beyond, leading companies in many sectors will likely adopt these standards earlier for financial year 2024. These companies will face two key challenges. First, how to appy the double materiality principle to identify material issues, particularly when analysing financial impacts; second, how to incorporating climate risk analysis under different scenarios and assessing their differential impacts. Regulators are expected to guide and support this process.
Trend 5: Carbon Accounting and Transition Planning Attract Attentions
Carbon reduction and ESG disclosure policies are driving financial institutions and corporations to prioritise carbon accounting. Scope 1 and Scope 2 emissions are basic requirements. The number of listed companies disclosing these emissions is expected to increase significantly.
Scope 3 emissions along value chain emissions are growing in importance and are critical for financed emissions of financial institutions and companies with long supply chains. While leaders in banking and renewable energy are already driving Scope 3 calculations, wider adoption remains a challenge. In addition, practices of avoided emissions (known as Scope 4 or Scope 3+) are emerging, but lack standardisation.
High-emitting sectors also need to develop credible and feasible transition plans. Financial institutions may increasingly require borrowers and investee companies to disclose these plans, in line with institutional investors' calls for greater transparency on emissions reduction pathways.
Trend 6: TNFD Drives Financial Markets to Focus on Nature
The Kunming-Montreal Global Biodiversity Framework reflects a systematic approach to biodiversity protection, pollution control, and climate change mitigation. Biodiversity and nature-related topics are expected to emerge as key issues following climate change. ISSB has identified biodiversity, ecosystems, and ecosystem services as priority research areas. Additionally, the COP30 in Brazil will emphasise biodiversity and nature-related discussions, bolstered by Brazil's G20 Initiative on Bioeconomy (GIB) launched in 2024.
Nature-related disclosure and data supply are set to increase. The Taskforce on Nature-related Financial Disclosures (TNFD) released its recommendations and guidance in September 2023, garnering adoption by over 500 organisations, including seven institutions from Chinese mainland. In 2025, discussions around TNFD are expected to grow, with more companies adopting its framework and publishing related reports. Leading financial institutions and enterprises are also exploring ways to integrate nature-related data into risk management.
Trend 7: Export Compliance Drives ESG Performance Improvement
In recent years, EU has introduced sustainability-focused legislations such as the Corporate Sustainability Reporting Directive (CSRD), Corporate Sustainability Due Diligence Directive (CSDDD), and the forthcoming EU Deforestation Regulation (EUDR). These laws emphasize supply chain due diligence and accountability, promoting responsible behavior among international suppliers. As Chinese products accelerate their entry into global markets, manufacturers, particularly in emerging industries like electric vehicles, lithium batteries, and photovoltaic products, must prioritize ESG compliance in international trade and overseas operations. In addition, overseas financing also faces ESG requirements from financial institutions, such as ESG rating and information disclosure.
Some controversial events in 2024 have highlighted the importance of ESG performance for Chinese enterprises with overseas operations. Improving ESG performance aligns with China's overarching direction to prioritise small and beautiful projects and to enhance the well-being and satisfaction of local communities when investing overseas. ESG compliance will become increasingly critical for Chinese firms seeking to expand internationally.
Trend 8: Broader Applications of ESG Ratings
China's ESG rating industry has evoluted to the next stage and becomes more mature. Market share will concentrate to a few rating providers and there will be growing standardisation and transparency in rating methodologies. In the area of traditional ESG rating, data products will be subdivided into specialised categories, such as transition assessment, green revenue and biodiversity risk, etc. to meet diverse and evolving needs of asset managers.
The scope of ESG ratings is also expanding from listed companies to bond issuers and private companies, with applications extending to areas such as bank lending, equity investments, supply chain assessments and government incentives. ESG ratings on supply chain will have significant growth potential, particularly in sectors such as textiles, electronics and renewable energy.
Trend 9: Untapped Potential in Pension Finance and Market Value Management
Pension finance, one of China's "five key areas" of financial development, encompasses pension fund management and investment in elderly care. Recent tax incentives for private pension schemes benefit the third pillar of China's pension system. Meanwhile, market value management through improved investors relationship (IR) management and disclosure has become more important, with the China Securities Regulatory Commission (CSRC) publishing specific guidelines and the State-owned Assets Supervision and Administration Commission of the State Council (SASAC) urging state-owned enterprises to strengthen market value management through improved ESG governance and disclosure.
Worldwide experiences indicate that pension funds and IR management often catalyse ESG growth. Private pension schemes allow beneficiaries to choose investment products, which will cultivate long-term investment mindset.In terms of market value management, ESG disclosure on non-financial performance can help investors better assess overall performance of listed companies.This will be important for long-term investors. As a result, ESG in private pension schemes and market value management is with high potential. In 2025, we expect to see some innovative approaches to integrating ESG factors into proviate pension schemes and investor engagement.
Trend 10: Rapid AI Growth Highlights the Importance of Technology Ethics
The rapid development of artificial intelligence (AI), particularly generative AI, has had both positive and negative impacts across sectors. Issues such as energy consumption, privacy, copyright and job displacement have received increasing attentions. Regulations and initiatives such as the AI Act by EU and the Shanghai Declaration on Global AI Governance by the World AI Conference, suggest that AI growth and regulation will continue in parallel.
The rise of AI underscores the critical role of technology ethics. The controversy surrounding robotaxi in 2024 highlighted the ethical challenges facing tech companies. In response, China's sustainability reporting guidelines by the Shanghai, Shenzhen and Beijing stock exchanges emphasise the importance of disclosing performance on technology ethics including relevant policies, management procedures and remedy measure, particularly for companies in sensitive areas such as life sciences and AI. Therefore, even small tech startups are advised to consider ethical compliance to avoid "black swan" events.
Stay tuned for upcoming seminars and workshops on the "Top 10 Trends in Responsible Investment in China 2025".
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