The scope for the financial sector to innovate in the field of sustainability is one of the most striking findings to come out of the research.
Asked which of 12 areas of the economy hold most potential for innovations that make them more sustainable in the next five years, 69% of investors picked finance — more than any other sector.
That is even more than the 57% who chose information technology, which includes pivotal developments such as the internet of things and artificial intelligence. Just over half of issuers also share this conviction about sustainable finance’s potential, though even more of this group are expecting exciting innovations in energy (62%) and manufacturing (60%).
The success of China’s green bond market in mobilising capital for climate change mitigation projects may be one factor in this optimism. Another possible factor is the widespread perception that banks are committed to green and sustainable finance. Issuers and investors are both convinced that banks are well developed in this regard, and give banks higher scores than they give each other.
“When asked to say how effective seven aspects of green and sustainable finance are, investors give their highest marks to the green bond market”
Finance’s high potential contrasts with that of professional services. Lacking the capacity to allocate capital to support sustainability, professional services is ranked last out of 12 sectors for its prospects of generating sustainability innovations. Issuers, often major users of accounting and legal services and sometimes of consultancy too, are particularly sceptical on this question.
Also at the other end of the spectrum from finance, respondents see limited potential for sustainability innovation in agriculture and buildings in the coming years. Given the challenges of feeding and housing China’s huge population, this is a notable conclusion.
Moreover, it is echoed in their assessment of the most attractive investment opportunities over the medium term. Sustainable agriculture/forestry and energy-efficient housing receive two of the lowest scores among 17 potential areas of investment.
Conclusion Energy, recycling and health among big investing challenges for China’s economy
Across a host of parameters, this annual survey of issuers and investors shows green and sustainable finance moving rapidly into the mainstream of Chinese financial markets thinking.
It reveals notable appetite for investing in China’s green and sustainable economy despite significant remaining obstacles — particularly a perceived lack of returns, but also an absence of tax or other financial incentives.
Respondents identify carbon capture and innovative power generation technologies as prominent green and sustainable investment opportunities in China over the next five years. They see recycling and ‘circular economy’ initiatives as attractive too.
With the Chinese green bond market a striking early success, the survey also highlights continuing appetite to issue green and sustainable debt.
New areas of focus also stand out in the wake of the coronavirus pandemic. The health of the Chinese population is the most obvious increased priority, but the emerging issue of supply chain sustainability is also gaining traction.