China tops US as world's second-largest climate funds market

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According to Morningstar, assets in the Chinese climate funds grew by 149% from 2020 to $46.7 billion last year.

The US was bumped to third place after Europe and China. According to Morningstar, sustainable investment has continued to expand in global markets, with China overtaking the United States as the world's second-largest climate funds market last year, highlighting favorable local circumstances for environmental, social, and governance (ESG) investing.

The rest of the world's climate funds also doubled to $6.3 billion at the end of last year.

Hortense Bioy, global director of sustainability research at Morningstar, stated that “the rapid expansion of China’s climate funds market can be mostly attributed to the heightened focus on climate change and other environmental issues in the ruling party’s agenda for economic transformation."

Last year, clean energy and technology funds accounted for more than 60% of annual inflows of the Chinese climate funds sector.

Climate funds focus on concerns regarding climate change, with some investing in firms having measurable climate plans and others investing in companies or products that directly address specific climate challenges.

Clean energy and technology funds invest in companies that contribute to clean energy transitions, whereas climate solutions funds invest in companies that are working on the global transition to a low-carbon economy, such as water management companies and electric vehicle manufacturers.

The Hong Kong market has also seen an increase in interest in social and governance (ESG) investing, however, when evaluating ESG methods, investors are primarily concerned with returns.

According to a CFA Institute poll, all institutional investors and 88% of individual investors in Hong Kong have used or are interested in ESG investing techniques, up from 80% and 79% respectively in 2020.