China’s net-zero golden opportunity

UK institutional asset owners are underexposed to China to the extent that strong performance in the Middle Kingdom doesn’t make a meaningful contribution at a total portfolio level.

The Chinese leadership has set a 2060 net-zero carbon target and this top-down endorsement will likely see greater opportunities for foreign institutional investors and active asset managers to play a meaningful role in unlocking value in the two biggest investment trends in a generation: China and ESG.

As Liang Yin, director in Willis Towers Watson’s investment research team and China project lead puts it: “Long-term ESG-related themes, such as climate change, can create return opportunities. China has in recent years emerged as a world leader in funding and developing technologies to combat climate change and its net-zero pledge will greatly influence economic and climate policies in the decades to come.”

Indeed, it is precisely because standards in China are lower relative to the rest of the world that there is opportunity, however investors must also balance hyper-specific issues on the social side, such as forced labour and human rights abuses.

But change in China is fast-moving. For example, in just a few decades 800 million people have been lifted out of poverty and life expectancy and GDP per capita have improved dramatically.

While the economic rise is entrenched, the next chapter is about China’s financial rise – and active investment management by foreign players presents a golden opportunity.