The exponential growth of green investment opportunities in China provides both a guiding light and a beacon of opportunity, but international investors may still need to be convinced, writes Paul Davies
China has experienced unparalleled economic growth in the past four decades. However, a by-product of this success is that the country has become the world’s biggest carbon emitter, accounting for more than a quarter of global carbon emissions. China’s unprecedented urbanisation has also contributed to significant environmental pollution, which has increasingly become the subject of public concern.
Since launching its “war on pollution” in 2014, the central government has prioritized environmental protection. In order to transition to a development path facilitating environmentally sustainable economic growth, China has widely promoted “green finance” and pursued a comprehensive and co-ordinated approach to “greening” its financial system.
For the purposes of this article, green finance means financial services provided for economic activities that support improvement of the environment, mitigation of climate change, and more efficient use of resources (as defined in the Guidelines for Establishing the Green Financial System, issued by the People’s Bank of China [PBC]).
Widespread implementation of green finance initiatives presents both challenges and opportunities for companies. As sustainability becomes increasingly important to investors, so too do opportunities for companies to tap green-minded investors and maximise growth potential by demonstrating corporate sustainability. Green finance therefore has great potential as a tool for providing finance not only for typically “green” companies, but also for companies transitioning from less sustainable practices to a more sustainable development path and seeking more generally to improve their sustainability performance.
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Paul Davies is a partner in the London office of Latham & Watkins. Aaron Franklin, Bridget Reineking, Andrew Westgate, associates of Latham & Watkins in London, Washington DC and New York, respectively, also contributed to this article