Earth Day: China tops US as world’s second-largest climate funds market as sustainable investing gains traction, Morningstar says

Sustainable investing has continued to accelerate in global markets, with China overtaking the United States as the second-largest climate funds market in the world last year, reflecting favourable domestic conditions for environmental, social and governance (ESG) investing, Morningstar said.

Assets in the Chinese climate funds market grew by 149 per cent from 2020 to US$46.7 billion last year. The US, bumped into third place after Europe and China in market size, saw assets totalling US$31 billion, achieving 45 per cent growth since 2020. Climate funds markets in the rest of the world also doubled to US$6.3 billion at the end of last year.

“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,” said Hortense Bioy, global director of sustainability research at Morningstar.

Clean energy and technology funds formed a lion’s share of the Chinese climate funds market last year, taking up more than 60 per cent of annual inflows. Climate solutions funds followed at 35 per cent, while low carbon and climate conscious strategies remained less popular.

Climate funds are a part of environmental investing that focuses on climate-related issues. Funds under this category can be divided by their purpose, with some investing in companies with quantifiable climate strategies while others invest in companies or products that directly offer solutions to particular climate issues.