Chinese climate funds overtake US with $47 billion in assets

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(Bloomberg) – Chinese climate funds more than doubled their assets last year, overtaking the United States as the world’s second-largest market and bolstering Beijing’s efforts to meet its net-zero goals.

Chinese fund assets hit $47 billion in 2021, a 149% increase from a year earlier, driven by record inflows and an outperformance of the domestic clean energy sector, according to data from the research firm Morningstar Inc. In the United States, climate funds have reached $31 billion. , while Europe, by far the largest market, nearly doubled to $325 billion.

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“In the West, climate protection awareness is probably the biggest driver of growth,” said Morningstar ESG analyst Boya Wang. “In China, it’s largely driven by politics. After the government officially endorsed the targets for carbon neutrality and net zero in 2021, we saw a proliferation of all these new climate funds.

Investors in China added $11.3 billion to climate-focused funds last year, nearly double their 2020 level. They have been richly rewarded. Chinese climate funds rose 15% on average in the 12 months to April 2022, compared to a 7.2% drop for US funds, according to Bloomberg calculations using data from Morningstar.

One of the world’s worst polluters, China has quickly pushed a record amount of private money towards its green ambitions, which include peaking emissions by 2030 and carbon neutrality by 2060. In just a few years , it has become one of the largest issuers of green bonds, green loans and other financial products designed to support these policy objectives.

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The push benefited clean energy stocks and the funds that hold them. It took less than 18 months for a pair of solar-focused funds – Huatai-PineBridge CSI Photovoltaic Industry ETF and Tianhong CSI Photovoltaic Industry Index Launched Fund – to rank among China’s largest climate funds. Companies like JA Solar Technology Co. and Trina Solar Co. contributed to the Chinese funds’ gains.

Another 53 climate-focused funds were launched in the last year alone, with more than half of new products focusing on clean energy and technology.

Read more: Chinese ESG funds avoid stock market sell-off with new inflows

It is difficult to say how environmentally friendly these funds are. Of the 106 Chinese climate funds analyzed by Morningstar, only 11 had “average” or better sustainability ratings. The others were worse or not rated. Low ratings may reflect a number of ESG factors, including transparency, which is generally less robust in China compared to Europe or the United States, and other governance factors.

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“I doubt that this capital translates into long-term benefits for low-carbon economic transition,” Wang said. Investments in green technologies require stable and long-term capital inflows. Last year’s gains were fueled by retail investors, who make up 84% of China’s climate fund market and are often scared off by short-term volatility. Solar stocks, for example, pared their gains amid the recent global equity selloff.

Meanwhile, U.S. climate funds have struggled, weighed down by cleantech stocks. As China’s clean energy benchmarks rose above the country’s CSI 300 index, US peers lagged the S&P 500. One of the hardest-hit US holdings, Sunrun Inc ., lost more than half its value in 2021, after quadrupling the previous year. .

Investor enthusiasm in general may be stabilizing in China, dampened by ongoing lockdowns related to the Covid-19 lockdown. Wang sees asset managers postponing investments and plans to launch new climate funds until regional lockdowns ease.

©2022 Bloomberg LP

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