The rise of sustainable finance in China: ESG funds and regulation

Abstract This article examines the emerging ecosystem of ESG (Environmental, Social, and Governance) funds in China, focusing on their classification, regulation, and policy context. It presents a taxonomy of ESG funds in the Chinese market, including public, private, government-guided, and Public–Private Partnership (PPP) funds. It analyses China’s distinctive policy-driven transformation model on ESG, emphasizing its top-down design and the pivotal role of State-owned Enterprises (SOEs), and the use of phased policy implementation. Compared to the European Union’s sophisticated disclosure and taxonomy regime, China requires clearer legal definitions, mandatory reporting mechanisms, and a unified classification system on ESG funds. The crucial future task involves balancing government intervention with market forces to ensure capital is channelled into the real economy’s green transformation. This will be essential for establishing an internationally competitive sustainable finance framework and ensuring capital genuinely supports industrial upgrading and sustainable development.