China's green shift: understanding the complexity, engaging with the opportunity

No conversation about the climate transition is complete without China. It’s a country of paradoxes—responsible for around 31% of global emissions, 1 yet also the world’s largest investor in clean energy. In 2024 alone, China installed 373.6 gigawatts (GW) of clean power—more than twice the combined capacity installed by the rest of the world (163.3 GW). 2

This duality often creates confusion when looking at China’s role in climate change. A large share of China’s emissions comes from manufacturing goods that are exported and used in other countries. And while China’s emissions today are the highest globally, there’s historical responsibility for much of the global warming we’re experiencing that lies with other developed nations—most notably the US, UK and Europe, whose cumulative emissions since the Industrial Revolution outpace China’s. 3

Understanding China’s climate role—its complexities, contradictions, and capacity for transformation—is essential for values-aligned investors. Because beyond the headlines lies both a challenge and an opportunity.

The commitment to transition: policy meets ambition

China’s leadership demonstrates an intention to steer the country toward a lower-carbon future. This commitment is reflected in a national target to peak emissions by 2030 and reach carbon neutrality by 2060. 4 As the country approaches its next planning cycle in 2026, it’s expected to build on this foundation, potentially introducing stronger targets for carbon intensity, absolute emissions limits, and a more structured rollout of non-fossil fuel energy sources.

Nearly all of China’s 26 provinces aligned with the national goals, committing to improve building energy efficiency by 30% and generate 8% of energy on-site from renewables by 2025. 5 Coastal regions are going further, setting ambitious regional targets. These subnational actions are critical. They provide a clearer picture of how national ambition is being implemented at the regional level—a dynamic that has historically been difficult to track.

Looking ahead, President Xi Jinping recently announced that China’s updated Nationally Determined Contributions (NDCs)—covering all greenhouse gases (GHG) and sectors—will be released ahead of COP30 in Brazil. 6 This expansion from a carbon-only to a full-GHG approach would be a significant step, reinforcing China’s commitment to multilateral climate cooperation and support for the global south’s transition.

Progress in motion: clean tech, green finance, and disclosure reform

In 2024, clean energy accounted for over 10% of China’s national Gross Domestic Product (GDP), underscoring its importance as an economic growth engine. 7 And in practical terms, China leads the world in the manufacturing of solar panels, batteries, wind turbines and electric vehicles. Four of the five largest wind turbine manufacturers globally are based in China. 8 So are six of the top seven solar panel producers. 9

The rise of China’s electric vehicle (EV) industry further highlights momentum. BYD (“Build Your Dreams”), now the country’s leading automaker, sold 4 million vehicles in 2024 – 90% of them in China – and raised $5.6 billion through a landmark share sale in Hong Kong. 10 With EV demand growing both domestically and abroad, the sector is likely to remain a focal point for sustainable investment.

Green finance is also gaining momentum. China’s domestic green bond issuance approached $498 billion at the end of 2023, while green loans reached $4.1 trillion, a 36.5% year-on-year increase. 11 Over 296 mutual funds in China are now focused on sustainability, managing more than $55.5 billion in assets. 12

At the same time, environmental, social and governance (ESG) disclosure is improving. 2024 has been dubbed China’s “year of disclosure,” with stock exchanges in Shanghai, Shenzhen and Beijing issuing new reporting guidelines. Companies listed on key indices such as the Shanghai Stock Exchange (SSE) 180 and the SSE Star 50 will be required to publish ESG reports from 2026. 13 Voluntary reporting is also being encouraged for smaller firms. These regulatory efforts mark a meaningful step toward improving data transparency and investor confidence.

The complexity behind the headlines

Even with the progress on climate action, the picture remains complex. China is one of the world’s largest coal consumers. In 2022, 79% of its emissions came from fossil fuel combustion, mostly coal. 14 And in 2024, China began construction on new coal power plants equal to the energy output of 94.5 GW, the highest figure since 2015. 15 These plants account for the majority of new global coal capacity.

This construction of new coal power plants is partly a response to energy security concerns, particularly after recent supply shortages. It also reflects some of the friction between national climate goals and regional implementation – where local authorities, focused on economic stability alongside decarbonisation, are having to balance short-term energy needs with much needed longer-term decarbonisation requirements.

Transparency remains another challenge. Historically, access to reliable data has been patchy, and investor engagement has been limited. While recent reforms are encouraging, the legacy of complexity in accessing and extracting the right data still shapes many investor perceptions.

Human rights concerns also complicate the picture. The Xinjiang region, which produces over 50% of the world’s polysilicon (a key material for solar panels), is linked to forced labour. 16 In response, Western governments are tightening regulations. In the UK, new legislation aims to eliminate slavery from energy supply chains, and in the EU, the Forced Labour Regulation (adopted in December 2024) will ban products linked to forced labour by 2027.

These issues raise important ethical considerations. For values-aligned investors, scrutiny of supply chains, governance practices and human rights performance is essential.

So, where does this leave investors?

China is too central to the climate transition to ignore. Whether through exposure to solar, wind, EVs or broader clean tech, it’s increasingly likely that China is already in many portfolios – even if indirectly. The country’s manufacturing dominance in key transition sectors means it plays an outsized role in shaping the cost, speed and accessibility of climate solutions globally.

But investing in China requires care. Government oversight and market intervention remain realities. So too do challenges around transparency, engagement, and human rights. These aren’t reasons to walk away, but they’re reasons to proceed with caution.

Thorough due diligence is essential. Ideally, investors should work with teams that have on-the-ground expertise and deep cultural knowledge. It demands ongoing monitoring, contextual insight, and a commitment to long-term engagement.

For those willing to engage thoughtfully, China offers more than just exposure to growth, it offers the chance to influence one of the most significant economic transitions of our time.