Carbon footprints of Chinese fund firms' equity portfolios

Abstract Under the dual carbon goals in China, the transition to a net-zero carbon economy demands massive amounts of capital, which must be provided and facilitated by financial institutions. Yet there are no accurate, annual, publicly available disclosures of the carbon emissions embodied in investments, leaving Chinese financial institutions facing significant carbon risks. To bridge this gap, this study looked at data from China’s 105 fund firms to measure the CO2 emissions embodied in their equity investments and carbon intensities from 2010 to 2020. The findings show that total financed emissions have been on a continuous upward trend since 2015, with large-sized fund firms contributing most. The overall trend for carbon intensity metrics shows a reduction in exposure to carbon-intensive assets and an increase in carbon efficiency. It is therefore crucial to identify the drivers of financed emissions and explore the potential for carbon reduction. Our findings suggest that some fund firms have already shifted their capital allocations to decarbonize their investment portfolios. Divesting from high-carbon assets and turning to high-tech sectors can help reduce carbon risk exposures and improve carbon efficiency, which is crucial if China’s institutional investors are to achieve a low-carbon transition and long-term sustainable development.