From Macro to Micro—Chinese Investors of all Sizes Commit Funds to Decarbonization
China-pledged carbon neutrality by 2060 will require massive investment. Investors large and small respond.
Decarbonization has become a global imperative and a priority for governments, companies, and society at large, because it plays a very important role in limiting global warming. In response to the ambition of the 2015 Paris Agreement, governments and business leaders have set targets and made commitments to reduce carbon emissions, and companies across many industries have publicly declared their intention to become carbon neutral by 2050.
China is no exception. In 2020, China pledged its commitment to achieve carbon peak in 2030 and carbon neutrality in 2060. Leading up to that pledge, trailblazing Chinese entrepreneurs from the sectors of renewable energy, energy storage, electric vehicle, and sustainable finance and investment had already joined the global trend of decarbonization.
The effort and investment to change and reform industries to meet the carbon neutrality goal is vast. According to the research conducted by China’s National Development and Reform Commission, the estimated capital required is 139 trillion CNY, the equivalent of 2 trillion USD, for renewable energy, energy storage, and real estate development, and other related investments. To put this in context, the annual available capital In China amounts to 525 billion CNY, leaving an annual capital shortfall of approximately 2.5 trillion CNY (360 billion USD).
Major Investors Respond
The primary and secondary market echo the trend of national macroeconomic and monetary policy. In June, Hillhouse Capital Group, China’s most famous private equity firm with a global outreach and extraordinary capability of asset management of 73.3 billion USD in total, launched is first carbon neutrality fund. The fund of 4 billion CNY (560 million USD) invests in renewable energy, new materials, and sustainable consumption.
To further encourage participation from the society, China continuously boosts interest in sustainable investing. In 2021, China became the world’s second largest climate funds market, according to Morningstar. China launched the first batch of eight carbon neutrality exchange-traded funds (ETFs) in June. These ETFs have their carbon footprint of the underlying investments products offset, delivering a carbon-neutrality investment. By July 7, according to South China Morning Post, the ETFs have raised more than 13 billion CNY (US$1.9 billion). Wind data shows that as of June 28, the China’s CSI SEEE Carbon Neutrality Index has fully covered the industries and sectors benefiting from carbon neutrality. Two-thirds of the SEEE carbon neutrality index covers EV, renewable power generation, energy storage and carbon reduction and sequestration. The final third covers the traditional economic sectors having high targets of emission cutting, including steel, chemicals, non-ferrous metals, and thermal power.¹
Wang Shi is a clear leader in this effort in China. The founder and chairman of China Vanke, the largest real estate enterprise in China and the largest residential real estate developer in the world, set up a fund at the amount of 5 billion CNY (721 million US$) in July with the sole purpose of investing in businesses in the Hainan province on carbon neutrality to upscale green industry in the urban development.
This is not Wang Shi’s first investment to respond to global warming and address environmental challenges. Early in 2008, he established Wanke Foundation, a philanthropic organization focusing on environmental protection and sustainable urban community. Later in 2009, he initiated a coalition of 100 Chinese entrepreneurs in Copenhagen and launched The North Pole Announcement to declare the commitment of Chinese entrepreneurs to the mission of environmental protection and wildlife conservation in the endangered Arctic region.² To further raise people’s awareness of climate change, Wang Shi worked with his coalition of Chinese entrepreneurs and celebrities in 2014 and established China Champions for Climate Action, also known as “C Team,” to support Chinese entrepreneurs’ commitment of active regional and global leadership to address climate change. In 2021, Wanke Foundation and C Team established China Pavilion in the COP 26 in Glasgow representing the voice of Chinese entrepreneurs and business leaders to raise the global attention to climate change and the necessity to transform towards a low-carbon economy.
Pictured, from right, are Chinese volunteers Yu Chen and Ruyuan Zhang while assisting international speakers at the China Corporate Pavilion. [Photo/xinhuanet]
Wang Shi inspires us at the plant technology alliance (pta). The pta community consists of individuals who practice environmental sustainability in their daily lives and professionals or business entrepreneurs in the industries related to environmental protection, natural conservation, and corporate sustainability. Views and ideas about environmental sustainability from wide arrange of perspectives in Chinese society and abroad are easily accessible here in the community, especially regarding industries updates and popular trend.
Grass Roots Groups Also Respond: Atoms Fund Established
Since the founding in 2019, pta has been worked to build up a sustainable community operating at the grass roots with an entrepreneurial spirit. The team dedicated one year of entrepreneurship to a creative platform of sustainable fashion and realized that cradle-to-cradle circular economy plays a key role in reducing carbon emissions by redesigning the overall process of manufacturing goods. Yet, few investment funds in China have taken this into consideration—especially the value in scaling up business models and fundamentally reforming industrial practicing standard. The discovery laid a foundation for the setup of Atoms Fund which was eventually completed in the early 2022.
Rather than focusing on the popular sectors and industries in renewable energy, EV, and power storage solutions into which large-scaled funding capitals have poured, Atoms Fund pledges its focus on circular economy and relevant sectors that have tremendous impact on achieving carbon neutrality goals in China yet are under-valued by the capital market. The Atoms Fund, a small-cap venture capital firm, committed to environmental sustainability and community development, fills this market need.
Learning from pta, the grass-root network committed to environmental sustainability and community development, Atoms Fund understands the importance of how market or consumption impacts sustainable innovations and how business and tech innovations play the role in sustainable environment.
One of the clients of Atoms Fund is China’s largest second-hand office-furniture dealer, established in 2009 in Beijing. Today, the company has set up its nation-wide network of business operation in 6 cities. Apart from financial advice, a traditional service provided by financial institutions, Atom Funds works side by side with its headquarter and local offices and integrates sustainable transformation of businesses with the untraditional practice of penetrating the multifaced ESG to provide services that enhances the client’s corporate value.
For example, before laying out the plan of financial advice, Atom Funds go first to map out key issues of growth related to the various value chains of both headquarter and local offices. It touches upon shareholder structure, sustainability standard of second-hand office furniture, staff training on circular economy, multi-stakeholder engagement, etc. By this way, Atoms Fund helps the headquarter and local offices identify the strengths and weakness in value creation, which essentially contributes to a financing strategy delivering more significant growth and ESG impacts.
The uniqueness of the pta community creates a competitive advantage for Atoms Fund to bridge environmental sustainability with daily life and see through the innate connections between people, planet, and profit. Because of the diverse perspectives, Atoms Fund excels at identifying opportunities to decarbonize across many sectors of the economy—including those that are not already heavily targeted by the capital market for a specific technology or industry.
In all of these ways, both large and small, there are multiple ways for Chinese businesses to decarbonize and become more sustainable. Clearly, although there is only a ESG disclosure guideline issued in China recently, nor any industrial disclosure standard, voluntary or mandatory, accessible in mainland China yet, more and more businesses have joined the global wave of sustainable transformation with passion and mission, from the various trajectories including decarbonization capital investing, sustainable bond issuing, green loaning, decarbonization technology, circular economy, and sustainable community buildup.
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¹ https://www.infzm.com/contents/230456. Also see https://pandaily.com/chinas-first-batch-of-carbon-neutral-etf-products-approved/. CSI means China Securities Index. China Securities Index Company Limited (“CSI”) was established in August 2005. As a joint venture between the Shanghai Stock Exchange and the Shenzhen Stock Exchange, CSI has secured its position as a leading professional index provider in China. SEEE means Shanghai Environment and Energy Exchange. SEEE was founded in 2008 as the first environment and energy exchange in China. More details here https://www.eex.com/en/markets/environmental-markets/china-carbon.
² https://www.chinadaily.com.cn/china/2009-12/09/content_9142782.htm. Also see https://www.nrdc.org/experts/jingjing-qian/engaging-business-world-side-events-indian-and-chinese-institutions.
Cover photo by Matthias Heyde on Unsplash.
About the author:
Barbara Yuhui Chai
Barbara Yuhui Chai is one of the founding partners of Atoms Fund. Before setting up Atoms Fund, she lived and worked in New York City and helped set up plant technology alliance, a social enterprise committed to promoting individual environmental consciousness, corporate sustainability strategy, and sustainable development. Barbara collaborates with international strategic communication firms extensively. Formerly a journalist in New York City reporting on fintech, blockchain, and technology governance, she graduated from the Fletcher School of Law and Diplomacy at Tufts University. She is alumna of Leading the Sustainability Transformation Professional Certificate Program, powered by WholeWorks.
About pta:
pta, plant technology alliance, is an innovative social enterprise aiming at environmental sustainability. Headquartered in Hong Kong, pta establishes networks in Taipei, New York, Boston, Washington D.C., Chengdu, Beijing, Tianjin, Jinan. pta has China’s only podcast program educating environmental sustainability to the community of Mandarin-speaking children worldwide. Besides, pta has bi-monthly webcasts to share expertise and observations about environmental sustainability. pta’s engagement with communities also include the efforts of holding online training program enhancing environmental consciousness, facilitating business transformation of sustainability, and promoting the UN SDGs.
About Atoms Fund
Atoms Fund is a small-cap venture capital fund focusing on business of decarbonization that pursues the balance of people, planet, and profit. We particularly aim at serving innovative business and technology to apply circular economy facilitating decarbonization and environmental sustainability. Atom Fund looks for certain percentage of equity holding of our clients besides fixed amount of service fee.
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