Against the backdrop of economic transformation and cyclical fluctuations, the financial system bears the crucial mission of stabilizing expectations, growth, and structure. Navigating direction and calibrating pace in a complex environment has become a practical challenge the financial industry must address directly.

In the domestic development of ESG finance, performance in the equity market has fallen somewhat short of initial expectations, whether measured by the issuance scale of ESG-themed funds or their actual fundraising outcomes. In contrast, ESG development in the fixed-income market has been more dynamic, with an overall brighter performance.

For the ESG financial product market to achieve healthy growth, stable market demand and a clear, credible identification mechanism are indispensable. On one hand, there must be investors willing to pay a premium for "green" attributes; on the other, investors must be able to confirm that the products they purchase genuinely possess authentic green credentials, rather than merely being conceptual, to avoid the impact of "greenwashing" on market sustainability.

Looking ahead, there is still room for optimization in China's ESG disclosures, particularly by emphasizing the "financial materiality" principle. Given the structural characteristics of China's capital markets, especially the high proportion of retail investors, it is even more necessary to approach disclosures from the perspective of shareholder protection. This involves fully revealing to investors whether their capital security and rights are effectively safeguarded against long-term risks such as climate change and natural disasters. Such information, directly related to investment returns and risks, constitutes the most practical content in ESG disclosures.

The fixed-income ESG market has shown strong performance, while progress in the equity market has been slower. In the equity market, which mainly includes ESG-themed funds and related stocks, advancement has been relatively sluggish. The number of ESG-themed fund launches and their actual fundraising results have both lagged behind earlier market expectations.

Conversely, ESG development in the fixed-income market is much more active, with very impressive overall performance. At the policy level, the government is vigorously promoting fixed-income instruments like green loans and green bonds. At the corporate level, acceptance of such products is relatively high.

A key reason is the clear advantage in financing costs. Companies seek to reduce financing costs through transformation, upgrading, and improving their ESG performance. Taking green bonds as an example, their financing interest rates are often about 50 basis points lower than similar products, which is quite attractive to enterprises. Additionally, the approval channels for green bond issuance are relatively smooth, and the issuance process is faster. For companies, this means not only lower financing costs but also higher efficiency in accessing funds. Therefore, the ESG bond market exhibits a two-pronged dynamic of "policy push and active corporate participation," with its scale continuously expanding.

Regarding the equity market, the core factors currently constraining the further development of domestic ESG equity products are twofold. First, there must be buyers—investors willing to pay a premium for green attributes. Second, these buyers must be able to verify that the products they purchase are genuinely green, not just "greenwashed." Even if investors are willing to pay a premium, if they later discover that the invested products only pay lip service to green principles without actual asset-level implementation, the market cannot develop sustainably.

Internationally, Europe's green finance market, especially in equities, is relatively mature. An important reason is the stable structure on the demand side. The main buyers of high-quality green assets or assets meeting social development indicators are sovereign wealth funds and large pension funds. These institutions have distinct long-term investment characteristics and explicitly incorporate ethical and social responsibility standards into their decision-making. For example, Norway's Government Pension Fund Global is one of the largest institutions globally practicing ESG investing.

On the other hand, a critical issue remains: who guarantees that these funds truly meet green standards and actually hold corresponding green assets, rather than just reflecting related themes in their names or marketing? The EU's Sustainable Finance Disclosure Regulation (SFDR), for instance, has established a relatively strict anti-greenwashing regulatory system at the asset level. The "green attribute" of a fund is not self-defined by institutions but classified and certified by regulators into dark green (Article 9), light green (Article 8), and non-green (Article 6) assets. This institutional arrangement ensures that long-term capital, including sovereign wealth funds, is accurately directed towards assets that genuinely meet green standards, forming a complete cycle of "having buyers, verification, and asset supply."

In reality, large financial institutions in China have not yet widely applied strict, systematic ESG standards similar to those of sovereign or pension funds on the investment side. The domestic equity market is still in the development stage and has not fully established the foundation for mature operation.

In the fund market, constraints on "whether the name matches the reality" are still insufficient. Taking new energy-themed funds as an example, there is still a lack of unified, clear definition standards and a constraint framework to determine whether a fund truly holds high-quality new energy assets and whether its asset allocation matches the "new energy" label. Currently, this field has not yet formed an effective correction mechanism, and market-level signals constraining potential greenwashing behavior remain inadequate.

However, the situation is noticeably different in the fixed-income market. The core reason for the relatively healthy development of green bonds is the existence of a relatively clear and credible standard system. Green bonds require a clear certification process, and their use of proceeds and project attributes are subject to institutional constraints.

When decomposing the requirements for ESG investment, investors' decisions to "invest or not" are generally driven by two different factors. The first is values-driven. It must be acknowledged that some capital holders do not solely pursue financial returns but also wish to practice their recognized values and ethical standards through investment. The proportion of such investors is relatively higher in the European market. For example, coal-based energy is a highly polluting industry. Although many countries' energy structures still heavily rely on coal, Norway's sovereign wealth fund does not base its decision on "whether it is profitable" but on the belief that coal-based energy should be phased out in the long term, hence choosing not to invest.

The second driving factor is more pragmatic and functional. Currently, ESG-related screening in China is more often driven by practical operational and market access needs. When investors consider investing in a small or medium-sized enterprise primarily targeting overseas markets, whether ESG standards are met often becomes a critical prerequisite. This is not a choice based on ideology but because ESG has gradually become a threshold for entering overseas markets, an essential part of supply chain and market access. In this context, ESG resembles a rigid demand, serving the practical needs of companies going global, compliant operations, and long-term sustainable development.

From a corporate perspective, how should companies decide whether to develop ESG? To further deepen ESG in the domestic market, the focus should be on financial materiality. Not all companies need to engage in ESG. The decision to promote corporate ESG initiatives ultimately returns to a core question: does it possess financial materiality? Only with clear financial relevance does ESG have a practical foundation for continued advancement.

In practice, the financial materiality of ESG is mainly reflected in four types of "rigid demand" scenarios. The first is market access and supply chain access. This demand primarily stems from regulatory requirements in overseas markets like the EU. For companies hoping to sell products abroad, ESG has gradually become a necessary condition for entering relevant markets, directly affecting whether their products can be sold smoothly.

The second is business models inherently highly dependent on ESG. Some companies' profit models are deeply tied to ESG; if they cannot operate efficiently in areas like environment or resource utilization, their business models may be untenable.

The third is the investment responsibility of financial institutions and investment agencies. Institutions engaged in asset management or investment need to be accountable to their Limited Partners (LPs), demonstrating that their capital is directed towards high-quality, sustainable assets. Therefore, they must understand and practice ESG investment principles in their decision-making.

The fourth is financing needs. By issuing green bonds or obtaining green loans, companies can reduce overall financing costs in the fixed-income market, which is also a significant current driver for promoting ESG.

Correspondingly, if a small or medium-sized enterprise does not face the above rigid demands, merely pushing it to undertake ESG disclosures or related investments based on policy might not be the optimal choice at this stage. Considering the overall environment, neither the company's own capacity nor market maturity is fully ready for a comprehensive rollout.

Similar tendencies can be observed in regulatory practice. Current domestic ESG disclosure does not adopt a "one-size-fits-all" approach but prioritizes requiring larger, more influential enterprises to fulfill relevant disclosure obligations, without uniformly bringing all companies under the same regulatory framework. This also indicates that, at this stage, ESG remains more of a selective requirement rather than a mandatory option for all enterprises.

Globally, China's aggressiveness in ESG disclosure requirements lies between Europe and the United States. After the Trump administration took office in the US, relevant disclosure requirements almost entirely regressed, while Europe continues to advance the Corporate Sustainability Reporting Directive (CSRD). Compared to CSRD, China's disclosure standards are generally more moderate and closer to the realistic needs of domestic enterprises.

Specifically, the differences in disclosure systems between China and Europe are mainly reflected in three aspects. First, the scope of disclosure. In the EU, CSRD covers a relatively broad range of enterprises subject to mandatory disclosure. In previous versions, enterprises within the EU with over 500 employees were, in principle, required to conduct ESG disclosures; although the latest revision raised the threshold to 1000 employees, thousands of enterprises are still included. In contrast, China's current disclosure requirements are明显 more prudent, mainly focusing on the largest listed companies with the strongest market influence, such as those in the SSE 50 and SZSE 100 indices, totaling around three to four hundred companies. In terms of coverage, this requirement is significantly milder than the EU's, avoiding imposing excessive compliance burdens on enterprises in the short term.

Second, the disclosure timeline. CSRD has entered the implementation phase, and although there has been some relaxation recently, the overall framework is operational. China's disclosure pace is明显 more measured; relevant requirements are not rushed for a full rollout but will gradually commence reporting over a future period. This "slowness" is not negative; for countries where ESG costs for enterprises are high, it allows for observing the actual effects of implementation in other economies—including enterprise feedback, compliance burdens, and whether ESG investment genuinely improves operational performance—before making adjustments based on domestic conditions.

Third, the perspective and principle of disclosure. In the future, there is still room for further optimization in China's ESG disclosures, particularly by emphasizing the "financial materiality" principle. Disclosure guided by financial materiality should center on shareholder interests rather than solely on environmental or social impact itself. Given the structure of China's capital markets, especially the high proportion of retail investors, it is even more necessary to approach from the angle of shareholder protection, fully disclosing to investors whether their capital security and rights are effectively safeguarded against long-term risks like climate change and natural disasters. This type of information, directly related to investment returns and risks, constitutes the most practical content in ESG disclosures.