Green finance: China faces acute lack of talent for sustainability-linked investment, says CFA Institute

China lacks both an adequate supply and a pipeline of finance professionals with expertise in environmental, social and governance (ESG) issues as demand for such people surges amid a boom in sustainable investing, according to the CFA Institute.

China is struggling to develop ESG analysts, strategists and executives to fill the rapidly expanding demand in the finance market, the organisation said in a report. The government, enterprises and universities should work together to build a structured and standardised system for cultivating ESG talent, it added.

“As ESG is embraced by more companies in China, the need for the knowledge, skills and capabilities to deliver on their ESG-related goals has created a massive gap in terms of the thirst for ESG and sustainability knowledge,” said David Zhang, China head at the CFA Institute.

Even professionals who are in ESG-related jobs today lack the requisite expertise to do their jobs, with 60 per cent of ESG professionals having received no relevant training, the organisation found.

Between May 2022 and April 2023, the number of active ESG-related job postings in China increased by 64.5 per cent compared with a year earlier, according to a report released by China’s largest job recruitment site Liepin last July. The number of applicants increased by more than 150 per cent in that span, as salaries 30 per cent higher than those for average financial jobs drew candidates’ interest.

However, qualified people with sufficient ESG-related expertise remain in short supply, as fewer than 10 per cent of the ESG professionals in mainland China hold at least one ESG-related qualification or accreditation, according to the report, issued last month. Relevant qualifications include the CFA Institute’s own certificate in ESG investing, the Certified ESG Analyst qualification offered by the European Federation of Financial Analysts Societies, and the Sustainability and Climate Risk certificate offered by the Global Association of Risk Professionals.

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“There is a significant opportunity for China to catch up to developed economies in terms of ESG-related products, as market interest in sustainable projects is growing fast,” Zhang said. “Given the shortage of ESG talent and the strong demand for sustainable finance skills, what is needed is the expertise to drive that growth.”

China’s sustainable finance market could more than quadruple to 70 trillion yuan (US$9.8 trillion) by 2031, according to Swiss investment bank UBS. The size of the green finance market in the world’s largest emitter of greenhouse gases already reached 16 trillion yuan last year, accounting for about 8 per cent of the country’s entire financial system.

To catch up with global peers and accelerate its transition towards a low-carbon economy, China is introducing stricter ESG disclosure rules. The Shanghai Stock Exchange has encouraged companies to disclose ESG information, and all companies on the Science and Technology Innovation Board, known as the Star Market, have been required to disclose ESG information in their annual reports beginning in 2022.

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“With mandatory ESG disclosure requirements on the horizon, and a complex and evolving landscape of ESG reporting standards, there is pressure from the real economy to urgently address the notable shortage of ESG skills and expertise, and bridge the ESG talent gap,” Zhang said.

Among current ESG-related jobs in mainland China, investment positions have the largest gap between demand and supply, followed by investment-analysis positions and risk-management roles, according to the CFA Institute.

The government should establish ESG, green finance and sustainable finance development guidelines, clarify the standards for practitioners, and introduce more qualification and degree certificates, Zhang said. Meanwhile, universities need to accelerate the construction of ESG finance-related courses to make up for the shortcomings in knowledge, and professional organisations should integrate all parties’ strengths to accelerate the implementation of vocational education and training, he said.