How does China’s 2060 carbon neutral target impact financial markets?

When it comes to climate change, there are strong new ambitions in the world’s second largest economy.

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On September 22, Chinese President Xi Jinping announced in his statement at the general debate of the 75th Session of the UN General Assembly that “China will scale up its Intended Nationally Determined Contributions by adopting more vigorous policies and measures. We aim to have CO2 emissions peak before 2030 and achieve carbon neutrality before 2060”. It is the first time for China to set a carbon neutral target, which has drawn widespread attention at home and abroad.

China has made three carbon emission reduction commitments over the past dozen years. The first was the 2020 target set in 2009, to reduce CO2 emissions per unit of GDP by 40%-45% from the 2005 level by 2020. The second was the 2030 target set in 2015, to peak CO2 emissions by around 2030 and strive to achieve it as soon as possible, and to reduce CO2 emissions per unit of GDP by 60%-65% from 2005 levels by 2030. The third was the 2060 target just announced, to strive to achieve carbon neutrality before 2060.

The 2020, 2030, and 2060 targets mark three leaps for China. The 2020 target is a leap from 0 to 1, which is China’s first commitment to the international community to address climate change. The 2030 target is a leap from carbon intensity to total carbon emissions, from which China’s total carbon emissions should increase no more. The 2060 target is a leap from total emission control to carbon neutrality, by which China will achieve “net zero carbon emissions” and become a “zero-carbon country”.

A “zero-carbon country” does not mean a country to eliminate all carbon emissions, but to minimize them and offset those unavoidable under current technical conditions by carbon credits or so.

So far, more than 20 countries and regions around the world have set a net zero carbon goal. Most are from Europe: Finland, Austria, Iceland, and Sweden have pledged for net zero by 2035-2045; the UK and some others have set it in 2050. In East Asia, the ruling political party of South Korea set a zero-carbon goal by 2050 during the general election this year, which has not yet been written into a policy; Japan has pledged to “achieve zero-carbon as soon as possible in the second half of this century”, without specifying the year. Comparatively, China has made a clearer statement with its 2060 carbon neutral target.

Source: Energy & Climate Intelligence Unit and collected by the authors

Net Zero Commitment

Country/Region (year to achieve the commitment)


Suriname and Bhutan


Sweden (2045), U.K. (2050), France (2050), Denmark (2050), New Zealand (2050), and Hungary (2050)

Being legislated

EU (2050), Spain (2050), Chile (2050), and Fiji (2050)

Announced as a policy

Finland (2035), Austria (2040), Iceland (2040), Germany (2050), Switzerland (2050), Norway (2050), Ireland (2050), Portugal (2050), Costa Rica (2050), Slovenia (2050), Marshall Islands (2050), South Africa (2050), South Korea (2050 to be written in into a policy), China (2060), and Japan (to achieve as soon as possible in the second half of this century)

The year 2060, when China aims to reach net zero, is 10 years behind the targets set by several developed countries in Europe such as UK, France and Germany; however, this comparison does not take into account industrialization history of each country. If this is considered, we should compare the number of years from peak to net zero, under which it takes over 50 years for most European countries, while only 30 years for China. Clearly, the 2060 carbon neutral target will not be easy for China and thus shows its commitment.

Source: Energy & Climate Intelligence Unit and collected by the authors


Peak year

Net zero year

(in commitment)


(no. of years)





















Undoubtedly, the 2060 carbon neutral target has set a long-term goal for China’s economic transition, and the consequent policy pressures and industrial transformation will have a significant impact on the financial market. As climate change targets in macro policies are likely to manifest as carbon costs in the micro economy, it is expected that the financial market will gradually incorporate carbon costs into financing costs. Specifically, some asset owners and asset managers have started to calculate the carbon intensity of their asset portfolios, and more aggressive ones refuse investment in fossil fuels. Some commercial banks are also reducing or withdrawing from business cooperation with high-carbon companies.

This process has already begun globally. Development financial institutions such as the World Bank Group and commercial financial institutions such as JP Morgan have adjusted their financing strategies in relation to fossil fuels. These measures are based on two interrelated rationales, namely policy and business. For example, to achieve the zero-carbon goal, a government has to introduce corresponding policy measures to support low-carbon transformation, which will lead to a decline in demand for high-carbon assets and ensuing asset depreciation. On the other hand, as climate change intensifies, some assets will suffer extensive depreciation due to increasing natural disasters such as hurricanes. These asset depreciations will be reflected in the asset impairment of financial institutions and may trigger systemic financial risks. Consequently, the government needs to intervene in advance, preventing these risks.

In recent years, China’s financial regulators have noticed the relationship between climate change and financial stability in the process of promoting green finance. On September 19, Chen Yulu, Deputy Governor of the People’s Bank of China, emphasised the need to guide financial institutions to strengthen the identification, analysis and management of climate and environmental risks in a speech at the annual meeting of the Green Finance Committee, China Society for Finance and Banking. He pointed out, “Climate change and other environmental factors pose persistent and uncertain risks, which may turn into financial risks through multiple channels. Financial institutions shall pay close attention to these long-term risks, strengthening forward-looking risk assessment by referring to the Overview of Environmental Risk Analysis by Financial Institutions and Cases of Environmental Risk Analysis Methodologies recently released by the Network of Central Banks and Supervisors for Greening the Financial System (NGFS), and take active measures to prevent environmental and climate risks from turning into financial and systemic risks.”

It is foreseeable that China’s 2060 carbon neutral target will prompt tightened supervision of financial regulators over climate risks to financial institutions, and financial institutions will face new regulatory requirements concerning climate risks. We strongly call for actions of China’s financial institutions, including quantifying the asset risks posed by climate change with stress testing and scenario analysis. China’s 2060 carbon neutral target provides a clearer reference for such assessment. Measurement and disclosure of climate-related financial information is also important; or, specifically, measuring, tracking, and disclosing the carbon intensity and carbon emissions of underlying assets using recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD) and other methods, to prepare for future disclosure requirements.

Despite risks, China’s 2060 carbon neutral target also means huge opportunities for China’s financial institutions especially on product innovation. Financial instruments or products that align and contribute to the Paris Agreement, such as green credit, green bonds and ESG investment funds will be well received by regulators and markets.

Guo Peiyuan is the Chairman of SynTao Green Finance and the China Sustainable Investment Forum. 

An Guojun is an Associate Professor at the China Academy of Social Sciences and Vice Chairman of the China Sustainable Investment Forum.