The Asset Management Association of China (AMAC), China’s public funds self-regulator, has released trial guidelines for funds using sustainability labels. Effective from 12 June, with a one-year transition period, the guidelines introduce a headline 80% alignment requirement for ESG-labelled funds and set out best practice for portfolio construction, governance and product naming. The move is expected to push China’s sustainability labelling regime closer to international standards by requiring clearer alignment between fund names, stated strategies and underlying assets.

Redefining ESG

At its core, the guidelines removes the ability to treat ESG as an overlay. To qualify as a “main strategy” sustainable fund, managers must integrate ESG into investment decision-making and apply either negative screening or positive selection. ESG must now shape portfolio construction rather than sit alongside it.

The 80% requirement is the central test. Funds using labels such as “ESG”, “sustainable”, “green”, or “climate” must ensure that at least 80% of non-cash assets reflect the stated strategy. Products that fall short are pushed into a separate “included strategy” category with looser requirements. This creates a clear split between ESG-led funds and those with partial integration.

Implications for the China market

The immediate implication is repricing of ESG labels. Funds built on exclusions or legacy mandates are most at risk of failing the threshold and will need to either increase ESG exposure or reclassify. The likely result is fewer ESG-labelled products, but with stronger alignment between holdings and stated objectives.

Benchmark alignment reinforces the shift. ESG funds must adopt performance benchmarks that reflect their strategy, making it harder to justify tracking broad indices. This addresses a longstanding gap between how funds are positioned and how performance is measured and reduces scope for drift.

The guidelines sit within a broader tightening of China’s fund regulation, but their significance lies in how directly they target product integrity. By tying fund names to asset composition and enforcing a quantitative threshold, regulators are moving ESG from narrative to constraint.

Better international comparability

Dr Guo Peiyuan, Chair of Chinese sustainable finance consultancy SynTao Green Finance, called AMAC’s newly issued guidelines “China’s version of SFDR.” However, he noted that where the Sustainable Finance Disclosure Regulation relies on disclosure and categorisation, China’s approach is more prescriptive. A single numerical test provides a clearer pass-fail threshold, which may be easier to enforce in practice. While the mechanisms differ, both frameworks aim to reduce greenwashing and improve investor trust.

For global managers, the rules raise the baseline for operating in China’s ESG market. ESG must now be demonstrable in portfolio construction, supported by appropriate benchmarks and consistent methodology. This reduces ambiguity for investors and may improve comparability with international products, but it also increases implementation demands.

With a one-year transition period, firms face immediate operational choices. Portfolios must meet the 80% threshold where ESG is the primary label, investment processes must evidence integration, and benchmarks must be reassessed. Managers that cannot meet these conditions will need to adjust positioning or exit ESG classifications.