China’s Green Technology Dominance: Balancing ESG Risks with Global Rewards

China’s Green Technology Boom: ESG Risks and Rewards

China has rapidly emerged as a dominant force in the global green technology industry, significantly outpacing many countries in the development and deployment of solar energy, electric vehicles (EVs), and battery technologies. While this surge supports global climate goals and energy transition strategies, it also presents critical ESG (Environmental, Social, and Governance) considerations for investors and stakeholders.

Solar Power: Leading the Global Shift

China currently manufactures over 80% of the world's solar panels, encompassing everything from raw materials like polysilicon to the finished photovoltaic modules. This vertical integration enables lower production costs and vast economies of scale. The country’s control over the solar supply chain has made it the backbone of the global solar industry, but it raises concerns regarding energy market dependencies and labor practices in regions like Xinjiang, where reports of forced labor have surfaced.

In terms of environmental benefits, solar power continues to replace fossil fuels in energy generation, contributing to a global reduction in greenhouse gas emissions. However, the process of producing solar panels is energy-intensive, and the lack of mature recycling systems for decommissioned panels is an emerging ESG challenge.

Electric Vehicles: Domestic Growth and Global Expansion

China is also a global leader in electric vehicle production and adoption. Companies like BYD, NIO, and XPeng have not only captured significant domestic market share but are also aggressively entering international markets. China’s EV sales in 2024 accounted for more than 60% of the global market, a figure driven by government subsidies, infrastructure investment, and consumer demand.

While the growth in EVs helps reduce emissions from transportation, the sector still relies heavily on rare earth elements and metals such as lithium, cobalt, and nickel. Many of these are mined under conditions that raise ethical and environmental concerns. Furthermore, the rapid expansion of the EV industry places pressure on local ecosystems, water usage, and waste management systems, calling for tighter regulatory oversight and sustainable practices.

Battery Technology: Core of the Energy Transition

Battery storage technology underpins both EVs and renewable energy systems, and China controls over 70% of the global lithium-ion battery manufacturing capacity. Major Chinese firms like CATL and BYD are key suppliers to global automakers, including Tesla and Volkswagen. This dominance allows China to play a central role in stabilizing renewable power grids and expanding EV infrastructure worldwide.

However, the environmental footprint of battery production is significant. Mining operations for battery metals often occur in geopolitically unstable regions with lax environmental standards. ESG risks include pollution, community displacement, and labor violations. China’s recycling capacity for battery waste is growing, but current efforts fall short of the volume required to close the loop on materials sustainability.

Geopolitical and Regulatory Implications

China's control of the green tech supply chain has geopolitical implications, particularly for countries aiming to secure independent energy transitions. The U.S. and EU have initiated policies to reshore clean tech manufacturing and reduce reliance on Chinese supply chains. Trade barriers, tariffs, and new ESG regulations could reshape global market dynamics and shift investment flows in the coming years.

Investors are increasingly scrutinizing Chinese green tech firms through an ESG lens, balancing the climate benefits of renewable energy adoption against social and governance risks. Transparency remains a key concern, especially in regions with limited third-party audits or inconsistent disclosure standards.

Conclusion: Balancing Progress with Accountability

China’s leadership in solar, EV, and battery technology positions it as a critical player in the global transition to clean energy. The economic scale and technological advancement offer clear benefits to accelerating decarbonization. However, ESG-related risks—including labor rights, environmental degradation, and supply chain transparency—pose ongoing challenges for investors, regulators, and consumers.

For the world to fully benefit from China’s green tech capabilities, there must be stronger international cooperation on ESG standards, ethical sourcing, and technological transparency. Sustainable growth will depend not only on innovation but also on the accountability embedded in how these technologies are produced and deployed.

Source:Data and analysis compiled from reports by the International Energy Agency (IEA), BloombergNEF, and the International Renewable Energy Agency