China is changing the rules of the game: the carbon market, ESG and their impact on Israeli industries

In the past decade, global regulation has increasingly positioned sustainability, environmental responsibility, and ESG practices as essential conditions for economic activity. China's recent announcement—tightening environmental reporting requirements, introducing absolute emissions caps starting in 2027, and linking regulation to international trade-marks a transformative shift affecting not only Chinese industry but global markets, including Israel.

China’s carbon market, launched in 2021 and initially focused on the power sector, is now expanding to steel, cement, and aluminum-industries responsible for roughly 60% of China’s emissions. By 2030, China aims to implement a nationwide emissions trading system (ETS) aligned with European and Asian markets. The shift from intensity-based targets to absolute emissions caps, combined with stricter transparency standards and enforcement mechanisms, reflects China’s ambition to integrate with global regulatory trends and prepare for policies such as the EU’s CBAM.

Simultaneously, China is moving from voluntary ESG guidelines to mandatory non-financial reporting for public companies, later extending to large domestic firms. Requirements include reporting Scope 1 and 2 emissions, partial Scope 3 measurement, alignment with global frameworks (IFRS S2, CDP), and the adoption of unified data and IT systems for real-time monitoring.

These developments are driven by both external and internal pressures: compliance with European import requirements and the need to preserve China’s competitive advantage in global markets. They also aim to accelerate “green innovation,” including circular economy models, resource management, and carbon-capture technologies.

For Israeli industries, the implications are direct. Exporters to China—or companies supplying components to Chinese exporters—will need accurate emissions data, environmental reporting, and compliance with evolving standards. Importers from China may face changes in pricing, supply chain structures, and transparency requirements. At the same time, new opportunities emerge for Israeli companies offering green technologies, resource-management solutions, or advanced ESG capabilities.

Israel’s current ESG landscape remains fragmented and largely non-mandatory. China’s regulatory shift highlights the need for Israeli companies to adopt comprehensive ESG systems, strengthen supply-chain monitoring, and prepare for global alignment. Firms that act early will enhance competitiveness, improve access to capital, and position themselves within emerging green markets.

China’s policy direction reflects strategic economic motivations rather than purely environmental concerns. As a centralized state, its regulatory moves also serve geopolitical and industrial objectives, including protection of domestic manufacturing and the shaping of global technological standards. Ultimately, China’s actions signal that ESG is no longer a voluntary branding tool but a binding framework defining participation in global trade.

For Israeli companies, now is the time to adapt. Sustainability has become a core business language underpinning global supply chains. Early adopters will lead; late adopters risk exclusion from key markets.

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