CBAM set to redefine carbon costs and export competitiveness: report
China Galaxy Securities expects ESG integration to become a core investment strategy.
The European Union’s Carbon Border Adjustment Mechanism (CBAM), which enters full implementation in 2026, is reshaping global trade rules and accelerating China’s domestic green transition, according to China Galaxy Securities.
CBAM embeds carbon costs directly into cross-border trade, requiring importers to purchase certificates linked to EU Emissions Trading System prices.
The mechanism initially covers cement, iron and steel, aluminium, fertilisers, electricity and hydrogen, with plans to expand in 2028 to roughly 180 downstream iron- and aluminium-intensive products.
As free carbon allowances under the EU ETS are phased out, carbon intensity is expected to become a key determinant of export competitiveness, profitability and corporate valuation.
For China’s high-emission export sectors, CBAM raises compliance costs and increases pressure to improve carbon accounting across supply chains.
Carbon costs are also entering capital market valuation frameworks. According to the report, companies that complete energy-efficiency upgrades, adopt low-carbon technologies and establish robust carbon data systems are better positioned to capture valuation premiums.
In contrast, firms that lag in low-carbon transition face growing valuation pressure as international and domestic regulations tighten.
In response to CBAM, China has accelerated the development of its domestic carbon policy framework.
At the same time, China is rolling out a nationwide “dual control” system that targets both carbon intensity and total emissions, a key pillar of its climate strategy during the 15th Five-Year Plan period.
At the investment level, the report found that ESG investing in China is shifting from passive risk screening to active value creation.
Data quality remains a central challenge. Although ESG disclosure rates are improving, gaps persist in data completeness, comparability and timeliness, especially among high-energy-consuming industries, small and medium-sized enterprises, and transport and logistics firms.
The report argued that stronger disclosure standards, third-party verification and better integration between carbon and capital markets are essential to support effective ESG investment strategies.
Looking ahead to 2026, China Galaxy Securities expects ESG integration to become a core investment strategy, supported by improving data quality and policy stability.
In a projected “slow bull” market environment, the report noted that companies with strong ESG performance may offer more resilient earnings, lower risk profiles and greater long-term return certainty as green regulations continue to reshape capital allocation.
