Climate Disclosure: Are Chinese Companies Rising to the Net Zero Challenge?

06 March 2024 / Report

Trusted Insights for What’s Ahead^TM

^{Chinese companies are at a nascent stage in their net zero journey. Barely a quarter of China’s 100 largest publicly listed companies (by revenue) declared a net zero emissions target in 2022 (compared with 43% across Asia, 59% in the US, and as much as 71% in the UK). Only 5% set verifiable targets in line with the Paris Agreement. Pressure from the government, investors, and other key stakeholders will continue building to accelerate not only the implementation but also transparent disclosure of concrete, corporate climate commitments.}
^{Companies are making meaningful progress on reporting their greenhouse gas (GHG) emissions, but not on reducing them. More than two-thirds of China’s largest listed companies (68%) disclosed their GHG emissions in 2022, close to leading markets such as France and Japan. However, except for a short-lived decline during the COVID-19 pandemic, median emissions of reporting companies have continued increasing. Going forward, efforts must now shift from emissions measurement to developing, executing, and reporting on emission reduction strategies. Domestically, pressure to do so will intensify markedly for large-cap companies via newly proposed mandatory ESG reporting guidelines (to come into force in 2026).}
^{Scope 3 emissions, also referred to as value chain emissions, are largely missing from corporate disclosures in China. In 2022, only 14% of China’s 100 largest listed companies reported them. Given the Chinese economy’s heavy reliance on industrial production and its position as a key node in global supply chains, pressures on Chinese companies to extend their emission reporting obligations, especially along their upstream value chains will increase, both inside and outside of China.}
^{Most companies are not disclosing their renewable energy use. Less than a quarter of China’s 100 largest listed companies did so in 2022, compared with 40% across the Asia region and more than 60% percent in advanced economies. Stepping up efforts to utilize green energy to improve carbon intensity-related performance and reporting will matter greatly in the coming years; in lockstep with this, reporting on renewable energy use will also become mandatory under the new ESG stock exchange guidelines. Once more Chinese companies start setting net zero targets and with it strategically explores access to renewables, we should see an increase in corporate disclosure.}
^{Internal carbon pricing is underleveraged as a strategic tool. Just 3 percent of China’s 100 largest listed companies disclose the use of internal carbon pricing, putting China at the bottom of the disclosure scale compared to other economies (South Korea tops the scale with 52%). Companies that fall behind in this area not only risk financial exposure but also face competitive disadvantages and operational inefficiencies due to hidden costs and missed opportunities.}
^{There is no data on the scale of carbon offsetting. The prevalent view that carbon offsetting is a compliance or cost burden, rather than a strategic tool for emissions reduction, is likely why disclosure is so limited. Given the forthcoming changes to China’s domestic carbon markets, as well as growing restrictions via cross-border regulations, understanding, adequately leveraging, and transparently reporting on offsetting strategies will rise as a strategic issue for businesses operating in China, especially those in emission-heavy industries and with global market exposure.}