Address greenwashing risks, scale up carbon markets, panellists urge China

CHINA'S ability to move the needle in global environmental efforts cannot be overstated, with it being the world's second-largest economy and largest emitter of greenhouse gases. But a host of challenges, such as greenwashing and under-scaled carbon markets, threaten to undermine its attempts and needs to be addressed.

These issues were discussed by a panel looking at China's transition to a low-carbon economy, at Sustainable Fitch's ESG Outlook Conference 2023 Apac, held in Hong Kong on Tuesday (Nov 1).

Panellists acknowledged that any progress by China in its commitment to achieve peak carbon emissions in 2030, and carbon neutrality in 2060 - announced by President Xi Jinping two years ago - would have an enormous impact on mitigating climate change. But they also pointed to the many challenges that stand in its way. 

Tasos Zavitsanakis, head of sustainable finance greater china, sustainable finance office, Apac, at investment banking company UBS, said companies hoping to access China's sizable transition financing market need to demonstrate they have a credible transition plan.

"And, by credible, I mean it needs to be financially viable, scientifically and technologically credible, support a just transition, be inclusive, and strike a balance between humanity and nature."

Tina Chang, a fellow panellist and associate director of sustainable investing at investment management company Fidelity International, said guidelines are sadly lacking for the market's smaller players. "The small to medium-sized enterprises are at the very beginning of this journey - they don't know how to calculate their Scope 1 emissions (direct emissions from sources owned/controlled by the entity) yet, and need more guidance for the whole economy to move forward."

In her experience, companies are also struggling to demonstrate the link between their sustainable financing efforts and their overall ESG (environmental, social, and governance) strategy, which more engagement and communication will likely help to achieve.

Jia Jingwei, associate director of ESG research at Sustainable Fitch, gave more examples of how Chinese taxonomy can be more cohesive and comprehensive.

China's new Green Bond Principles, issued this year, set out four core components for the issuance of a green bond, and bring domestic green bond issuances closer towards international practices. But more clarification is needed to specify using bond proceeds in working capital.

And, the EU-China Common Ground Taxonomy, which compares the commonalities between the taxonomies of the European Union and China, would benefit from incorporating more sectors and climate-change adaptation activities; these would help further identify gaps between China and other major economies' sustainable finance approaches, she said.

Panellists also agreed that the development and scaling up of carbon markets in China and the region are critical in the country and Asia's transition.

Noting that the carbon price in China, hovering at around US$9 per tonne, is a fraction of that in developed countries - for example, as high as US$90 per tonne in the EU - Jia said this makes it a lot harder for the Chinese market "to have any actual impact".

"The trading volume in China's national carbon market has been low, as only companies in the power sector have participated and there is an oversupply of allowances, and only spot trading so far."

Reporting quality has also been poor and there is a lack of verification and audit of carbon emission data, Jia added, which have delayed the inclusion of other sectors such as building materials into the national market.

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