Chinese companies must step up with climate disclosures as they fail to meet even half the minimum standards, LGIM says
President Xi Jinping’s goal for China to become carbon-neutral before 2060 will help asset managers push for better climate risk disclosure by listed Chinese companies which have failed miserably in meeting standards, according to Legal and General Investment Management (LGIM).
Some 98 per cent of the 142 Chinese companies whose climate risk disclosures LGIM has reviewed have failed to meet even half of the minimum standards set by the London-based firm, which manages around US$1.5 trillion of assets, said Meryam Omi, head of sustainability and responsible investment strategy.
Chinese companies are far behind their regional peers, particularly in their lack of disclosure on meaningful company policies to tackle emissions, climate governance frameworks and targets to become carbon-neutral, she said.
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A company achieves long-term carbon neutrality first by investing in facilities to reduce, capture and store or use their carbon dioxide emissions. Any residual emissions would eventually be fully offset by investing in facilities elsewhere to remove the same quantity from the atmosphere.
“With this commitment of carbon neutrality by 2060, we are much more hopeful on discussing how to lower emissions in the fossil fuel industry significantly,” Omi told the Post. “They should be able to talk about aspects of their business that may not be sustainable in the long run and their plans for them.
“We are going to focus a lot more of our engagement effort on Asian and Chinese companies going forward.”
China set itself the carbon neutrality deadline of 2060 in September. Then on Saturday it pledged to reduce its carbon dioxide emissions by “at least” 65 per cent from 2005 levels by 2030, raising the target slightly from a previous goal of “up to” 65 per cent.
LGIM plans to engage in in-depth discussions with 60 firms globally to press them on their climate change risks management plans, including nine Chinese companies such as China Construction Bank, Air China and Anhui Conch Cement.
It scores some 1,000 companies globally on their efforts to manage climate risks, based on their own disclosures and information from specialist data providers.
Among seven industries it has tracked in the last four years, the scores of utilities firms have improved the most – on average by 6.5 per cent annually, much higher than the 1.9 per cent improvement seen among oil and gas firms.
“The charge to phase out coal – led by progressive European utilities – is now reverberating in markets that had previously resisted change,” said LGIM in an annual report on climate impact. “Even utilities in coal-reliant Asia, such as Hong Kong’s CLP Holdings, are calling time on their coal-fired plants.”
CLP set a target in 2007 to cut carbon emissions by 80 per cent by 2050, which made it the first Asian power firm to set a voluntary target on carbon intensity reduction, a spokesman told the Post.
It pledged a year ago not to invest in any more coal-fired plants, and to phase out existing ones by the middle of the century.
Meryam Omi, head of sustainability and responsible investment strategy at London-based Legal and General Investment Management. Photo: SCMP Handout alt=Meryam Omi, head of sustainability and responsible investment strategy at London-based Legal and General Investment Management. Photo: SCMP Handout
The Council for Sustainable Development last month submitted a report to the government recommending that Hong Kong should progressively advance to net-zero carbon emissions by 2050.
Huaneng Power International, China’s largest listed power producer, did not respond to queries about its decarbonisation plans.
Its 2019 environmental, social and governance report said it was aiming for low-carbon energy to account for over 20 per cent of its total installed capacity by this year. Its carbon emissions accounted for 3.3 per cent of China’s total last year.
In October LGIM introduced a new three-step investment management system. Listed firms failing to meet its minimum disclosure standards would receive a vote of no confidence in its financial statements from the asset manager at its next annual shareholders meeting.
By 2022, if they still fail to meet the standards, they will receive a “no” vote against the re-election of chairman of the board, and persistent laggards will be divested from funds managed by the firm in 2023, Omi said.
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP’s Facebook and Twitter pages. Copyright © 2020 South China Morning Post Publishers Ltd. All rights reserved.
Copyright (c) 2020. South China Morning Post Publishers Ltd. All rights reserved.