China held the annual National People’s Congress (NPC) and the Chinese People’s Political Consultative Conference (CPPCC), also known as the Two Sessions, from March 4 to March 11. On March 5, Premier Li Keqiang made the speech of the 2021 Government Work Report, which listed the major goals for the 14th Five-Year Plan (FYP) and the key tasks over 2021, the first year of the 14th FYP. After the 13th FYP regarded green development as the baseline, the newest plan continued pushing forward green development in the country, with the targets including:
- Accelerate the green transformation of development methods
- Implement the 2030 carbon emission peaking promise
- Energy consumption and CO2 emissions per unit of GDP decline by 13.5% and 18%
- Basically eliminate heavy-polluted weather and black and smelly water in cities
- Build important ecological barriers with forest coverage rate reaching 24.1%
Based on the 2021 Government Work Report, this report will talk about some points related to ESG.
Carbon Emission Peaking
Prior to the Two Sessions, China’s other annual meeting, Central Economic Working Conference, in December 2020 also set putting the carbon emission peaking goal into practice as one of the eight key works for 2021. Later, the Ministry of Ecology and Environment (MEE) released guidance in January 2021 and required local governments to propose clear carbon peaking targets, implementation plans, and supporting measures. Consequently, the 2021 Government Work Report reiterated to formulate the implementation plan of peaking carbon emissions before 2030. It is expected that peaking carbon emissions will also be an important task for the 15th FYP.
The energy sector is a major part to realize the carbon goals. According to a Xinhuanet report last December, Zhang Yunzhou, dean of State Grid Energy Research Institute, stated that China’s CO2 emissions generated by energy consumption was 9.8bn tons in 2019, around 85% of the country’s total, and accounted for 29% of the global gross. Zhang said that a one percentage point decrease in energy consumption would reduce 50m tons of standard coal consumption and 100m tons of CO2 emissions, while the country’s energy consumption intensity was 1.3 times the global average. In light of this, it is significant to control the total consumption of primary energy and reduce carbon emission intensity, through improving energy efficiency, cutting fossil fuels like coal, expanding the development of new energies such as wind photovoltaic power, and others.
As part of the efforts, the national carbon emission trading system (ETS) will officially start online trading by the end of this June with the first inclusion of 2,225 electricity enterprises. The cement and electrolytic aluminum industries are expected to be the next as they also have good carbon emission tracking data. Apart from the energy sector, the industrial, transport, construction, steel, building materials, non-ferrous metals, chemicals, and petrochemicals industries also need to set clear goals and formulate action plans for reaching the peak of carbon emissions by 2030, as well as being included in the national ETS in the future.
Pollution Control and Ecological Protection
Expanding from carbon emission reduction, the Government Work Report also emphasized the general pollution control from the air, water, and land aspects, and ecological protection issues. The Chinese government requires to strengthen the comprehensive control and joint prevention of air pollution, especially for fine particulate matter and ozone. Meanwhile, the rate of clean heating in northern China shall reach 70%, which had exceeded 50% in the 2018-2019 heating season by promoting the use of clean coal, meaning the coal industry should focus on the production of high-quality coal with less air pollution and increased energy efficiency.
In terms of wastewater, the country will improve the capacity of urban sewage collection and industrial wastewater disposal in industrial parks, renovate sewage outlets, and eliminate black and odorous water bodies in cities that flow into rivers and the sea. As for solid wastes, the most important thing is to strictly prevent and control soil pollution at sources, along with classified disposal of urban household garbage, green express packaging, agricultural pollution control, and else. Notably, the report pointed out that China will continue banning foreign garbage from entering the country. On the one hand, companies should control and reduce their pollutant discharges, meaning a potentially increasing cost of dealing with wastes; on the other hand, it also signals a development room for waste treatment and recycling enterprises.
In the meantime, all companies should be aware of ecology and biodiversity protection, both aquatic and terrestrial ecosystems. The Chinese government is working on the formulation of a compensation policy for the firms that give way to ecological protection when carrying out operations.
ESG Investing Promotion
Although the Government Work Report did not mention ESG investing, there were committee members who submitted proposals regarding promoting ESG investment. The proposal indicated that the carbon neutrality goal could be a strong incentive to push forward ESG investing for industries and companies. The advice includes corporate ESG information disclosure enhancement, ESG rating system construction, ESG investment product enrichment, and ESG fund establishment. Moreover, ESG investing is in accordance with the country’s green development plan. Considering this, Tu Guangshao, a committee member, believed that the Chinese ESG investment industry would experience further increases during the 14th FYP period. According to statistics, as of March 1, 2021, 55 Chinese institutions has joined the United Nations Organization for Principles of Responsible Investment (PRI).
In addition to the above areas, there are also some ESG-related topics that companies could consider. For example, supporting the domestic NEV industry is also part of the Chinese government’s efforts to reduce air pollution, carbon emission, and fossil fuel use. The Government Work Report mentioned to add more charging piles, battery changing stations, and other supporting facilities for new energy vehicles (NEV), as well as speeding up the construction of NEV battery recycling systems, amid the boom of the domestic NEV industry. Meanwhile, companies could also keep an eye on social issues, such as poverty alleviation programs, rural development schemes, education projects for remote and rural areas, elderly care services, women and children’s rights protection, and more.
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