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OPINION

The two faces of Chinese ESG

China’s approach to ESG is a jumble of grandiose and contradictory state planning alongside often marvellously successful bottom-up plans by banks and fintechs to instil in consumers a more sustainable lifestyle.

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China’s long, halting and often contradictory road to carbon neutrality continues.

Beijing makes much of its role as a rising global leader in sustainability. Its aims are clear enough: to reach and pass peak carbon by 2030 and achieve carbon neutrality by 2060. Both plans are dear to the heart of president Xi Jinping, who wants to be elected to an unprecedented third term in office later this year.

In October, the State Council Information Office – the mouthpiece of China’s cabinet – pointed to its success in “steadily reducing the intensity” of carbon output, and building “a global climate governance system that is fair, rational, cooperative and beneficial to all”.

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This is not just bluster from an executive arm of government that is also called the Central Office of Foreign Propaganda. Sales of green securities have skyrocketed in recent years. Chinese corporate and financial institutions issued green bonds worth $68.1 billion in 2021, second only to the US with $81.9 billion, according to Statista.

In February, the ministry of ecology and environment rolled out measures designed to standardize environmental, social and governance (ESG) reporting, and give government another tool in holding corporate polluters to account.

But the latest push to undo the pollutive impact of decades of runaway growth is being driven not from the top-down but the bottom-up, by many of China’s largest banks and financial technology firms.

Personal carbon accounts

On March 15, China Citic Bank, the country’s seventh-largest lender by assets, unveiled what it says are the country’s first “personal carbon accounts”.

The bank said 1,000 customers in the southern city of Shenzhen had signed up to test-run one of its China Citic carbon accounts, which aim to nudge customers toward lower-carbon lifestyles. The scheme will analyse the activity of account holders over a year, calculate individual carbon output and suggest ways to live more sustainably.

It is seen by analysts as a way for the state to cajole people to buy into its long-term carbon cutting and wider ESG plans.

It is a stark reminder that China is a country with two ESG faces. One, clean and green; the other, caked with soot

Other institutions, including China Construction Bank and Shanghai Pudong Development Bank, have plans for their own similarly themed schemes. Sources close to Ping An Bank, named the world’s best digital bank by Euromoney in 2020, said the Shenzhen-based outfit would soon unveil its own personal carbon accounts.

There is proof this model can work. In 2016, digital payments giant Alipay launched Ant Forest, an app that lets users earn virtual green energy points by making environmentally friendly lifestyle choices – cycling to work, not using plastic bags and so on.

Users then spend virtual points by converting them into and planting real trees, mostly in areas of the country denuded of trees through mining or desertification.

As of the end of 2021, Ant Forest had helped 600 million users to plant 326 million trees, reducing carbon emissions by around 20 million tonnes. Non-financial brands, including Starbucks and Timberland, have since created their own virtual forests in Alipay’s app.

Other tech giants, including food delivery service Meituan and e-commerce platform Pinduoduo have also created their own internal worlds, which foster social cohesion and sustainability, by encouraging users to live cleaner, greener lives online and offline.

Hazards

Still, China’s road toward a carbon-neutral future remains strewn with hazards.

Each month brings a splashy headline, usually emanating from Beijing, about its grand plans to be a global leader in ESG, which is preceded or followed by an equally damning external report that lays bare the challenges it faces in cleaning up its act.

Case in point: on Wednesday, the National Development and Reform Commission, the main state planner, set a target of producing up to 200,000 tonnes of zero-carbon green hydrogen a year by 2025. It said it also aims to have up to 50,000 hydrogen-fuelled vehicles on the roads by mid-decade.

Yet that is a drop in the ocean compared with the 33 million tonnes of hydrogen China produces a year, of which 80% is extracted from coal and natural gas, with the rest a by-product of industrial production. This mix of blue and grey hydrogen costs little to make, but is the least ESG-friendly option available.

And a month earlier, a report co-authored by the Global Energy Monitor and Finland’s Centre for Research on Energy and Clean Air, found that, in 2021, China began construction on coal-fired power stations with a generating capacity of 33 gigawatts.

That is the most since 2016, and three times as much as the rest of the world combined. The report said coal power and steel are “Chinaʼs two largest emitters of carbon dioxide, and there is no sign of investment in coal-based capacity being scaled back yet, despite the countryʼs carbon neutrality targets”.

It is a stark reminder that China is a country with two ESG faces. One, clean and green, encourages consumers to live more sustainably, and makes big, bold pledges designed to wow the world. The other, caked with soot, quietly goes about the business of building hundreds of new coal-fired power stations doomed to become stranded assets.

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