As the COP29 climate conference ended at the end of November, it became clear that its legacy would be uncertainty about global cooperation on climate action. However, attendees largely agreed on one thing. Companies must publish their climate targets and contribute to the energy transition.
According to the UN’s 2024 emissions gap report, as of June last year, 107 countries covering roughly 82% of global greenhouse gas emissions had adopted net-zero pledges. Meanwhile, more than 9,000 companies have committed to action to reduce global emissions by 2030.
China’s carbon emissions haven’t peaked yet, but its rapid expansion of renewables means it likely will soon. As the world’s largest emitter, a plateau in China’s emissions would be of great importance. But with economic growth slowing and coal consumption still rising, there have been signs that improvements in energy intensity are slowing. National carbon intensity targets are also going somewhat off track.
It measures the CO2 required to produce one unit of GDP. Carbon intensity indicates the strength of the relationship between a country’s economic development and carbon pollution. That is, how much carbon is emitted to produce a certain amount of value. The higher the carbon intensity, the more dependent a country will be on carbon emissions to grow its economy.
Furthermore, our latest report, produced with colleagues at the China International Business School’s Lujiazui Institute of International Finance in Europe, reveals slow progress among Chinese firms in both making climate pledges and taking climate action.
But in every crisis, there are opportunities. China is preparing to impose a cap on its total carbon emissions, while adjustments are being made to international trade rules. Both can speed up progress.
Value chain emissions must be cut
Even with appropriate legal and policy constraints, achieving net zero targets will require businesses to actively respond. Listed companies should be particularly motivated thanks to disclosure requirements and the power that public opinion can hold over share prices.
In 2023, China’s listed firms earned CNY 72.7 trillion ($9.9 trillion). This represents 57% of GDP. Researchers have calculated that, in 2019, the total carbon 1 emissions of China’s listed firms accounted for 18.3% of national emissions. This rises to 43% when the emissions of scope 2 and 3 are added. Since the total sales revenue of China’s listed firms has typically grown faster than GDP in recent years, it can be assumed that those percentages have only increased since 2019. It is therefore essential to China’s climate commitments that its listed companies use their influence to fully reduce life-cycle emissions up and down their product value chains.
Field 1
This refers to an organization’s direct greenhouse gas emissions from its operations. For example, when a palm oil company clears a forest to plant oil palms, or when effluent from one of its mills leaks methane.
Field 2
This covers indirect emissions from an organisation’s energy use, such as from a power plant that supplies heat and electricity to a palm oil company’s mill.
Field 3
These indirect emissions occur along an organization’s value chain and are not owned or controlled by it. A palm oil company would involve the production and transportation of fertilizers and international shipping of its products. Area 3 typically represents the bulk of an organization’s emissions.
However, most Chinese firms are not required to make climate disclosures. Meanwhile, carbon emission caps are not yet being implemented and existing carbon markets are limited in scope and strength. Therefore, firms are not feeling the pressure to reduce emissions. Any action is more likely to be driven by marketing than real changes in the value chain, which are usually associated with increased cost.
Business is slow
Our research refers to two ESG business databases of the Bloomberg Terminal (Environmental, Social and Governance). One is BI Carbon, which covers 432 large-emitting firms (52 of them Chinese) in sectors such as energy, transport, chemicals, cement and steel. The other concerns business information and contains emissions data for 1,080 listed firms (114 Chinese) in 62 countries.
Looking only at firms with large emissions, 68% have made climate pledges, but only 25% of Chinese firms have. This is well below Europe and Latin America, both at 80%, or even North America and Asia-Pacific, both at 60%.
Furthermore, these Bloomberg data sets reveal that combined average carbon emissions 1 and 2 for internationally listed firms are now half of what they were a decade ago, while average carbon intensity has fallen by a third. Chinese companies do not follow this trend. Their average for carbon emissions has GROWING by 7.2% and the average carbon intensity fell by only 9.7%. It is worth noting that these datasets are missing significant amounts of pre-2016 data for Chinese firms, but the country’s actions and results lag significantly behind.
Retail and services lead the way
Breaking things down by industry, we found that increased renewables helped the fuel and power generation sectors reduce their carbon intensity significantly between 2016 and 2023. However, the combined average total emissions of these sectors were still increased by 45%. This is because increased energy consumption undermined emissions reductions. The emissions intensity of the metals and chemicals industry increased by 17%, while the manufacturing and technology sectors saw relatively little change in both carbon intensity and emissions figures.
The only sector to see a decline in both carbon intensity and emissions between 2016 and 2023 was consumer goods and services, which covers food and drink, retail and tourist accommodation. The emissions of this sector fell by 16%. Three-quarters of this was due to improvements in carbon intensity, while the rest was due to declining sales.
Technological improvements, policy guidance and regulations have been key to reducing emissions at the retail end. For example, the use of electric vehicles has increased, reducing fuel emissions. Also, a steady increase in single-use plastic regulations is reducing the energy requirements and emissions associated with packaging. The two-fold reductions in emissions in consumer goods and services may also have been helped by increased awareness of sustainability issues among consumers – especially young consumers. Companies will respond to this by focusing more on green and low-carbon approaches to design and manufacturing.
Business is set to accelerate
Most Chinese firms won’t feel any urgent need to cut carbon emissions until the caps are in place, but the situation is changing.
In August, the State Council confirmed that from 2026 China will move away from controlling energy consumption and towards controlling carbon emissions. The Ministry of Ecology and Environment has recently published requirements and guidelines on how to measure a product’s greenhouse gas footprint and cut emissions, and is creating carbon accounting methodologies and databases. China’s carbon markets also expanded in 2024, including the cement, steel and aluminum sectors. This increased the percentage of national emissions covered by the market from 40% to 60%. Further expansions are expected.
Meanwhile, carbon disclosure rules for listed firms are being standardized and strengthened. In April 2024, the People’s Bank of China and other government bodies issued guidelines on how finance can support green and low-carbon development. China’s three major stock exchanges subsequently issued sustainability reporting guidelines for certain firms – including a requirement to disclose greenhouse gas emissions.
Once carbon footprints are visible, investors will be able to assess a firm’s carbon risks. That is, potential financial and operational damage resulting from climate change, carbon emission controls or the low-carbon transition. This will create internal pressure for firms to respond to these risks and reduce emissions.
Finally, Chinese firms will find themselves increasingly affected by “carbon tariffs”. The EU’s carbon tax (CBAM) came into force in 2023, with an initial transition period lasting until 2025. This currently only affects Chinese firms in a few sectors, including steel, cement, aluminum and fertilisers. However, the extension of CBAM is now under discussion and – given the EU’s tough carbon accounting requirements – this raises the possibility that more Chinese firms will be affected.
Elsewhere, the UK has announced that its version of CBAM will come into effect in January 2027. And in the US, there is ongoing debate about a border carbon tax such as the Foreign Pollution Charges Act proposed by Republicans, the scope of which would cover China’s main export sectors.
Chinese firms will be pushed to cut emissions by tougher reporting requirements, green trade barriers and state-level economic planning that includes aggregate carbon emissions data. However, slowing domestic economic growth and international trade tensions are creating strong headwinds. For Chinese companies, the ability to turn carbon reduction pressures into growth opportunities will be critical to prosperity.
