Does Investing in China align with ESG?
And while it remains committed to coal, and is continuing to build new capacity, it has pledged to control coal consumption until 2025 and will start to reduce it from 2026. Finally, it agreed to work alongside the US to reduce methane emissions in this decade as part of the two countries’ joint declaration on climate released during COP 26.
It’s also important to acknowledge that China’s size means any actions have scale.
Many democratic governments have issued bold climate declarations and ambitious targets, but if you look beneath the surface there is little detail underlying these plans. And as we saw during the Trump presidency, such commitments can be quickly and easily overturned upon a change of leadership.
As an autocratic regime, China has a longer-term trajectory for industrial planning. It has already put a development pathway in place, environmental and ecological commitments have been written into the Chinese constitution and new laws on pollution control have been passed. Green pilot schemes are being rolled out in smaller regions that have the potential to establish new norms not only for China as a whole, but also for the rest of the world.
The Chinese government possibly has a preference for underpromising but overdelivering on its climate pledges.
It is kickstarting its hydrogen aspirations by subsidising fuel-cell vehicles and their infrastructure, focusing on three trial cities . And is not letting up on its already considerable leadership in renewable energy.
In realising this ambition, it is maximising its strength in both innovation and manufacturing. As such it is upping the ante in the race to deliver new and effective climate solutions. How this plays out will be interesting to watch – will this increase tensions with the US or encourage a spirit of friendly competitiveness? Either way, it should lead to further opportunities for environmental investors.
However, several manufacturers are located in China’s Xinjiang province and supply has been caught up in the scrutiny around alleged forced labour practices in that area. In June 2021, the US Commerce Department blacklisted several Chinese entities connected to polysilicon supply even though the companies involved issuing fierce denials of wrongdoing .
There are recent indications that the US will soften its stance, but this situation serves as a useful reminder that chasing the best investment returns can sometimes conflict with ESG goals and requires further investigation.
At BNP Paribas Asset Management, our clear, focused, unbiased insight helps us deliver to our clients what they rightfully expect. In the context of China, this means using our experience, knowledge and technical skills to find those companies with strong governance and a proper regard for both human rights and the environment, that place delivering on ESG goals as a priority.
We have seen how engagement can have a positive impact and believe this will be the case in China as well. But to have a positive engagement impact, we have to be invested, we have to have a stake and a voice. Only then can we use our influence to try and encourage the change that we, and our clients, want to see.