One silver lining emerged from the first year of the covid pandemic: Carbon emissions dropped globally. But in 2021, that silver lining was erased. According to a recent report from the International Energy Agency, global carbon emissions hit a historic high, with China alone accounting for one-third of the total.
Behind that troubling surge are the thousands of Chinese companies that make the Pelotons, iPhones, clothes and other goods that global consumers have gobbled up during the pandemic, and more significantly, the Chinese companies that produce the steel, cement and glass used in China and all over the world.
The climate footprint of these individual corporations is staggering. To take just one example: Greenhouse gas emissions produced by Huaneng Power International Inc., one of the top electricity producers in China, are greater than the entirety of the United Kingdom’s annual industrial carbon emissions.
China cannot possibly reach its climate targets unless its companies dramatically scale back their carbon pollution. Experts say that’s unlikely to happen unless companies such as Huaneng publicly disclose their emissions.
“When you see greenhouse gas data, it is the base for everything,” said Gordon Guo, a senior advisor to Hong Kong-based nonprofit Transition Asia, which promotes corporate climate action. Investors use such data to size up climate risks in their portfolios; companies need it to measure their progress against climate targets, and the public can use the information to hold corporations accountable or choose which products to buy.
Until recently, the Chinese government had made no such requirements of Chinese companies, and therefore offered little information about the extent of their emissions.
Now the government is starting to change that. Last month, China began implementing a new rule that requires a wide swath of companies to disclose their carbon emissions publicly for the first time. This comes as the U.S. Securities and Exchange Commission has put forward a new regulation requiring all public companies in the U.S. to disclose their climate emissions and risks.
Ma Jun, the director of the Chinese nonprofit Institute of Public and Environmental Affairs (IPE), which has been pushing the Chinese government and corporations to track and cut pollution since 2006, called the Chinese rule a “milestone legislation” — one likely to have significant impact. Ma pointed to the precedent of requiring Chinese cities to disclose real-time air pollution data, a rule implemented nearly a decade ago. Air pollution levels in China dropped by 40 percent in the years that followed.
“We have always believed that environmental transparency could help motivate change, and we have seen how this has been very helpful for China to deal with local emissions,” Ma told Grid. To meet China’s stated climate targets — specifically, to peak emissions by 2030 and reach net-zero emissions by 2060 — the government “needs to tap into the good experience of local pollution control.”
As the global movement for greater accountability from major polluters gains traction, how big a difference will China’s new rule make?
The carbon footprint of China’s corporations: what we know
Even as companies and countries publish ambitious new climate targets, the world is facing a huge deficit of data that would help hold them accountable. In November, the Washington Post reported that many countries underreport their emissions to the United Nations, which makes it difficult to calculate progress. It doesn’t help that these reports are also submitted infrequently: China last submitted its official national emissions inventory in 2014.
Against this hazy backdrop, it is even more important for those mega-emitting corporations to report their emissions.
Given that China has only recently begun requiring corporations to disclose their data, what we know comes from voluntary transparency initiatives, outside estimates and disclosures that Chinese companies listed on certain stock exchanges are required to make. We know the specifics about Huaneng’s emissions because the company is listed on the Hong Kong Stock Exchange, which requires disclosure.
A few of China’s large state-owned enterprises are leading by example. Roughly 45 listed companies controlled by the state have disclosed their emissions, according to IPE. As in the U.S., where Microsoft, Google and other technology companies have taken the lead on climate data and targets, Chinese tech giants also boast a relatively strong level of climate transparency.
(Check out Grid’s Dave Levitan’s visual roadmap to solving climate change to see more on how Chinese corporate emissions stack up against other global sources.)
But overall, Chinese corporate emissions remain largely obscured. According to research from Transition Asia, only 65 of the top 300 companies listed on the Shanghai Stock Exchange have disclosed the emissions from their own operations and electricity consumption (Scope 1 and 2 emissions), and only four companies have disclosed the full extent of their emissions — that figure includes indirect emissions from upstream and downstream activities, such as the emissions from cars powered by a company’s gasoline (Scope 3).
These examples of transparency have been driven largely by outside investor pressure, according to Guo. But that will only go so far in China. “In the U.S. and EU, the stronger power to push disclosure forward is from private capital,” Guo told Grid. “However, in China, because much of the capital is managed by state-owned companies and institutions, policy is actually really important to create an impact on this.”
A new era of transparency?
The new rule that China’s Ministry of Ecology and Environment (MEE) introduced in February will shine more light on these corporations. The rule requires Chinese companies to disclose their emissions of a wide range of local pollutants, but its inclusion of climate change is novel. “It’s very important that carbon emissions have been made a parameter for mandatory disclosure,” said Ma. “That’s a big step forward.” The regulation mandates that certain companies disclose their emissions in the coming year, including those that the government deems to be in “key polluting industries” and any that have recently violated environmental laws. This scope alone could include tens of thousands of Chinese companies.
At the same time, China’s carbon market, which was launched last year and requires power companies to trade allowances to pollute in a separate effort to curb emissions, has started requiring the more than 2,000 participating companies to report their emissions to their local environmental department. However, these companies’ emissions haven’t been made public yet.
For Guo, the new rule and the carbon market are important steps toward creating a broader and deeper climate disclosure system. He said China is also considering requiring all companies listed on its stock exchanges to disclose emissions; that would be another step forward. Ultimately, he added, it will be important for companies to be required not only to share their emissions data but also their reduction targets and plans for achieving them.
Will it work?
Experts cautioned that they are waiting for more details from the government on exactly how the new rule will be implemented. That said, many companies are already racing to build capacity to calculate their emissions and meet the climate targets that the government has put forward. And in the case of the new rule, companies will face fines for failing to comply.
Perhaps not surprisingly, one issue that looms large is the potential for fraud. In March, the MEE announced that four environmental accounting firms had already submitted false carbon reports on behalf of their clients in the carbon market.
One increasingly popular way to cross-check emissions is from the air. The Chinese government and outside organizations are deploying satellites to obtain independent emissions figures and identify unreported hotspots.
“Sunlight can be a powerful disinfectant,” Ma said, adding that companies that play loose with their data “will be held accountable for any fraudulence.”
Ma’s group is also working to build an accountability mechanism. His organization, IPE, has experience notifying foreign companies of pollution-related issues among their upstream Chinese suppliers, and it has built a similar system to track the emissions of all Chinese companies that have been disclosed to date. For many global companies, supply chains originate or run through China, so this data is critical for them to meet their own net-zero climate targets. When it comes to tracking emissions along global supply chains, Ma said that “apart from the pioneer brands, most of them don’t have any clue how to implement that.”
For global consumers, the new data from China may also prove to be an important tool. “When they buy vegetables or products for general use, those products might have climate-friendly branding that will be more attractive to them,” said Guo. “It can also let the public know the impact of climate change and how to decrease risks.”
If the companies obey the rules, the impact could be profound, for China and for the planet. Ultimately, Ma hopes to have a global dashboard of data to track all companies — not just those huge Chinese emitters — across the world. He was happy to see the proposed U.S. law that would require its public companies to disclose data as well. “Eventually on this issue, we need global solidarity,” he said. “Hopefully the monitoring can be made more global and standardized,” he added, “so that corporations, wherever they move, will be subject to supervision.”
Thanks to Alicia Benjamin for copy editing this article.