Responsible Investor

Calculating the carbon footprint of Chinese companies

Credible reporting is crucial to solve China’s growing CO2 problem

While mainstream and SRI investors are increasingly seeking opportunities for returns in emerging markets, little environmental, social and governance (ESG) research is available on companies in those countries. In order to provide some evidence on climate-related risks and opportunities, Centre Info conducted the first analysis of the carbon intensity of 50 Chinese companies quoted on the Shanghai Stock Exchange.

Centre Info measures the carbon intensity of companies along the entire value chain. This means integrating direct emissions from production alongside indirect emissions from the company’s supply chain, use of its products and their disposal. The level of carbon intensity indicates the overall impact of a company on the climate as well as its dependency on fossil energy and other sources of greenhouse gases. It is also a proxy for the exposure of the company to climate-related risks, the underlying hypothesis being that climate change will lead to market and regulatory changes that will impact the bottom line of carbon-intensive companies. Our research shows that the average carbon intensity of

Chinese companies in the SSE-50 index is substantially higher (41%) than the average carbon intensity of the MSCI Index. (see PDF chart in downloads)

This suggests that investing in Chinese stocks bears higher carbon risks than investing in other markets. Investors willing to be exposed to the Chinese market should therefore either be willing to support those risks or hedge them by investing in less carbon-intensive assets.

“Investing in Chinese stocks bears higher carbon risks than investing in other markets.”

Chinese companies are overrepresented in carbon intensive industries, which are likely to sustain China’s economic growth over the next years. The sectors identified by our research to be the major contributors to China’s carbon footprint are the energy, the utilities and the materials sectors.

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