Responsible Investor

Interestingly, comparing Chinese companies even within the same carbon intensive sectors leads to significant differences in climate impacts. This suggests that by carefully selecting companies – for example, hydropower utilities instead of coal utilities – it is possible for the investor to be exposed to Chinese stocks while maintaining a reasonable climate risk profile.

Our research tends to confirm other macroeconomic studies of the competitive positioning of China vis-à-vis climate challenges. It also makes possible the integration of the climate component of Chinese stocks into the investment process, either for optimization or for portfolio assessment purposes. (See attached PDF)
The environmental transparency of Chinese companies is notably low, which makes the assessment of their climate profile more complicated than in other markets. Our assessment of environmental disclosure confirms previous findings of the Carbon Disclosure Project

(CDP), which found a
2.5% response rate by companies. As suggested by the CDP report, this could reasonably be attributed to weak governance frameworks and the strong presence of the Chinese government in quoted companies.

China’s projected economic growth (i.e. 400% by 2020 according to the World Resources Institute) will pose serious climatic challenges both regionally and globally. As a coal dependent nation, China’s march to a low-carbon economy is likely to be long and costly. Therefore, if China is willing to compete internationally for capital, it is fundamental that quoted companies implement a credible financial and extra-financial reporting framework that is easily accessible to worldwide investors. This is even more important if we consider that China is now the biggest emitter worldwide of greenhouse gases.

Philippe Spicher is managing director at Centre Info in Switzerland.

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