ESG Insights (Jan 2023): Low Carbon Investment on the Rise in China

Low Carbon Investment on the Rise in China

CHINA’S CRUCIAL ROLE IN CLIMATE ACTIONS

China plays a critical role in the global climate transition. According to the World Bank, China’s emission contributes to 27% of global carbon dioxide emission and one third of the global greenhouse gas emission. Being one of the major emitters in the world means China plays a key part in achieving the global climate goal. At the same time, China’s economy could be severely impacted by climate change - Swiss Re Institute found that by 2050, if no mitigating actions are taken, China’s economy would lose 23.5% GDP in the most severe scenario (compared to the world without climate change). Yet, if the world could meet the temperature goal of Paris Agreement, an international legally binding climate change agreement, China’s GDP loss could substantially lessen to 6.6%.

CHINA’S AMBITIOUS DECARBONISATION GOALS AND POLICIES

Recognising that addressing climate issues is pivotal to China’s sustainable development, China has been aggressive in pushing decarbonisation with numerous pledges and policies announced in the past decade. From 2007-2021, 168 policies related to low carbon development have been issued – 32 of which were issued during the “12th Five-Year” period (2011-2015), and the number surged to 106 in the “13th Five-Year” period (2016-2020). [1] In the United Nations General Assembly in 2020, President Xi Jinping announced China’s targets of peaking carbon dioxide emissions by 2030 and reaching carbon neutrality by 2060. The “14th Five-Year (2021-2025) Plan” then officially stated the “dual carbon” goals, coupled with concrete and binding targets of reducing energy intensity and carbon intensity substantially by 13.5% and 18% respectively by 2025 compared to the 2020 levels. These targets would be achieved by, for instance, promoting clean energy development and advancing low carbon transition in transportation, construction and industrial sectors. Low carbon and sustainable development would undoubtedly be China’s strategic focus in the decades to come.?

CLEAN ENERGY AND GREEN TRANSPORT - KEYS TO UNLOCK “DUAL CARBON” GOAL

Electricity and heat account for 46% of China’s greenhouse gas emissions, whereas the transport sector contributes 8% of the nation’s emissions in 2019 [2] . To achieve the above emission targets, it is therefore understandable why Chinese government has been determined in growing the renewable energy capacity, and expanding the production and adoption of electric vehicles, while China has already been playing a dominant role in the global clean energy and electric vehicle markets. In 2022, China’s National Development and Reform Commission announced the 14th Five-Year Plan for Renewable Energy Development. The Plan targets to increase renewable power generation capacity to 3.3 trillion kilowatt-hours, which is a 50% jump by 2025 compared to that in 2020. Specially, wind energy and solar energy power outputs are targeted be doubled by 2025. On the other hand, for electric vehicles, the State Council published the Development Plan for New Energy Vehicle Industry (2021-2035) in 2020 to promote long-term quality development of new energy vehicle industry. Further, in the Action Plan of Peaking Carbon Emissions Before 2030 issued by the State Council in 2021, promoting green and low-carbon transportation is one of the key tasks, and it is targeted that the share of incremental vehicles fueled by new and clean energy shall reach 40% by 2030. Recently, China extended the purchase tax exemption policy for new energy vehicles to end of 2023, which is worth about RMB 100bn in total. [3]?

With all these strong policy supports, as well as rising demands of renewable energy and new energy vehicles domestically and globally, Chinese companies with business involved in the clean energy and the electric vehicle value chain have received great interests from investors, and have shown strong performance in the stock market in recent years. The Hang Seng Shanghai-Shenzhen-Hong Kong Clean Energy Index, which measures the performance of Stock Connect eligible A-share companies and companies listed in Hong Kong that are involved in clean energy-related businesses, delivered exceptional performance with 32% annualised returns for 3-year period. The Hang Seng Shanghai-Shenzhen-Hong Kong Autonomous and Electric Vehicles Index, which measures the performance of Stock Connect eligible A-share companies and companies listed in Hong Kong that are involved in autonomous and electric vehicles value chain, also brought 31% annualised returns for a 3-year period. As the world strives to achieve carbon neutrality around mid-century, we would not be surprised to see these industries continue to thrive for the coming decades.

Disclaimer

The information contained herein is for reference only. Hang Seng Indexes Company Limited (‘Hang Seng Indexes’) ensures the accuracy and reliability of the information contained herein to the best of its endeavours. However, Hang Seng Indexes makes no warranty or representation as to the accuracy, completeness or reliability of any of the information contained herein and accepts no liability (whether in tort or contract or otherwise) whatsoever to any person for any damage or loss of any nature arising from or as a result of reliance on any of the contents of this document, or any errors or omissions in its contents and such contents may change from time to time without notice.

Hang Seng China A Ultra-High Voltage Transmission & Power Grid Equipment Index, Hang Seng Shanghai-Shenzhen-Hong Kong Generation Z Index, Hang Seng Shanghai-Shenzhen-Hong Kong Clean Energy Index, Hang Seng Shanghai-Shenzhen-Hong Kong Autonomous and Electric Vehicles Index, Hang Seng Shanghai-Shenzhen-Hong Kong NextGen Communications Index and Hang Seng Shanghai-Shenzhen-Hong Kong E-Commerce Index (the "Indexes") are published by HSIL. HSIL has contracted with FactSet ("FactSet") to use the FactSet Revere Business Industry Classification System ("RBICS") data which forms part of the data included to maintain and calculate the Indexes. "FactSet" and "RBICS" are trademarks of FactSet and have been licensed for use by HSIL. The Indexes are not owned, sponsored, endorsed or promoted by FactSet and FactSet does not make any representation regarding the advisability of investing in products that are based on such Indexes or otherwise relying on such Indexes for any purpose and neither FactSet nor HSIL shall have any liability for any errors or omissions in the Indexes or any values thereof.

The information contained herein does not constitute any express or implied advice or recommendation by Hang Seng Indexes for any investments. Investment involves risks. Prospective investors should seek independent investment advice to ensure that any of their decisions is made with regard to their own investment objectives, financial circumstances and other particular needs. Prospective investors should also note that value of securities and investments can go down as well as up and past performance is not necessarily indicative of future performance.

? Hang Seng Indexes Company Limited 2023. All rights reserved.

[1] TAN, Xianchun; GUO, Wen; FAN, Jie; GUO, Jianxin; WANG, Mingyue; ZEN, An; SU, Liyang; and SUN, Yi (2022) "Policy Framework and Technology Innovation Policy of Carbon Peak and Carbon Neutrality,"??

[2] According to the data of Our World in Data based on Climate Analysis Indicators Tool (CAIT),

[3] State Taxation Administration of the People’s Republic of China (28 September 2022): NEV tax exemptions extended until end-2023