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From a careful reading of government policy, corporate commitments and investor pressure on ESG issues, there are signs that China’s recovery from its Covid-19 ordeal may be significantly greener than its rebound from the global financial crisis a decade ago. We are optimistic that China will seize the opportunity to move towards more environmentally-friendly growth than in the past, whilst seeking to repair social and economic dislocations. 

Rebounding with some green characteristics

Like other countries, China’s priorities are first to look after the health and welfare of its people and then to revive its economy, even as Covid-19 continues to resurface with a new outbreak in Beijing. China’s economy shrank 6.8 per cent [16] in the first quarter and the government has pledged significant investment in infrastructure and other projects in order to jumpstart its faltering industrial machine.

However, pressure is growing from corporations, financial markets, consumers, NGOs, think tanks, academics and economic planners to include green considerations in the economic rebound. Government advisers are recommending an increase in the proportion of green projects, such as sustainable buildings and renewable technology, within government-funded initiatives to create infrastructure, which will lock in environmental impact for decades. The State Council of China has pledged to support a “green silk road” with high environmental standards for projects within its international Belt and Road strategy. There is also momentum to mandate minimum green credentials for projects not explicitly labelled as green.

Positive change through policy

Policy action gives further cause for optimism that China will gradually take more of a global leadership role on climate. One example is the People’s Bank of China’s decision to exclude “clean coal” (projects that make fossil fuel use more efficient) from its list of projects eligible for green bonds. This aligns China more closely with international standards, though it has yet to set carbon emissions thresholds for issuers. Nonetheless, green bond sales rebounded strongly from the March sell-off, demonstrating renewed appetite for this kind of financing, which has been growing in popularity since 2015.

Another example is the rollout of electric vehicle subsidies for car dealers in some cities. ESG disclosure too is an important piece of the puzzle. Many had expected that 2020 could be the year in which disclosure of ESG factors by listed companies and primary bond market issuers would be made mandatory. Such a move would allow global investors to assess more accurately how green Chinese companies are. 

Greater disclosure requirements could now be delayed due to the coronavirus, but there are reasons to believe that China’s commitment to greater transparency and stricter environmental enforcement will continue to grow. Its environment ministry is today invested with much greater authority than before. 

The private sector steps up

The corporate sector is also engaging in China’s recovery with innovation and an evolving ESG consciousness that could ultimately bear fruit in greener industries. Chinese companies already operate in a society where their social value is important. But now, more large investors such as insurance giant Ping An are signing up to the UN’s Principles of Responsible Investing (to which Fidelity is also a signatory), and building in-house ESG teams and their own ratings system as more clients worry about the environment, food safety and pollution.

Meanwhile, tech giants such as Alibaba and Baidu [17] are deploying AI acumen to develop Covid-19 diagnosis and analysis tools, and making the technology available to researchers. Many other Chinese companies have acted to benefit society in the wake of the disease, and one example of stakeholder engagement comes from a ride-hailing platform. The firm has looked after its drivers by setting up hundreds of disinfecting stations during the pandemic, giving them two free masks per day and offering financial relief. 

This kind of corporate social responsibility will be a force for change. Even though the contours of a post-Covid-19 world as yet remain undefined, a convergence of factors – from government action to global investor advocacy and a new corporate commitment to business-for-good – is sowing the seeds of hope for a green bloom in China that may be felt far beyond its borders.

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Paras Anand

Paras Anand

Chief Investment Officer, Asia Pacific