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Contributing to the Carbon Neutrality Goal through High-Level ESG Practices

China Development Research Foundation (CDRF) has completed and launched the Report on ESG for Carbon Neutrality. A research team was coordinated by CDRF to study ESG policy frameworks, ESG ratings, and investment practices relating to carbon neutrality. The resulting report, based on the current status and trend of ESG practices at home and abroad, proposes a theoretical framework for ESG to contribute to carbon neutrality, analyzes seven pathways for ESG to affect decarbonization, delineate current challenges, and finally puts forward policy recommendations in the hope of providing a reference for better utilizing ESG to advance carbon neutrality and China's high-quality development.

Researchers from the Dual Carbon Goals Research Centre of the Chinese Academy of Environmental Planning, the China Macroeconomic Research Institute, Syntao Green Finance, the China ESG Research Institute of Capital University of Economics and Business, the International Institute of Green Finance of the Central University of Finance and Economics, Shanghai University of Finance and Economics, Research Centre of SASAC participated in producing subject reports.

The report points out that ESG can be a key factor in the green transition, that it is naturally consistent with carbon neutrality and sustainable development goals, and that it is compatible with China's new development philosophy of innovation, coordination, greenness, openness, and sharing. ESG framework already incorporates climate change and carbon neutrality issues, it is also integrated, synergistic, and flexible. ESG can be embedded in market-based mechanisms and is a comprehensive governance tool that can be used by financial institutions, enterprises, governments, society and international organizations to promote carbon neutrality. The introduction of dual carbon goals has provided extensive opportunities for ESG practice and development in China, and more and more enterprises and organizations in China are paying attention to ESG practice and investment.

The report proposes a theoretical framework on how ESG can contribute to carbon neutrality, centered on the relationship between enterprises, government and society. On this basis, the report analyses seven pathways and corresponding practice cases for ESG to contribute to carbon neutrality. The seven pathways are: reshaping governance structure, directing financial investment, encouraging green technological innovation, promoting transformation and upgrading of high-carbon industries, driving carbon reduction in the supply chain, promoting carbon disclosure through supervision and regulation, and enabling low-carbon development through policy support.

The report curates best practice case studies such as Brookfield Asset Management, Bank of Beijing, Geely Digital, China Energy Group, etc., and further demonstrates in detail the active exploration of financial institutions, technology enterprises and enterprises in high-carbon industries in applying ESG to assist low-carbon transformation and high-quality development from different perspectives.

The report points out that ESG has been practiced and explored in contributing to carbon neutral goals, but there are still many challenges and deficiencies. For example, the overall understanding of ESG is insufficient, the infrastructure for carbon accounting is insufficient, the coverage and quality of ESG and carbon disclosure are poor, the authority and credibility of ESG ratings are lacking, it is difficult to integrate ESG into corporate business strategies, and there are misunderstandings about ESG investment.

The report puts forward the following recommendations:

First, improve the top-level design of ESG framework. Promote the formation of an integrated ESG policy framework, establish an ESG standard system in line with international standards and with Chinese characteristics, set up a timetable and roadmap, and strengthen the guidance of expectations.

Second, improving the carbon emission accounting system, including accelerating the updating of accounting methods, standardizing the accounting scopes and boundaries at the regional level, increasing the use of digital technology, enhancing the efficiency of the whole process of emission management, improving the standardization and encouraging participation, strengthening the level of monitoring and supervision of carbon emissions, and establishing a sound system for disclosing corporate carbon emission.

Third, improve the construction of ESG ecosystem, further strengthen the construction of ESG data infrastructure, improve the ESG capability and disclosure level of enterprises, highlight the leading role of state-owned enterprises, guide the participation of financial institutions and ESG rating agencies, and give play to the guiding role of the government.

Fourth, strengthen the innovation of financial products and services oriented towards carbon neutrality, promote ESG product standards and operation mechanism from the policy end, financial institutions in the market end should incorporate ESG standards into the whole process of investment management, and in the product end it is suggested to improve the variety and quality of ESG financial products.

Fifthly, we should build a carbon neutral ESG practice support system through policy incentives for corporations, capacity building for climate-related risk assessment and management, enhancing professional talent training, expanding international exchanges and cooperation, and promoting the dissemination of ESG concepts.

Link to the report (in Chinese)