Lack of uniform standards holding back Chinese carbon disclosure: forum

Chinese companies remain at an early stage in their carbon emission data disclosure and face growing pressure from foreign stakeholders to improve the detail and transparency of reporting, Chinese experts said at a recent industrial forum.

China launched its national carbon market on July 16 last year, covering the power generation sector. Market prices have remained steady at Yuan 55-60/mtCO2e (approx. $8.2-8.9/mtCO2e) this year on low liquidity.

Seven other sectors, including steel, refining, non-ferrous metals, building materials, chemicals, aviation and paper, are to be enrolled in the market by 2025. To prepare, companies need to build their capabilities for emission accounting and reporting, the forum heard.

"Companies' disclosure of carbon emissions can support the carbon market to function in a healthy manner, set a solid foundation for policy making, and facilitate financial institutions to make informed decisions," Lai Xiaoming, chairman of the Shanghai Environment and Energy Exchange (SEEE), said at a recent industrial event jointly hosted by SEEE and US Environmental Defense Fund.

SEEE currently hosts the trading platform of China's national compliance carbon market.

"Companies' disclosure of carbon emission data and climate-related information formulates the foundations of carbon trading. The quality of these data is the lifeline of the carbon market," said Wang Zhiyin, Deputy Director of Low-Carbon Development Division at Sinopec.

Sinopec is one of China's largest state-owned oil and gas majors. Its captive power plants already fall under the national carbon market while its refining and petrochemical facilities will soon be included.

Wang said high-quality emission data would help the central government set decarbonization targets, while enhancing the current mechanism for assigning emission allowance quotas to companies enrolled into the compliance scheme.

Standards and security

Wang pointed out two key issues faced by Chinese companies in their emission disclosure practices: lack of uniform standards, and concerns over data security.

"There needs to be detailed standards for each industry, each segment, and each product. The information disclosed by companies in the same industry or offering the same type of products needs to be truly comparable," she said.

A safeguard system was also necessary to ensure the security of sensitive data.

"The disclosure of climate-related data impacts security of the industries and involves confidential information. There needs to be further investigation about the approach and platform for emission disclosure," Wang said.

"Some climate-related information is highly sensitive. We need to have the initiative in our own hands when it comes to emission disclosure of our products," Li Aiju, Senior Carbon Specialist with China Baowu Group, one of the world's largest steel producers, told the forum.

Scope 3 research

Baowu was researching the life-cycle carbon emissions for the steel industry, as requested by upstream and downstream customers, setting a foundation for Scope 3 emission disclosure.

Under the Greenhouse Gas Protocol, Scope 3 emissions are defined as all indirect emissions that occur in the value chain of a reporting company except those from electricity procurement, which is covered under Scope 2.

Li said Baowu would launch a first low-carbon development report in 2022, covering both 2020 and 2021 emission data for seven other pollutants or greenhouse gases besides CO2. The data would cover the full supply chain emissions within Scope 3, verified by third party organizations, she said.

"Utilities companies have been participating in the carbon trading pilot programs [in China] over the past few years, and it's also the first industry participating in the national carbon trading market, so their disclosed carbon emission data seem the most accurate and comprehensive so far," Apple Li, Director and Lead Analyst for Global Infrastructure Ratings at S&P Global Ratings, told S&P Global Commodity Insights.

Nevertheless, the quality of reporting differed widely, she said, with very limited disclosure of Scope 3 emissions to date. Among S&P-rated Chinese utility issuers, CR Power's reporting seemed the most comprehensive and timely, while Shenergy had yet to release a 2021 ESG report and its 2020 report did not disclose emissions figures.

Pressure from foreign stakeholders

Sinopec's Wang noted concern about international climate-related negotiations, with foreign stakeholders seeing disclosure by Chinese companies as a key challenge.

"Support from related authorities is necessary, providing more channels for international communication," she emphasized.

"Some international institutions do not think highly of the ESG information disclosed by Chinese state-owned listed companies, and have imposed increasingly harsh standards on ESG disclosure," said Qi Yue, Deputy Director with the research center under State-owned Assets Supervision and Administration Commission of the State Council.

For now, however, the management of ESG information disclosure in China was like "nine dragons governing a river", Qi said, indicating that rules and standards remain unclear.