China’s State-Owned Enterprises Hold Keys to Carbon Neutrality

ESG in Action

China has pledged to reach carbon neutrality by 2060, and state-owned enterprises (SOEs) are responsible for half the country’s CO2 emissions. Yet SOEs are also major players in China’s renewable and other low-carbon energy industries. It’s important for investors to understand the ecosystem in which SOEs operate to gain insight on the macro and microeconomic challenges that will determine whether China’s long-term carbon-neutrality plans are successful.

China’s state-owned enterprises (SOEs) are huge CO2 emitters. But they’re also an essential component of efforts to reduce greenhouse gases in the world’s biggest emitter and second-largest economy. Investors must understand the role of SOEs in the economy and what drives these companies to gain insight into opportunities being created by China’s carbon-neutrality plans.

Global efforts to combat climate change won’t be successful without China. Throughout the 21st century, China’s rapid economic development has fueled a steady rise in energy consumption, in contrast to the US and European Union, where it has plateaued and even started to fall (Display). SOEs generated about six gigatons of CO2 per year, accounting for about half of China’s emissions—much more than all the emissions of the US or the EU.

Deciphering the Environmental Agenda

The good news is that China’s government has put environmental issues high on the national agenda. President Xi Jinping announced in 2020 plans to target peak CO2 emissions by 2030 and to transition toward carbon neutrality by 2060. But deciphering the details of environmental efforts in a vast, state-run economy isn’t easy. And since SOEs account for a significant share of China’s business activity and an even bigger share of its emissions, they are an integral part of its carbon-neutrality equation.