Leveraging the Climate Transition Value Proposition

Amidst an increasingly fraught Sino-Western geopolitical environment, and with more and more restrictive pressures on Western firms operating in China, one area stands out where the ‘open door’ remains open: sustainability advancement. This is despite the decision by China to suspend cooperation with the US Government on climate change in response to the visit of Speaker Nancy Pelosi to Taiwan. Indeed, positive engagement at the company level, and the role MNCs can play in sustainability advancement, may be even more critical at this juncture. What is more, contributions to positive climate outcomes in China stand to be well received in home markets — an important benefit.

Last April, when China hosted the UN Biodiversity Conference (COP15), President Xi Jinping, for the first time, publicly outlined China’s vision for building an “ecological civilization”, a directive included in the Party charter at the 19^th National Party Congress in 2017. His COP15 remarks confirm that the policy direction has been set, and that implementation plans must now be developed.  

There is no question that China needs to urgently attend to environmental protection and decarbonization, and that huge catch-up progress is needed both to achieve its decarbonization commitments as well as to satisfy intensifying public demands for a safe and “beautiful China”.

The building pressure for fast-track progress on the sustainability front, and in decarbonization in particular, creates opportunity for MNCs (see TCB commentary, Mind the Gaps).

This meeting of The China CEO Council unpacked China’s climate transition challenge and examined how member companies can create business opportunities and accessways by leveraging their carbon reduction and climate transition resources, networks, and tools to contribute to China’s emissions’ reduction goals. 

• Workshop materials can be found here (China Center members only).
• Polling exercise results for the session can be found in section 7 (China Center members only).

Insights for What’s Ahead

• China’s climate campaign is poised to ramp up substantially. Major ecosystem and business environment changes are on the horizon, and companies must get in front of this eventuality. China has embarked on a massive climate transition policy campaign to achieve its dual policy goals – peaking carbon emissions by 2030 and reducing net emissions to zero by 2060. Over the past 12 months, a rapidly growing number of government plans and policies related to China’s climate transition strategy have been released.

• Addressing major climate transition challenges is a policy priority. China cannot risk becoming a climate laggard. While the country has indeed improved the energy intensity of its economy, it has not yet decoupled economic growth from emissions growth. Looking at its decarbonization goals for 2030 and beyond, China must achieve this systemic change at a much faster pace than the US and Europe – both of which started much earlier.

• Amidst fraught Sino-Western relations, climate transition is one area where MNCs have positive market development pathways vis-à-vis all stakeholders, both in China and in the US and EU. Key incentives appear to be aligning positively, from firm-level to policy-level. This spells opportunity for MNCs, which are uniquely positioned to develop and steward critical climate solutions in China, such as technological development, circular operations, capacity building and market education. China also offers a unique environment to develop, trial, and deploy low carbon products and business models at unparalleled scale.

• MNCs must have compelling and legitimate climate transition stories to tell in China; it should be a fundamental value proposition component. Investment commitments once played center stage in government relations engagement, but today companies are increasingly using climate commitments and achievements as part of their “storytelling” in China. While policy and government action are important and necessary, the stewardship of large companies can move the needle, if not lead the way. Demonstrable leadership will accrue both commercial and reputational benefits.

• To leverage the climate transition opportunity, MNCs must ensure that their “own house is in order”. A comprehensive climate transition plan for the China business is fundamental, including targets for scope 1, 2, and 3 emissions, as well as clear target setting parameters and implementation measures. These plans can serve as a showcase for government affairs engagement.

• Filling China’s climate transition gaps is a major development opportunity for MNCs. The last four decades of MNC experience in China show that major opportunities for foreign investors in China always lay in the gaps between indigenous capabilities and the government’s planning targets. Companies should study China’s climate and sustainability plans most relevant to their business and identify gaps that they can most profitably fill.