The United Nations sounded the alarm globally two decades ago. An annual conference documents action by all nations to contain climate change within agreed carbon emission limits. Planet Earth is now well into the danger zone. Have we done our part? Zhang Tianyuan tracks the shortfall.

There is no place to hide. Humans are paying with their lives as Planet Earth suffers weather disasters with rising frequency. Temperatures soar, the oceans rage, polarcaps melt, and life is at risk everywhere from heat waves, forest fires, hurricanes, typhoons, rainstorms, and flash flooding.

The UN report of 2004 led to the ESG (environmental, social and governance) mission to reduce carbon dioxide emissions. The primary source of carbon emissions was fossil fuel usage, including oil, coal and natural gas. However, targets initiated in 1994 to replace fossil fuels still have yet to be reached. Human beings released 37.4 billion metric tons of CO2 into the atmosphere in 2023, mainly from large-scale industrial and agricultural activities.

The global oil and gas companies bear the primary responsibility for ensuring the transition to clean energy. These companies are cheerleaders at the annual COP (Conference of the Parties) meetings under the United Nations Framework Convention on Climate Change. They declare funding to research clean energy and pledge urgent transition. They run advertisements flashing green credentials. However, the gap between rhetoric and reality could not be wider.

The Oil Change International research and advocacy group audits the climate change pledges of the biggest companies against their actual production and transition plans. Its first report was released in 2020. Its fourth annual report, released in May, analyzes US and European majors — BP, ExxonMobil, Shell, Chevron, ConocoPhillips, TotalEnergies, Eni, and Equinor. Their capital expenditure allocations, production and new drilling explorations were found to be incompatible with a pledge to contain the planet’s temperature threshold to 1.5 C above preindustrial levels. Worse, they collectively accelerate global warming.

David Tong, campaign manager at Oil Change International, sees no indication that the leading oil and gas companies are “acting seriously to be part of the energy transition” in the report he coauthored. More than 200 climate change groups internationally endorsed the report. “These companies are dangerously committed to profit at all costs,” observed Tong. Carbon Tracker’s March report confirmed that none of the world’s 25 biggest fossil fuel companies align with the 2015 Paris Climate Agreement either.

The London Stock Exchange Group’s third COP28 Net Zero Atlas report, analyzed climate targets and sustainable strategies across G20 countries, finding that among the group’s advanced economies, the United States and Canada were also falling short due to “policy deficits” while others set targets “not ambitious enough”.

Right balance

In 2023, China’s largest oil and gas producer PetroChina invested 248 billion yuan ($34.87 billion) — 90 percent of its capital expenditure — into oil, gas and new energy, while the refining, chemicals and new materials segment received 16 billion yuan. The country’s biggest oil refiner Sinopec Corp in 2023 allocated 89 percent in capex of 157 billion yuan to oil and gas exploration, production, refining and chemicals.

Both State-owned oil giants’ marketing spending, which had collapsed for five years, were primarily reallocated to develop petrol, gas, hydrogen, power and nonoil products station networks. PetroChina’s 4.7 billion yuan marketing expenditure of 2023 amounts to only 1.7 percent of total capex, from 5.9 percent in 2019. Sinopec Corp’s 15.7 billion yuan for marketing and distribution slumped from 20.1 percent in 2019 to 8.9 percent in 2023. Neither company discloses specific investments in renewable energy or new materials.

Zuo Luo, provost’s chair professor of accounting and finance at the National University of Singapore, urged companies to integrate sustainability — incorporating ESG aspects — as core business strategies, rather than for financial report compliance or public relations. “We should not think about ESG as marketing,” said Zuo. “ESG should be part of a strategy to enhance shareholder value and sustainability.”

Zuo acknowledged the predicament some for-profit companies face in implementing ESG practices, particularly during economic slowdowns. “Managers may have short-term profit pressure” but these challenges should not deter companies from pursuing long-term sustainable practices, he said.

To overcome implementation difficulties, Zuo called for collaboration between leaders of technology innovation and business sectors, as scientists can provide fresh perspectives and low-cost solutions to environmental challenges that satisfy corporate sustainability goals too.

On the Chinese mainland, many energy companies are striking a balance between exploring green energy solutions and maintaining a stable and safe energy supply for the country, said Cyrus Cheung Lap-kwan, deputy president at CPA Australia for Greater China, who has over 15 years in financial reporting and sustainability advisory work.

“Developing renewable energy sources demands not only substantial investment but also strategic planning,” said Cheung. “Companies face multiple challenges, from identifying suitable locations for solar and wind farms, to solving the thorny issues of energy storage, and efficient transportation to urban centers.”

As part of efforts to pivot toward net zero, PetroChina issued its inaugural green medium-term notes to fund green projects in two separate batches in 2022, with a total value of 2.5 billion yuan, while Sinopec Corp made its debut in sustainable financing market by issuing 2.55 billion yuan in green medium-term notes in 2021.

“As concerns grow about climate change, many investors seek companies that disclose measurable green performance metrics through robust data on revenues, capital expenditures, and effective utilization of green bonds,” noted Jaakko Kooroshy, global head of sustainable investment research at the LSEG, adding that the growing green economy has reshaped corporate strategies and the direction of private capital flow.

Transition financing

Financial pundits saw the smokestack planet as challenges with lucrative opportunities for high-polluting industries. Recent research conducted by LSEG showed the green economy’s resilience and growth trajectory. Despite a setback in 2022, last year witnessed a strong rebound, with long-term growth outpacing the broader listed equities market. China contributed 6 percent to the global green economy.

However, many high carbon-emitting companies remain hesitant to tap into green bonds, “particularly in the international market, questions inevitably arise if these firms’ projects are green enough. They are transitioning from brown to improvement, then to green,” noted Huang Chaoni, executive vice-president of the Hong Kong Green Finance Association.

Huang, who is also a managing director and head of sustainable capital markets APAC at BNP Paribas, said the Guangdong-Hong Kong-Macao Greater Bay Area has unlocked trillions of yuan in transition finance opportunities. “The Hong Kong Special Administrative Region can leverage its international finance hub role to bankroll enterprises to decarbonize on the mainland and for Belt and Road Initiative projects.”

The world’s transition finance is still in its infancy. Fidelity International’s March report revealed the global transition finance gap at around $4 trillion per year. The need for transition investment is particularly acute in Asia, as the region produces 85 percent of its energy from fossil fuels and accounts for more than half of global carbon emissions. Kooroshy warned that many economies, either developed or developing, cannot meet carbon emission targets.

Hong Kong’s action

Three years ago, the HKSAR set a bold goal of carbon neutrality by 2050, with an interim target of halving carbon emissions from 2005 levels by 2035. However, China Daily’s data analysis suggests the city may fall short of these objectives. Between 2014, when the city’s carbon emissions peaked, and 2022, Hong Kong’s total greenhouse gas emissions declined at a compound annual rate of 3.4 percent. If this pace continues, Hong Kong’s carbon emissions are expected to reach about 21,367 kilotons by 2035, leaving a gap of 717 kilotons to halve the 2005 emission levels.

The HKSAR government’s climate action plan hinges on four strategies: phasing out coal for electricity generation by 2035; decarbonizing buildings; greening transport and tackling waste. Cheung highlighted Hong Kong’s progress in its major emission sector — electricity generation. “The coal use by the city’s two power utilities — CLP Holdings and HK Electric — has trimmed from about half in 2015 to around a quarter,” he added. Cheung said he believes the government “has taken enough actions and initiatives in recent years” to help the HKSAR meet the 2035 target.

CLP Holdings, a behemoth with a market capitalization of about HK$170 billion ($21.89 billion), is a component of the Hong Kong stock benchmark Hang Seng Index. It draws attention from investors and climate watchers as the major player in the city’s efforts to cut carbon emissions, given that two-thirds of Hong Kong’s greenhouse gas emissions stem from electricity generation.

Its capital expenditure on renewable energy climbed from 3.8 percent to 10 percent from 2019 to 2022, before falling to 4.7 percent in 2023, when fossil fuels — coal and gas — accounted for nearly half of the company’s HK$15.7 billion in capital investment.

CLP Holdings announced its planned capital expenditure of HK$52.9 billion for 2024-28, with a portion earmarked to double its renewable energy capacity on the mainland from about 2 gigawatts in the medium term.

CLP Holdings’ outstanding sustainable fundraising surged eightfold to HK$32.2 billion, representing the lion’s share of 56 percent of its total debt, according to its 2023 annual report. Energy transition bonds and loans totaled HK$15.8 billion. As of June, the outstanding sustainable financing had reached HK$34.5 billion.

CLP Holdings highlighted natural gas as a transition fuel in Hong Kong’s electricity generation, saying it is crucial for the phasing out of coal-fired power stations in its current decarbonization financing efforts.

Cheung attributed the company’s progress in sustainable financing to its international profile and diverse investor base. Apart from the HKSAR, the company operates on the mainland, Australia, India, and Thailand. “They have a large number of international investors,” noted Cheung.

Hong Kong’s onshore and offshore sustainable bond market hit $25 billion in the first three quarters of 2024, mostly driven by private sector issuances, reported the Hong Kong Green Finance Association.

In the city’s latest move, the Hong Kong Monetary Authority required all banks to meet Hong Kong’s 2030-50 carbon emission targets and pledged the Exchange Fund’s investment portfolio will be net-zero compliant by 2050.

Industry players agree that achieving a net-zero blueprint is a decades-long and arduous journey, which requires galvanized support from all stakeholders — government, enterprises, and consumers — toward a greener and cleaner habitat for all living beings, and away from disasters.

Carbon trading

Carbon trading, where government policies and incentives can play a significant role, could offer an alternative to reduce greenhouse gas emissions, complementing conventional sustainable financing. Hong Kong’s carbon market now operates on a voluntary basis.

“Hong Kong is not an industrial city, and many of its high-pollution companies are already in sustainable markets”, said Cheung. However, he recommends that Hong Kong regularly reassess its policy of voluntary carbon trading.

The world’s largest carbon-trading market — China’s national emissions trading program — covers 2,257 emitters with annual carbon emissions of 5,000 megatons — about 40 percent of China’s overall emissions. The program will expand to cover the steel, cement, and aluminum sectors by the end of this year.

Contact the writer at tianyuanzhang@chinadailyhk.com