2022ESG
W H I T E PAPER*Formerly known as Corporate Social Responsibility White Paper

Editorial Board
Guest Editors

Editorial Board Members

Wang Hong

Jean LeeCEIBS President; Professor ofManagement; Hengdian Group Chair inManagement; Recipient of the Special
Government Allowance of the StateCouncil

Professor of Management; Michelin Chair
Professor in Leadership and Human
Resources Management; Associate Dean
(Research); Co-Director, CEIBS Centre for
Family Heritage

Ding Yuan
Vice President and Dean; Professor of
Accounting; Cathay Capital Chair in
Accounting, CEIBS

Executive Editors
He Jinyu
Professor of Strategy, CEIBS

Mia Guo
Assistant to the Editorial Board

Lydia J. Price
Professor Emeritus, CEIBSChen Shimin
Professor of Accounting; Zhu Xiaoming
Chair in Accounting; Director of Case
Centre, CEIBS

Rui Meng
Professor of Finance and Accounting;Parkland Chair in Finance; Director of
CEIBS Centre for Wealth Management;
Co-Director of CEIBS Centre for Family
Heritage; Programme Director of Family
Office Diploma Programme

Wang Yajin
Professor of Marketing, CEIBS; Research
Area Director of ESG; Programme
Co-Director of CEIBS-Tencent Joint
ProgrammeCEIBS

Foreword
In 2021, China launched its 14th Five-Year Plan and committed itself to becoming carbon neutral. In light of theseannouncements, policymakers, investors, and companies have been placing increasing focus on environmental, social,and corporate governance (ESG) issues. In addition, companies—which form the backbone of national policies toachieve common prosperity and reduce emissions—are playing a key role in sustainable development and the transition
to a green, low-carbon economy.
At CEIBS, we have witnessed the profound changes that have taken place since our inception 27 years ago, andhave responded to meet the needs of a changing world. As a world-renowned international business school that ranks
among the best in Asia, CEIBS is committed to the mission of educating responsible leaders versed in “China Depth,
Global Breadth”. Over the past year, we have integrated the concepts of social responsibility and sustainable
development into every facet of our operations, including the following specific measures:• Incorporating the “exemplifying CSR education” initiative into the CEIBS Strategic Plan (2021–2025) in order toopen up new vistas and opportunities.
• Stepping up ESG research to spearhead the creation and dissemination of cutting-edge knowledge about CSR
and sustainable development.
• Developing a range of programs related to carbon neutrality and ESG to meet the needs of students, alumni, andthe general public.
• Hosting the annual CSR forum to pool knowledge and expertise on sustainable development.
• Connecting alumni companies and business leaders with pioneers in green innovation in order to empower
sustainable business practices.
While we are proud of our achievements, we acknowledge that we have a responsibility to do more. In line with our
purpose of “service to alumni, contribution to CEIBS, and dedication to society”, the CEIBS Alumni Association iscommitted to the mission of empowering alumni and alumni companies to make a positive contribution to society. In
recent years, alumni companies have demonstrated a firm commitment to CSR practices, including innovative
low-carbon strategies, ESG investing, and CSR reporting. In terms of poverty alleviation, companies have shifted theirfocus from charitable donations to empowering local people with skills to generate their own income. Thanks to theircommitment to business practices in line with the CEIBS motto of “Conscientiousness, Innovation, and Excellence”, ouralumni have provided a great impetus for our successful development.
A changing world demands new ways of thinking. We hope that all CEIBS alumni will be able to make a positive
contribution to responsible business practices and sustainable development. We will, as always, work with the CEIBS
community to fulfill our CSR mission in the post-pandemic era and create win-win outcomes for business and society.

Dr. Wang Hong

Dr. Ding Yuan

CEIBS President

CEIBS Vice President and DeanIntroduction
Since China pledged to peak CO2 emissions by 2030 and achieve carbon neutrality by 2060 (jointly referred to as the “dual carbon”
targets), these goals are set to drive the green, low-carbon transition of the Chinese economy, and will have a profound impact on thebusiness sector. Following an initial period of excitement and confusion, many companies are now attempting to navigate this complex
topic and develop green development strategies.
The ESG White Paper 2022 provides an excellent guide for the business community, and offers an informative, practical, andacademic insight into CSR-related topics at the global, national, and company levels. Thanks to a combination of concise language,
comprehensive data, and objective research methods, the White Paper provides a wide-ranging insight into how companies can
incorporate China’s “dual carbon” targets into their CSR practices, and presents common misconceptions and risks associated withemissions-reduction strategies.
A Call for Action on Net-Zero, authored by Prof. Lydia J. Price and Prof. Laurie A. Underwood, explains how carbon neutrality is apressing and arduous task that will require planning, resources, collaboration, and innovation. The paper presents a snapshot of theworld’s leading economies, including the scale of the net-zero emissions movement, the wealth of scientific research, and the wide rangeof organizations that can play a supporting role. It examines the progress of businesses towards achieving carbon neutrality and prompts
business leaders to consider how they can share the benefits and costs of the low-carbon transition in the face of new challenges andinvestment opportunities.
Review and Prospects of Practices across China’s Sectors towards the Dual-Carbon Goal, authored by Prof. He Jinyu and Wu Fan,
offers a comprehensive analysis of emissions reduction policies for various types of enterprises, and analyzes how the dual-carbon goal
will bring about systemic changes to China’s economy. It also sheds light on the experiences and misconceptions of companies acrossa wide range of sectors in moving towards the dual-carbon goal, and provides businesses with a toolbox and roadmap for adapting tomacroeconomic changes and balancing financial goals with social responsibility.
The five CEIBS alumni companies/organizations described in this chapter, namely SEE, Landsea, 37 Interactive Entertainment,
Saint-Gobain (China), and INCOM Recycle, are from different sectors and have contrasting growth and low-carbon strategies.
Nevertheless, they are all keenly aware that CSR is not a slogan, but rather a call to action to pool efforts through innovation andcollaboration. The cases on these companies and organizations provide readers with extensive insights into the business logic
behind corporate practices, and will inspire more companies to think outside the box and respond to the dual-carbon targets
with appropriate strategies.
The chapter “Cutting-Edge Research on ESG” comprises papers by three CEIBS professors, namely Jiing-Lih Farh,
Guo Wei, and Hyun Young Park. Based on rigorous reasoning, they delve into the CSR policies of enterprises andorganizations and examine their outcomes from a social perspective in order to address misconceptions and highlightpotential risks.
The White Paper ends with “Research on CSR Reports of A-Share Listed Companies” conducted by Prof. Rui
Meng and the CEIBS Center for Wealth Management that he chairs. This year’s report, which is more concise thanin previous years, focuses on several key indicators that provide an overview of the CSR practices of A-sharelisted companies. Notably, the report also presents an analysis of 55 major carbon emitters in the corporate
sector, providing comprehensive, data-based insights into the contributions that key emitters are making
toward China’s dual-carbon targets from a number of dimensions, including region, sector, and scope andfrequency of disclosure.
The White Paper provides an up-close look at the concepts of peak carbon and carbon neutrality. For
China, achieving carbon neutrality will be especially challenging due to the scale of carbon emissions andthe structure of its economy and energy mix. It is therefore crucial for companies to devise a low-carbon
strategy and take effective and comprehensive action. In light of these challenges, we hope that thebusiness and academic communities will work together to deliver long-term, sustainable growth.

Contents

01

INTERNATIONAL TRENDS FOR CARBON
NEUTRALITY
003 A Call for Action on Net-Zero

02

CHINESE EFFORTS TOWARD CARBON
NEUTRALITY
029 We Are All Carbon-Cutting Ambassadors Sectoral Decarbonization
Efforts Toward China’s “30-60” Targets: Review and Outlook

03

HANDS-ON EXPERIENCE OF CEIBS ALUMNICOMPANIES IN CARBON NEUTRALITY
051 SEE: Uniting Entrepreneurs to Protect the Environment
061 Landsea: Pioneering Carbon Neutrality
071 37 Interactive Entertainment: A Gaming Company witha Sustainable Development Strategy
081 Saint-Gobain: A Commitment to Net-Zero089 INCOM Recycle: Venturing into the Circular Economy

04

PERSPECTIVES OF CEIBS FACULTY ON ESG
101 Unethical Pro-organizational Behavior: A Double-edged Sword
105 Developing a New Approach to Corporate Communicationsin an Age of Uncertainty
109 Effectiveness of Emotive Charity Appeals in Soliciting Donations

05

STUDY ON THE CSR REPORTS OF A-SHARE
LISTED COMPANIES (CONDENSED)
115 Study on the CSR Reports of A-share Listed Companies (Condensed)

INTERNATIONAL
TRENDS FOR CARBON
NEUTRALITYA Call for
By Lydia J. Price andLaurie A. Underwood

Lydia J. Price
Professor Emeritus, CEIBS

Action on Net-Zero*

Laurie A. Underwood

Adjunct Professor, Skema Business School
Senior Honorary Lecturer, University of Aberdeen
Senior Consultant, Sino Associates

Companies urgently need to start cutting carbon from their operations, and plan for achieving
net zero across their entire value chains by 2050 – including drastic reductions by 2030. It’s adaunting task that requires planning, resources, collaboration and innovation. In this year’s chapter
we explain the urgent need for action and we share ideas and experiences from the pioneering
companies that have gone beyond simply making a commitment to actually launchingcomprehensive, effective action plans.

* Special thanks to CEIBS Research Associate Chaojie Jin for his contribution, and to the following CEIBS alumni and supporters for their advice and input to this chapter: Dmitry
Andreev, Richard Brubaker, Rex Gu, Min Ko, Nikolaj Moesgaard.

International Trends for Carbon Neutrality““[U]ltimately, the emergency climate (situation) comes down to a single number: theconcentration of carbon in our atmosphere — the measure that greatly determines global
temperature…[T]he people alive now and the generation to come will … consider one thing:
did that number stop rising and start to come down as a result of commitments made here?
There is every reason to believe that the answer can be ‘yes.’ If working apart, we are a force
powerful enough to destabilize our planet, surely working together we are powerful enough tosave it.”Sir David Attenboroughopening speech at COP26 in Glasgow November 2021 (COP26, 2021)”

If you haven’t yet made a commitment to reduce your company’s carbon emissions to net-zero by 2050, you’re fallingbehind global trends, and possibly losing the opportunity to gain advantage in the dawn of a new industrial revolution. If
you have made a commitment but haven’t yet determined a credible pathway to achieving it, you’re keeping pace withthe masses. And that’s a big problem, according to scientists who warn that governments and businesses are moving far
too slowly to limit global warming to 1.5℃ above pre-industrial levels by mid-century – the point beyond which polar ice
sheets will collapse, leading to rising sea levels, more frequent and more extreme weather events, and ultimately a shock
to global economic systems and a rise in poverty (Abnett, 2021).

Net zero by numbers• What is net zero?
Net zero is achieved when all greenhouse gas (GHG) emissions from human activity are balanced by GHG
removal from the atmosphere (Levin et al., 2019). The path to net zero requires elimination of GHG to the extent
possible through efficiency gains, material and technology upgrades, modifying behaviors, and drawdown ofresidual emissions by means of nature (soil, water, and trees) or technology.
• Why zero? Why not just “less” carbon?
Given that excess carbon launched in our atmosphere since the Industrial Age persists so long (up to
10,000 years), to stop the greenhouse effect and restore balance we must reach net zero by mid-century. If westill emit more than is absorbed by 2050, the polar ice caps will melt, triggering catastrophic effects worldwide.
• Which gases are included in greenhouse gasses?
Mainly carbon dioxide, nitrous oxide, and methane.
• Which industries / sectors emit the most GHG globally?
Manufacturing (cement, steel, plastic) 31%; Electricity 27%; Agriculture (animal and plant) 19%; Transportation 16%; and Temperature control (heating, cooling, refrigeration) 7% (Gates, 2021).

In the wake of the November 2021 COP26 climate conference in Glasgow, analysts applauded the quickly risingnumber of national and corporate long-term commitments to reach net-zero by 2050; at the same time, they bemoaned thelack of associated interim plans to reduce emissions by 50% in comparison to 2010 levels by the year 2030. Without thatsteep and rapid drop in aggregate global emissions by 2030, the IPCC (Intergovernmental Panel on Climate Change)
believes the path to net-zero by 2050 becomes untenable (Masson-Delmotte et al., 2018). Experts, analysts and activists
therefore are calling for coordinated action now to put 2030 carbon reduction plans into practice, aligned with realisticcommitments and strategies to phase out fossil fuels within a few decades. Failing to act raises the risk that later moves
to curb climate change will necessarily be extreme: hefty taxes, crippling legislation, and abrupt disruptions to businesses and communities.

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2022 CEIBS ESG White Paper

The transformation to carbon neutrality① will be vast, fast-paced and chaotic according to analysts. To help you
prepare, we’ve compiled data and expert assessments of national and corporate-level achievements, along with expert
insights about getting started, overcoming challenges, and staying on track. We’ll also give a view of developing technologies designed to accelerate progress, and the major alliances being formed to share the gains and the costs of transformation. Finally, we share lessons from outstanding companies and organizations emerging as role models toward net
zero.

IPCC Reports Grave Risks for Missing 1.5℃ Target
An August 2021 report by the UN-created Intergovernmental Panel on Climate Change (IPCC) has beencalled a “code red” warning for humanity, grimly stating that: “unless there are immediate, rapid and large-scale
reductions in greenhouse gas emissions, limiting warming to close to 1.5℃ or even 2℃ will be beyond reach,”(IPCC, 2021).
The report confirms that human-made GHG emissions have already triggered an increase of 1.1℃ sincearound 1900, and details the grave consequences of a 1.5℃ rise as “increasing heat waves, longer warm
seasons and shorter cold seasons,” while the impact of a 2℃ increase will be catastrophic in many cases: “heatextremes would more often reach critical tolerance thresholds for agriculture and health.”

GLOBAL PROGRESS TOWARDS CARBON NEUTRALITY
Recent forecasts by researchers at the U.N. Environment Program, the Environmental Energy Agency and the
Climate Action Tracker show global warming in the range of 1.8-2.1℃ by 2100 if all 196 countries in the Paris Agreement
fulfill their commitments to achieve net-zero by 2050. However, based on existing 2030 interim action plans to achieve
those goals, the same agencies warn of significantly higher temperature increases of 2.6-2.8℃ (Kaplan and Birnbaum,2021) – scenarios which threaten the preservation of life as we know it. The risk perception is shared by nearly 1000 global
leaders surveyed for World Economic Forum’s annual Global Risks Report, who see Climate Action Failure as the number
one risk on a global scale over the next 10 years (World Economic Forum, 2022).
Climate Action Tracker notes that many countries need to increase their ambitions on long-run carbon cutting
pledges. Even more urgently, though, governments need to enact policies and provide the financing to turn net-zeropledges into reality. Policy support is needed to eventually phase out fossil fuel production, to accelerate thedecarbonization of high intensity sectors and to assure financial markets that the looming economic transformation will beorderly. Financing is needed for research and development, as well as climate mitigation and adaptation projects indeveloping economies which face the greatest immediate risks of climate disaster, yet have the smallest carbon footprints
and the least resources available to help themselves (Climate Action Tracker, 2021). Without concrete plans andstrategies, along with regulating mechanisms to assure continuing progress, many of the current pledges will amount tomere “greenwashing②”.

Coordinated Global Action
The United Nations (UN) leads global coordination on climate change mitigation and adaptation. A key platform fortheir work is the annual Conference Of Parties (COP) at which nations report progress and plans, and negotiators hammerout deals for future cooperation. The COP26 meeting in Glasgow in November 2021 was notable for a vast increase in① Carbon neutrality: carbon neutrality, i.e. net zero, is achieved when all greenhouse gas (GHG) emissions, both direct and indirect, are balanced (every year) by means of natureor technology.
② Greenwashing refers to organizations or businesses that misrepresent or exaggerate their environmental efforts without investing resources in real environmental action.

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International Trends for Carbon Neutrality

active participation by business executives and investors who recognize the growing risk of climate-related disruptions tooperations and long-run value creation. Conference attendees agree that a sense of urgency was palpable in Glasgow,
and that parties showed increased willingness to do their part for climate change mitigation. Nevertheless, questions
remain about the potential for timely follow-through.
Key achievements of COP26 (UN, 2022):• A commitment to “phase down” coal power, and “phase out inefficient” fossil fuel subsidies. Until the final moments,
COP negotiators pushed for stronger wording to “phase out” coal and all fossil fuel subsidies, but a compromise
was struck that renders the commitments voluntary rather than binding. Though the compromise agreement is lessthan what is scientifically needed, negotiators noted that this is the first time any agreement has formally recognized the need to abate fossil fuel use.
• Completion of the Paris Rulebook, which specifies how the 2015 accord is to be achieved. An important component
is a set of guidelines for transparent and rigorous carbon accounting to facilitate the development of a global
carbon trading market allowing countries that struggle to meet their NDC commitments to buy credits from others
exceeding their formal obligations. Experts expect a boom in voluntary carbon markets as a result, but questions
persist about whether the price of credits will be high enough to incentivize countries to shift to renewable energy,
and preserve resources including trees, water, and soil that store carbon in natural sinks.
• Agreement that climate financing is critical. The conference yielded mixed outcomes on climate financing. On one
hand, countries recognized the need to fund climate adaptation and resilience-building in developing parts of theworld. The Glasgow Pact calls for a doubling of previous climate adaptation commitments. On the other hand, theconference did not hold developed countries accountable for their failure to deliver on a promise of $100 billion ayear in funding for developing countries by 2020. The deadline for that promise instead was moved back to 2023.
• Outside the formal agreements of the Glasgow Pact, numerous voluntary commitments were made by groups ofcountries, companies, and industries. Notably:∙ 103 countries pledged to cut methane emissions by 30% by 2030.
∙ 137 countries pledged to stop deforestation and land degradation by 2030. CEOs of 30 major financial institutionscommitted to stop investments in activities linked to deforestation.
∙ Major car makers agreed with national and city leaders to halt sales of combustion engine cars by 2040 at thelatest.
∙ More than 450 public and private financial institutions that control USD 130 trillion in assets pledged under theleadership of the Glasgow Financial Alliance for Net Zero (GFANZ) to actively support the UN Race to Zero, which
requires members to commit and actively work toward achieving net zero by mid-century and a drop of 55% inemissions by 2030.
∙ More than 40 world leaders signed on to the Breakthrough Agenda, launched by U.K. and intended to make clean
technologies the most accessible and affordable options globally in sectors that currently account for high levelsof emissions. The Glasgow Breakthroughs set 2030 as the target date for affordable and accessible power, steel,road transport, hydrogen, and agriculture (Climate Champions, 2021).
∙ The International Financial Reporting Standards (IFRS) Foundation finalized the creation of an International
Sustainability Standards Board (ISSB) that will specify high quality disclosure requirements to meet the needs ofinvestors (Baker, 2021).

National and Regional Actions
Consulting company KPMG scored and ranked 32 countries to form a “Net Zero Readiness Index” (NZRI) for 2021.
The scores are a composite of two key dimensions: 1) national preparedness and 2) sector readiness in the five highest
GHG emitting sectors (KPMG, 2021). NZRI 2021 shows that better prepared countries have made their net zero commit-006

2022 CEIBS ESG White Paper

ments legally binding in laws and regulations. They invest in R&D, and their policies and subsidies support the emergenceof clean energy and other clean tech sectors. Perhaps unsurprisingly, they also tend to be wealthier. Furthermore, thereport notes that national preparedness and sector preparedness are correlated, reinforcing the need for governments
and industries to align in their net zero ambitions and actions.
European countries generally outperform those from other geographies in their readiness to achieve net-zero targets,
according to KPMG. Seven of the 10 highest scoring countries on the NZRI are in Europe, benefitting from strong legal,
political and social support, as well as advanced investments in clean technologies. Each also has taken decisive action
to cut emissions in sectors of high impact. Despite these early wins, KPMG argues future progress might be slowed byidiosyncratic national blocking factors including resistance to taxes, difficulties in retrofitting older homes and buildings,
and historical economic strengths in high emission sectors like farming and agriculture or fossil fuel exports.
China (NZRI rank #20) and the United States (NZRI rank #14) are the world’s leading emitters of GHG and both havepledged to take decisive action to mitigate carbon in coming decades. In April 2021 during the leadup to COP26, the twocountries signed a joint declaration to work together to close gaps needed to cap climate change at 1.5℃. China's top
climate negotiator announced that, regarding climate issues "there is more agreement between China and US than divergence” (BBC, 2021). Despite this welcome pronouncement, economic and political realities make it hard for either country to achieve its goals. The U.S. struggles with dysfunctional political division and heavy reliance on natural gas as atransitional fuel toward carbon neutrality whereas China is hampered by reliance on coal to fuel its continuing economic
growth.

The best-prepared countries for carbon neutrality do the following:• Make net-zero commitments legally binding• Cut emissions decisively in high impact sectors• Invest in clean tech R&D• Coordinate the actions of government and• Support technology shifts with policies and subsidies

business

Source: KPMG, 2021

European Union and United Kingdom
Several European countries have set early targets for carbon neutrality: 2030 in Norway (NZRI #1), and 2045 in
Sweden (NZRI #3) and Germany (NZRI #5). Those three countries are strong in decarbonizing the transport sector bymeans of tax incentives, infrastructure investments and policies to support electric vehicles. U.K., Denmark (NZRI #4) andFrance (NZRI #6) lead in decarbonizing electricity and heat sources by shutting down coal generation (U.K.) or boosting
renewables including offshore wind (Denmark and France). Norway, U.K., Denmark, and Germany are world leaders indecarbonizing the industrial sector and nurturing clean tech companies. European countries also have mechanisms toinclude the voice of citizens and experts in carbon decision making: U.K.’s Independent Committee on Climate Change,
Germany’s strong Green political party and France’s Citizen’s Convention, for example.
The United Kingdom is a leader in carbon and energy reporting requirements. Large companies have been required
to report their energy use and carbon emissions in annual Directors’ Reports since April 2019 (UK Government, 2021).
Last year, the country tightened requirements for large listed companies to report according to internationally recognizedrecommendations of the Task Force on Climate-related Financial Disclosures (TCFD) (Akin Gump, 2021). Reportingtransparency will help reassure U.K. investors that climate financing brings predictable risks and returns.
An important unifying element for European countries is the Green New Deal, signed by the European Commission

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International Trends for Carbon Neutrality

in December 2019, to commit EU countries in aggregate to net zero GHG emissions by 2050 (European Commission,2019). A new European Climate Law approved in June 2021 made the 2050 commitment legally binding, and set a 2030
interim target of lowering emissions by 55% relative to 1990 levels. Soon after, in July 2021, the European Commission
released a package of policies termed “Fit for 55” to enact the new 2030 commitment (Van Hoof, 2021).
If approved by the European Parliament and the Council, “Fit for 55” policies will back up the 2021 Climate Law.
Emissions will be cut through multiple pathways:• More ambitious renewable energy production targets and energy eﬃciency targets for member states;• A ban on the sale of combustion engine vehicles by 2035 and an increase in electric vehicle charging infrastructure;• Limits on the allowable content of GHG in transport fuels and higher taxes on heavily emitting transport modes;• Imposition of a border price on carbon embedded in iron, steel, cement, aluminum, fertilizers, and electricity

imports;• Increases of carbon capture from natural sinks like forests and agricultural land.

Fit for 55
Europe’s “Fit for 55” policies include a Carbon Border Adjustment Mechanism (CBAM) that will equalize theprice of carbon between products produced domestically and those that are imported (European Commissiona,2021). The tax will prevent heavily emitting sectors from simply offshoring production, and will incentivize
non-domestic producers to lower their own carbon emissions. The mechanism will be introduced in phases,
beginning immediately with basic inputs to production, then expanding to include finished goods by 2026.

Europe is also notable for attention to delivering a just transition to carbon neutrality. Officials are acutely aware thatrising fuel and energy prices will disproportionately harm low-income consumers and households. Job losses fromshuttering fossil fuel industries will also cause livelihood disruptions. Though political and social debates rage about thebest way to fund and implement social protection initiatives (Taylor, 2021), it is likely that social support will soften theblows of the economic transformation for European citizens.

United States
The United States rejoined the Paris Agreement in January 2021, raising hopes that a new era of climate leadershipwas underway. Following the successful example of states including California,

President Biden has taken awhole-of-government approach to climate management. He set an ambitious target for 2030 to cut the nation’s GHG
emissions by 50-52% relative to 2005 levels, then drafted policies and regulations to act on the target. To oversee andcoordinate climate actions he established a White House office of domestic climate policy and appointed an international
climate envoy (New York Times, 2022). Biden aims to generate well-paying U.S. jobs and advance environmental justiceby means of his climate initiatives (White Housea, 2021). Drawing on executive authority to generate early wins, he is using
regulation to cut emissions of carbon and other GHGs. He’s also pushing government agencies and departments to put
climate change at the center of everything they do (Wernick, 2021).
Despite the early optimism, Biden’s plans are encountering huge roadblocks. A bitterly divided Congress resists his
legislation and budgets, and fossil fuel advocates are suing in U.S. courts to block enactment of new regulations. In
November 2021, Congress managed to pass a Bipartisan Infrastructure Deal that will expand passenger rail networks
and install a national base of electric vehicle charging stations, boost the electric grid and clean energy transmission, and008

2022 CEIBS ESG White Paper

enhance the resilience of physical and natural systems to climate risks. In addition to these direct investments in climate
technologies, the deal will boost demand for steel, cement and building materials, offering an opportunity to fuel thegrowth of low carbon alternatives in these most-difficult-to-abate sectors. The bill also includes provisions to reduce
injustices to communities of color (White Houseb, 2021). Bigger climate control initiatives are embedded in a Build Back
Better bill that, as of early 2022, is stalled in Congress with limited prospects of near-term approval. Fiscal conservatives
object to the bill’s price tag, and representatives from states reliant on fossil fuels have dug in their heels. Without that bill,
the U.S. will struggle to deliver fully on its carbon neutrality pledges.
The bright spot for the U.S. lies with state, city, and private sector initiatives immune to national inertia. Importantly,
these groups have strengthened their alliances and coordinated action in recent years as a bulwark against possible
moves to slow or thwart progress at the national level (Barnes et al., 2021). As of August 2021, 13 states and U.S.
territories had set 100% clean or renewable portfolio requirements for electric utilities, with deadlines ranging between
2030 and 2050. An additional four states and territories have goals of 50% or more (NCSL, 2021). There is variation in theterms and provisions of individual policies, and some states that previously specified GHG limits have let theircommitments expire; but overall, the trend toward local decarbonization of electric systems is fueling reliable growth inrenewable- and clean-energy markets. Large U.S. companies complement the work of governments by signing powerpurchase agreements and investing in renewable energy infrastructure to enable fulfillment of their own net zerocommitments. The combined public and private activities result in a vibrant U.S. clean energy market.
California, which would be the world’s fifth largest economy if it were a sovereign nation, and which faces grave
climate-related threats, is a leader in cutting emissions and decoupling its economy from carbon (Barnes et al., 2021). The
state’s success is attributed to a history of progressively tighter laws and policies that have lowered GHG emissions since2006 (Berkeley Law, 2022). Emission targets are ambitious and grounded in science, and data are routinely collected andanalyzed to keep the programs on track and point the way to needed adjustments. Funding is assured throughtranspiration taxes and revenues from a successful carbon cap-and-trading system. There is broad-based support forgovernment actions because change is continuous but incremental, public input is solicited on major new initiatives, andrevenues collected from the system are reinvested in transportation, clean energy, natural resource preservation andcommunity protections. The cap-and-trade program is overwhelmingly considered a success. Clear policies, effective
oversight, and an impressive track record have made the state a magnet for clean tech developers and investors,
attracting USD 3.4 billion in clean tech venture capital investments since 2019.

Secrets to California’s Cap-and-Trade Success• Legally binding carbon limits that tighten over time
• Gradual expansion of sectors included in the limits• Rules that reward the most cost-eﬀective GHG cuts and recognize the need for businesses to continue
growing as carbon is lowered• Continuously rising price for emission permits• Strict compliance and oversight• Continuous improvement
Source: California Climate, 2022009

International Trends for Carbon Neutrality

China
The world’s largest energy producer, largest energy user, and (since 2006) largest GHG emitter (Vidal and Adam,
2007), China is now responsible for 26% of the planet’s greenhouse gasses (Vallejo, 2021). As such, China’s role in the
global net-zero campaign is critical, and recent years have seen the nation emerge as both a leader and a challenger tothe mission.
On the positive side, experts report that much of the world’s most advanced research in alternative energy is now
underway in China. From R&D to pilot projects to legislation, China is leading across the spectrum of renewable energy
development. Today, the nation is not only the world’s top producer of solar energy and wind power by a large margin(Hove, 2020; Reutersa, 2021; Reve, 2021), but has also – since 2018 – produced and purchased more EVs than the restof the world combined (Bradsher, 2021).
Also positive have been China’s increasingly stringent policies to support net zero. In 2020, Beijing reinforced its
commitment to “30-60” targets (carbon emissions peaking③ in 2030, carbon neutrality by 2060). In May 2021, China
ordered domestic power plants to add 90 gigawatts of wind and solar power to the national grid by year’s end – backing
up the government’s promise to increase total usage of non-fossil fuels from 15% to 20% by 2025, and to 25% by 2030.
China has also pledged to cut carbon intensity by 65% of 2005 levels by 2030 (carbon intensity is the number of gramsof CO2 emitted to create one kilowatt hour of electricity) (Reutersb, 2021).
Experts are also optimistic about binding commitments toward net zero in China’s recent “Five Year Plans” (FYP).
The 13th FYP saw reductions of both carbon (-18%) and energy (-15%) intensity, and the 14th FYP (2021-2025) has beenpraised for continuing these reductions. Also, four of the plan’s 20 “indicators” on economic and social development
focus on energy or climate change, including half of the “binding” targets -- showing strong government commitment toachieve these goals (Liu et al., 2021).
One change which is sparking some optimism: The current FYP sets a GDP growth rate target only for 2021 (6%) –not for the last four years. Easing the pressure to achieve specific GDP targets could speed efforts to reduce carbon. The
Centre for Energy and Clean Air (CREA) predicts that if China’s GDP growth rate continues at 5-6%, the nation will also
see CO2 emissions rise by 1-1.7% in the coming years.
In another sign of progress, decarbonization planning is trickling down from the central government to local regions
and large companies. In 2021 Guangdong, Jiangsu, Hainan Island, Beijing, Shanghai and many other locations across
China rushed to release carbon reduction plans. Many of China’s largest SOEs -- including State Grid Corporation ofChina and steel giant China Baowu – have followed suit (Downs, 2021; Reutersa, 2021). Also promising: China’s Big 3
national oil companies – CNPC, Sinopec Group, and CNOOC -- have committed to peaking carbon emissions by 2025
and reaching “near zero emissions” by either 2050 or 2060 (Downs, 2021).
One problem: some analysts expect China’s energy consumption to peak in 2035, not 2030 (Xu and Chen, 2020),
adding pressure for a very rapid decrease in carbon in the final years before 2060. Helping in this effort, however, is
China’s continuing population decrease coupled with eventual slowdown in the urbanization rate – two factors leadingsome analysts to expect the Chinese government to achieve upcoming goals through reigning in construction andmanufacturing.
One of the biggest continued concerns is China’s reliance on coal as an energy source. The nation now mines andburns half of the total global consumption of coal (Earth, 2021) and has come under fire for its role as financier for new
coal-powered energy plants in developing nations worldwide (Schiermeier, 2021). While China met its commitments to cut
the percentage of coal consumption in its total energy mix from 64% to 57% under the 13th FYP (GMW, 2021) and added③ Peak carbon emissions: Typically, CO2 emissions go up, hit a peak, plateau, and then fall. In this sense, “peak carbon emissions” could be a turning point, after which a country
or region will find its economic and social development no longer commensurately reflected in CO2 emissions, in other words, economic growth will not come at the cost ofincreased emissions of carbon dioxide. Therefore, “peak carbon emissions” could be a milestone in the transition to a green, low-carbon economy.

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new commitments in the 14th FYP (National Energy Administration of Chinaa, 2020), last year domestic coal production stillreached the highest level since 2015 (Ambrose, 2022) . This is largely due to a nationwide drought which cut productionof hydropower dramatically. Fears of possible energy shortages during the winter of 2022 made the phasing out of coaleven more problematic (China Comment, 2021).

China’s Net Zero Accomplishments
Due to strong government support for and clear goals on carbon cutting, China has leapt into a leading position
in several key aspects.
• R&D, pilot projects and startups in renewable energy: including solar, wind, hydro and hydrogen and (morecontroversially) nuclear fusion.
• National carbon emission trading market launched in 2021: China has become the world’s largest carbon
emissions trading system.
• EV Sector – China not only makes and buys more EVs than the rest of the world combined, but is now building
EV factories faster than the rest of the planet (CNBC, 2021).
• Sustainable, high-tech agriculture – Following a surge in organic farming since 2005, China also outpaces theworld in tech-assisted farming using drones and other devices. (Scott and Si, 2020; Makichuk, 2020)• Green building – China boasts the fastest growth-rate in LEED projects worldwide and is 2nd only to the US in
the number of LEED certified construction projects (Zheng, 2021).

Key Lessons from Global, Regional, and National Actions
It is clear that government regulations, policies and financial packages heavily influence the speed and direction of
decarbonization efforts. To achieve net zero by mid-century, governments and businesses will have to closely cooperate
to balance environmental and financial imperatives. There is solid progress towards net zero in European countries wheremacro commitments are legally binding, but micro implementation efforts are flexible to reflect the needs and abilities ofdifferent regions and industries. There is also progress in California and China where binding top-down targets get tighterand tighter over time, allowing companies to gradually adjust. Though flexibility is essential to maintaining the delicate
environmental-economic balance, governments must simultaneously send clear signals to assure investors and earlychange makers that their efforts will yield gains (Fankhauser, 2021). They also must prevent carbon leakage from companies offshoring their footprints, and maintain a level playing field for regions and industries that move faster than others todecarbonize. Europe’s proposed CBAM may be an early indicator of how carbon pricing will be used to assure that geographies move in tandem toward achieving difficult long-term goals.
In addition to supporting companies, well performing governments listen to, and address the concerns of local
citizens to guarantee climate justice. Decarbonization is by nature disruptive, and if done poorly, could trigger demonstrations as prior shocks have done in Europe, or feed political stalemate as seen in the United States. By pricing carbon andredistributing proceeds to community preservation or technology innovation that attracts entrepreneurs and investors (asCalifornia has done), governments can sidestep many of the social strains that accompany change. Moreover, global
markets and communities must not be neglected as national governments plan to ease social unrest. Climate Action
Tracker describes EU, USA and China as “insufficient” in meeting ‘fairness’ obligations’ to support less advantaged countries outside their borders (Climate Action Tracker, 2021). As the Covid pandemic has illustrated so vividly in recent years,
developed countries need to support developing economies with financing, and also shared technologies, to maintainglobal stability in the face of massive disruption.

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At the company level, starting the work of decarbonizing today, either under mandate or voluntarily, will help to avoid
potential shocks when the controlling grip of government ultimately tightens, as seems inevitable when 2030 and 2050
deadlines loom near. Early movers can seek tax breaks, fast-track licensing and approvals already emerging in countries
with tight and binding carbon deadlines. And once a region has been flagged for favorable government and industry
support, innovators, entrepreneurs, and financiers should flock in, helping to build buoyant low carbon economies thatwill lead in a newly decarbonized world. Pioneers have begun the journey into this new world, and we turn now to sharing
their experiences with you.

BUSINESS SECTOR PROGRESS TOWARD CARBON NEUTRALITY
Like many countries, large multinational companies have been drafting carbon neutrality commitments for 2050
without adding the much-needed action plans for 2030. The scale and scope of the problem has led critics to warn of alooming crisis in ‘carbon washing’. Some worry that corporate procrastination is encouraged when experts stress theneed for 2050 target-setting instead of carbon cutting today. Others warn that company plans – when they exist – rely too
heavily on offsetting emissions with carbon credits④, and not enough on cutting emissions directly from operations.
Substantial efforts are underway by international agencies and regulatory bodies to close these loopholes and tighten theguidelines needed to navigate the ongoing economic transformation. Key takeaway #1: Effective business leaders mustbe alert to the possibility of greater controls on carbon emissions and carbon reporting requirements as we approach 2030.
In contrast to the voices of climate alarmists, many consultants and financial advisors speak of opportunities to leadand profit from the decarbonized world of the future. Traditional businesses are experimenting with emerging materials
and low-carbon processes, while forging new alliances and adding new products and services. There is growing demand(and supply) for qualified carbon-cutting advice and support. Fueling that trend, scientists and entrepreneurs are testing
innovative cutting-edge technologies and business models. Key takeaway #2: Effective business leaders must recognize
new business and investment opportunities in the emerging low-carbon world.

Evolving Carbon Reporting Requirements
The audience for company ESG⑤ reports and net zero plans has shifted in recent years from sustainability experts
and activists to mainstream financial investors tasked with lowering portfolio climate risk (Mattison, 2022). This change has
triggered an uptick in public scrutiny of published reports and plans. Vague claims that lack supporting data and credible
evidence of progress in lowering GHG emissions toward scientifically-sound targets will increasingly be challenged byinvestors and regulators alike. One example: Exxon Mobile was called out in early 2021 by Engine No.1 investing firm forits plan to cut emissions intensity rather than absolute volumes. The firm first publicly denounced Exxon as ‘disingenuous’and far too slow in addressing its climate risks (Crowley, 2021) then launched a proxy battle which eventually succeeded
in appointing three of Exxon’s board members (Herbst-Bayliss, 2021).
Mindful that more than USD 35 trillion – a third of all global investments – went to some form of ESG strategy bysummer of 2021 (GreenBiz, 2022), national and regional regulators have vowed to tighten the rules for sustainability
reporting. Today, India, China and UK already have mandatory climate risk reporting requirements in place; other nations– including the US, Singapore and Japan – are considering it (Fernandez, 2021) .

④ Carbon Credit: carbon credit, i.e. carbon right, is a unit of measurement of carbon emissions that is certified by the United Nations or a UN-recognized emissions reduction
organization under which a country or company reduces carbon emissions by increasing energy use efficiency, reducing pollution, or reducing development, and therefore
receives access to the carbon trading market. See https://baike.baidu.com/item/%E7%A2%B3%E4%BF%A1%E7%94%A8.
⑤ ESG, an abbreviation for environmental, social, and governance, is a set of standards for a company’s operations. CSR and sustainability-conscious investors apply these
non-financial factors as part of their analysis process to screen potential investments.

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Climate Reporting Regulations are Tightening• Finance ministers and central bank governors of G7 countries agreed in June 2021 to mandate climate-related
financial reporting according to TCFD guidelines (Caswell, 2021).
• The U.S. Securities and Exchange Commission (SEC) issued a call for investor comments on climate disclosure in 2021 (SEC, 2022). With more than 75% of comments in favor of greater reporting oversight, SEC is
expected to issue new guidelines soon (Gensler, 2021).
• EU introduced the Sustainable Finance Disclosure Regulation (SFDR) in March 2021 to increase the transparency about ESG themed products among certain types of investment firms (Intuition, 2021).
• The Chinese Ministry of Ecology & Environment issued trial Guidelines for the Verification of Enterprise GHG
Emissions Reports in March 2021. The policy clarifies emission reporting, verification processes, and information disclosure and review for “key emission units”(i.e., large enterprises or those in target industries). Provincial level authorities are now charged with verifying GHG emission reports based on scientific research.

A newly created International Sustainability Standards Board (ISSB), launched in November 2021 by the International Financial Reporting Standards Foundation (IFRS) aims to introduce sustainability reporting standards that will be adopted worldwide. IFRS oversees IASB accounting standards that are required in more than 140 jurisdictions and are accepted in many more (IFRS, 2021). ISSB standards, once issued, are expected to receive similar global acceptance.

What to Look for in Current Climate-related Disclosures• Science-based targets that align with UN guidelines for 2030 and 2050
• Adherence to globally accepted climate reporting protocols such as Carbon Disclosure Project (CDP) or
Taskforce for Climate Related Financial Disclosure (TCFD)• Concrete data to verify carbon cuts in company operations and supply chains rather than over-reliance on
offsets.

Evolving Collaborations
Supplier Partnerships
Even companies that currently lead in cutting carbon emssions have limited their work primarily to “scope 1” – i.e.,
direct emissions from owned or controlled sources -- and “scope 2”-- i.e., emissions arising from purchased electricity,
steam, heating and cooling. They now face rising pressure to cut indirect “scope 3” emissions that occur along thecompany’s value chain (Carbon Trusta, 2022). In many industries (especially B2C), scope 3 emissions are far greater thanthose of scopes 1 and 2, and harder to manage. Cutting upstream supply chain emissions is often hindered by a lack oftransparency and data, as well as limited means for suppliers to maintain profitability while adapting to new realities.
What’s needed for action is wide-reaching collaboration to solve problems at the systems level rather than for individualcompanies. Going forward, suppliers to major multinationals can expect greater demands for transparency and carbon
cutting commitments, along with invitations for collaboration and mutual support.

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A new report by World Economic Forum (WEF) and Boston Consulting Group (BCG) cites consumer goods as an
example in which upstream costs of decarbonization in materials such as steel and aluminum are very high relative to
product margins, but the costs of these same materials are a small fraction of end-user prices. Vertical collaborations thatshare the costs of decarbonization with end users may be a reasonable solution, particularly for products for which
consumers express a willingness to pay more for environmentally friendly options (BCG, 2021). Of course, collaborations
are easier said than done, but large multinationals are starting to coordinate under the 1.5° Supply Chain Leaders initiative(Exponential Roadmap, 2022). Member companies including BT, IKEA, Nestle, Ericson, Microsoft and TechMahindra
have signed a pledge to recognize supplier commitments and performance toward net zero as key purchasing criteria
and considerations for contract renewal. The pledge also requires large buyers to support SME suppliers with tools andknowledge through the UN backed SME Climate Hub.

8 Supply Chains Account for Half of Global GHG Emissions
A report by the World Economic Forum (WEF) and Boston Consulting Group (BCG) says 50% of global
GHG emissions come from the supply chains of: food, construction, fashion, FMCG, electronics, automotive,
professional services and freight, in decreasing order (BCG, 2021). Moreover, the analysts note that 40% of
supply chain emissions can be abated with currently available technologies without appreciably raising final
product costs.

European governments are supplementing voluntary industry moves with new regulations for supply chain transparency. The EU Parliament is considering a proposal to require supply chain due diligence of all large companies operatingin the European Union regardless of where they are registered (Da Costa et., 2021). Once enacted, the directive will
mandate risk identification, including climate risk, as well as risk remediation. Though national laws are not expected
before 2023, companies are already starting to prepare.

SME Partnerships
Small and medium sized enterprises (SMEs) struggle to define and deliver on net zero goals because of limited
resources. Among other challenges, they lack personnel to conduct carbon audits and submit reports, they have limited
influence over carbon emitting equipment and facilities that they rent rather than own, and they lack power in price negotiations for new materials and supplies (Makower, 2021). Though carbon footprints may be small for SME businesses
individually, their collective impact is large and until now was largely ignored in global climate management discussions.
No longer. The SME Climate Hub has been launched by We Mean Business Coalition, Exponential Roadmap Initiative,
International Chamber of Commerce, and United Nations Race to Zero campaign (SME CLIMATE HUB, 2022). SME members of the hub are encouraged to sign the UN’s Race to Zero commitment, giving them access to tools, resources, andpurchasing interest of large companies that have joined the 1.5° Supply Chain Leaders initiative (see above SupplierPartnerships). Tools currently available in the Hub offer detailed advice about setting targets, measuring emissions andtaking actions that align with 1.5° commitments.
Business and financial software company Intuit similarly created a Climate Action Marketplace that gives SMEs
access to products and services of climate solution providers in energy, travel, food waste, commuting and procurement(Hilmer, 2021). The marketplace is instrumental to the company’s November 2021 pledge to help 1 million American SMEs
to cut their emissions in half by 2030.

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Four Tested Resources for Corporate Net Zero Plans
Searching for resources to launch or expand your corporate commitment? We recommend these detailed
guidelines• Science Based Targets Guidance – These sector-specific reports help companies of any size to understandthe scientific requirements for cutting scopes 1, 2, and 3 emissions in their industry. They also include casestudies and descriptions of best practices in scientific target setting among industry players across the value
chain (https://sciencebasedtargets.org/sectors).
• The 1.5℃ Business Playbook – Jointly released by the Exponential Roadmap Initiative and the Race to Zero
Campaign (SME CLIMATE HUBb, 2020), these step-by-step guidelines for transforming to net-zero include
reducing emissions (direct and value chain), integrating climate into business strategy, and influencing
climate action in society (https://exponentialroadmap.org/1-5c-business-playbook).
• Carbon Trust’s Journey to Net Zero (for SMEs) – Leveraging Carbon Trust’s network of 300 multinational
climate experts and 3000 partner organizations, this document outlines best practices for SMEs to begin on
the path to zero, as well as detailing and advising on the most common stumbling blocks (Carbon Trustb, 2022)(https://www.businessgrowthhub.com/resource-efficiency/journey-to-net-zero).
• B-Corp’s guidelines for SMEs and larger businesses – B Lab UK, creator of B Corp certification, offers “Howto get to Net Zero” for SME’s (UK B Corpsa, 2020) (https://pardot.bcorporation.net/l/39792/2020-12-17/9l93dt)
and "How to Declare a Climate Emergency and Take Climate Action,” for larger firms (https://pardot.bcorporation.net/climateemergencyplaybook). Both documents draw on the collective knowledge of 900 certified B
Corps in 50 countries (UK B Corpsb, 2022).

Industry Buyer Partnerships
Buyer Collectives accelerate the emergence of innovative climate solutions by accumulating sufficient demand tojustify production investments by suppliers. Aligning behind a given sustainable technology, product, or service, thesecollectives also help to lower the risks and associated costs of change.
• Collectives in the air transport sector support the advance of Sustainable Aviation Fuels (SAF) which could cut 80%
of lifecycle emissions compared to conventional jet fuel. The two leading collectives -- Sustainable Aviation Buyers
Alliance (SABA) and Eco Skies Alliance (ESA) – bring together airline industry leaders with corporate customers who aim
to offset emissions from company travel. Current members of SABA include Bank of America, BCG, Deloitte, JP Morgan
Chase, McKinsey, Microsoft, Netflix, and Salesforce (https://rmi.org/saba/) while ESA includes founder United Airlines
along with BCG, HP, Nike, and Siemens as well as logistics companies DHL, Maersk and Yusen Logistics (https://www.united.com).
• Steel Zero members commit to procuring 100% net zero steel by 2050. Diverse members include property andconstruction companies Lendlease and Grosvenor UK, industrial component maker SKF, and renewable energy producer
Orsted (https://www.theclimategroup.org/steelzero ).

NGO-Corporate Partnerships
Private companies and NGOs also are banding together to tackle the thorniest climate change problems at scale.
Inspiring collaborative initiatives include:015

International Trends for Carbon Neutrality• LEAF (Lowering Emissions by Accelerating Forest Finance) – LEAF seeks to stop deforestation by protecting
tropical forests through strategic finance campaigns. At COP26, this private-public collaboration announced a plan to“mobilize” USD 1 billion in funding for countries and states seeking to protect tropical/ sub-tropical forests. So far, Costa
Rica, Ecuador, Ghana, Nepal and Vietnam have signed Letters of Intent to reduce deforestation in return for payments,
and proposals have been submitted from jurisdictions in Papua New Guinea, Brazil, Mexico, Nigeria, Kenya, Uganda,
and Zambia. Participating companies include Airbnb, Amazon, Bayer, Delta, GSK, Nestle, Unilever, Salesforce, andWalmart. https://leafcoalition.org• Breakthrough Energy Coalition – Based on the belief that technological advancements will be the key to avoiding a
climate disaster, this powerful collaboration founded by Bill Gates now boasts the likes of Jeff Bezos, Richard Branson,
Michael Bloomberg, and Jack Ma on its Board. The collaboration promotes science-based solutions to reaching net zeroby 2050 through lobbying for net zero policies, funneling investment into green R&D, and assisting in scaling up promisinggreen products. https://www.breakthroughenergy.org/• Midwest Real Crop Collaborative – Recognizing that steep up-front costs and high risks inhibit farmers from testing
regenerative agriculture, which lowers emissions by means of limiting fertilization, tillage, and mono-cropping (Rodale
Institute, 2020), this wide-ranging value chain collaboration is working to catalyze whole-industry transformation. Foodmakers Kellogg, Oatley, PepsiCo, and Unilever, suppliers and processors Cargill, Bayer and Nutrien, plus NGOs EDF,
WWF and The Nature Conservancy -- have developed a 3-step model of systems change: 1) Lower the economic andsocial risks for farmers, 2) Build a supporting agricultural network, and 3) Boost demand among intermediate and end
buyers/consumers (Midwest Real Crop, 2022). By 2030, the collaborative aims to reduce net on-farm GHG emissions in
U.S. soy and corn farms by 7 million MT, and to help 30,000 US farms transition to regenerative ag.

Game-changing Business Practices
The following section highlights five promising and impactful practices that companies can take now to transformtheir net zero targets into reality. We hope details below will inspire readers to begin or expand their companies’ transformative journeys.

Electrification
Over the past decade, companies have made impressive gains in energy efficiency as knowledge and awarenessof climate risk has grown. In many geographies and sectors, however, the growth in business scale still far outstrips
efficiency gains in any fixed period, leading to net emission increases in absolute terms. To fix this, more investors, boards
and regulators are demanding a whole-of-business approach to emissions cutting. One topic gaining traction for transformative potential is ‘electrification of everything’ to coincide with the vast and growing national- and industry-level investments in clean and renewable energy. Once energy systems are decarbonized, rapid gains will come from hooking
electric goods to the grid. Many of the needed technologies and advances are already commercialized or in advanced
stages of R&D.
The current electrification drive has been likened to early days of energy efficiency which started out slowly and thenboomed over the past decade (Clancy and Makower, 2021). Though upfront cost is a barrier – especially when replacing
fossil-fueled assets that are not fully amortized – lower operating costs and falling prices for renewable energy will eventually make upfront investments worthwhile. Government subsidies and innovative financing are needed at this point tokickstart the transformation process, but executives must start thinking today about how and when to switch all fuel-powered operations to electricity.
Experts advise an immediate start with existing solutions, then a gradual roll-out as new innovations emerge fromR&D (Makower et al., 2021).

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2022 CEIBS ESG White Paper• Electrification of the transport sector is well advanced thanks to improvements in battery technology, particularly forsmaller vehicles. With national policies now phasing out combustion engine vehicle sales and funding the expansion ofbattery charging infrastructure, the switch to EVs will quickly accelerate. Major logistics firms and retailers are alreadychanging short-haul delivery fleets to EVs, but don’t expect changes in long-haul fleets until new technologies areavailable at lower costs and larger scale. Green hydrogen holds more promise at present than large-scale EV batteries
for powering long-haul trucks, but both technologies are undergoing active research.
• Building operations account for roughly 29% of GHG emissions in the United States (Leung, 2018) and even morein Europe where historical buildings are still widely used (European Commissionb, 2021). Decarbonizing the built environment is thus a current imperative. New construction can leverage efficient design and renewable energy to achieve net-zero operations. Electrically retrofitting older buildings is more costly and difficult, however, due to legacy heating andcooling systems, and problems of multiple ownership. To lower emissions in existing commercial buildings, look into newtechnologies like low carbon heat pumps when climates are warmer and renewable energy is plentiful, (The Royal Society,2021) and intelligent control systems more generally (Johnson Controls, 2021).
• The industrial sector is least advanced in switching to electrification. One reason is the high temperature required
for many industrial processes; at present electric furnaces can reach 350℃, ranking electricity lower than hydrogen in
potential to transform high emitting sectors like steel or cement (Hellstern et al., 2021). In other applications like drying
processes, for example, electrical machinery may be sufficient. Companies can already electrify small turbines, compressors, motors, and appliances that run in factories and offices as research continues on more difficult challenges.

How heat pumps reduce emissions
Heat pumps – which operate as “reversible air conditioners” to efficiently transfer heat either out in summer
or in during winter, as opposed to generating or cooling heat – not only reduce GHG emissions but also provide
cleaner air in buildings (Avelar, 2020). Though carbon abatement from heat pumps is only strong when used inwarmer climates and powered by clean electricity, recent innovations hold promise to make the technology
more suitable for commercial applications (The Royal Society, 2021).

Digitized Carbon Reporting
Measuring the corporate carbon footprint, when done correctly, can offer companies an opportunity to launch andimplement an inspiring internal transformation. Armed with data, business leaders can motivate and activate their teams.
But the process of accurately tracking and reporting GHG emissions is daunting for many companies. To help, enterprisesoftware makers are now launching products that promise to lower the burden of data collection and analysis, andincrease the insights for active carbon management. Both Microsoft and Salesforce now offer user-friendly cloud-based
products incorporating scientific and industry standards, thereby improving reporting accuracy and, more importantly,
impact in achieving a net zero future.
Other specialized software makers calculate climate risk in company portfolios and supply chains, and map changes in risk over time on the basis of scenario analysis (Jupiter, 2022). Governments, asset managers, banks and insurancecompanies already subscribe with leading company Jupiter to access periodic reports about changing risks from water,
heat, wind, and fire. Interest is growing among manufacturers concerned with risks to supply chains and facility locations.
As corporate demand for green financing continues to grow, professional risk reports will play a growing role in demonstrating the credibility of net zero plans.

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Carbon Labeling
Carbon footprint labels have been described by some marketeers as “the new calorie” in meeting consumer demandfor information about potential purchases. While eco-friendly brands such as Oatley (oat milk) and Allbirds (shoes) havebeen carbon-labeling their products for years, 2021 saw several consumer products giants join the trend. Unilever, forexample, has promised to add carbon footprint labels over the next two to five years to all 70,000 consumer products it
sells (Manning, 2021; Wolfrom, 2021) and Logitech pledged “carbon impact transparency” via labels (eventually for all
products) which the company hopes will trigger an industry-wide movement for consumer electronics (Logitech, 2022).
But experts warn of potential carbon-washing, since scientifically accurate carbon footprint measuring is complex
and challenging, and currently lacks accepted standards and methods. This is another area where collaborations arehelpful. Sustainable Apparel Coalition, for example, has developed the Higg index that measures the carbon footprint ofclothing companies from the raw materials stage to finished products (SAC, 2022). The tool is already in use by nearly all
apparel manufacturers, giving buyers across the value chain the information they need to make better carbon management decisions.
At the consumer level, however, numeric carbon labels often mean little even when emissions are accurately
measured. Panera Bread found an innovative solution by teaming with environmentalist research firm World Resources
Institute (WRI) to co-create a carbon label identifying food products corresponding to the Paris climate agreement goalof reducing food-related GHG emissions by 25% by 2030 (Wolfrom, 2021). Food products deemed to emit less than 5.38
kg of carbon per meal receive a “Cool Food Meal” label with a smiling green emoji.

Carbon Offsetting
In addition to the mandatory emissions trading markets established by governments to curb GHG from energy
producers and other heavy industries, voluntary carbon markets allow companies of all sizes and types to offset theiremissions by purchasing credits from others who’ve made verifiable gains. The global voluntary offset market is forecast
to grow to USD 1 billion in 2022 – a 60% increase year-on-year as companies scramble to achieve new net zero commitments. But an average current price of less than USD 3 per ton incentivizes companies to purchase low-priced offsets
rather than doing the more costly and difficult work of carbon cutting themselves (GreenBiz Editors, 2021). With voluntarycarbon markets set to explode now that the Paris Rulebook is complete (see Coordinated Global Action above), experts
are calling for, and expecting to see, coordinated global action to determine minimum carbon prices.
Before tasking your net zero team to go carbon credit shopping, advise them of two things: 1) The Science Based
Targets initiative (SBTi) argues that only 10% of emissions should be offset for a company to claim it is net zero and 2)
Carbon abatement projects vary greatly, and only high quality verified credits will stand up to investor and regulatory scrutiny. Certification bodies – often NGOs – specify rules for credit issuers in different sectors, and also verify that basic principles are observed (Favasuli and Sebastian, 2021):• Credits should not be granted for projects that would have happened without credit revenues• CO2 emissions should not be overestimated• Emission cuts should be permanent and not subject to reversal• Carbon cuts can only be claimed once, and must be verified upon completion• Projects must comply with all laws and should offer co-benefits under the UN SDGs
Media company Netflix developed a 5-stage procedure for vetting carbon credits according to the Oxford Principles
for Net Zero Aligned Carbon Offsets (Smith School of Enterprise and the Environment, 2020). Credit buyers are advisedto 1) issue RFPs for competing project types and geographies, 2) accept only credits that are registered and verified bycredible third parties, 3) interview project developers and their partners, 4) seek projects that can be technically verified

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through AI or satellite imagery, and 5) submit the shortlist of selected projects to an expert external advisory group for
approval (Clancy, 2021).

Forests Offer Permanent Carbon Capture
Tree planting programs can be good or bad for carbon sequestration depending on the lifetime of
selected trees and the likelihood of pest infestation or neglect. But entrepreneur Yishan Wong, founder ofstartup Terraformation, points out that well designed forests can last millennia. His company seeks to scale
reforestation by reinvigorating degraded land that is available in large swaths. Starting with solar powered
water desalination, the company is restoring tropical forest in the most arid region of Hawai’i Island. Terraformation recently released a report that outlines the business case for reforestation. Among other insights, thereport notes that bundling diverse reforestation projects will diversify investor risk and assure a constantstream of returns. https://www.terraformation.com/

Internal Carbon Pricing“By setting an internal carbon price (ICP), companies can prepare for uncertain external pricing in the future, andinvestors can get a clearer picture of a firm’s ability to compete in a low-carbon world” according to an article in Harvard
Business Review (Aldy and Gianfrate, 2019). The NGO Carbon Disclosure Project (CDP) reports that “nearly half of theworld’s 500 biggest companies are now factoring this type of carbon accounting into their business plans" (Bartlett, 2021).
Among companies surveyed by CDP in 2020, the average internal price of carbon was USD 25 per metric ton of CO2
equivalent, and many companies systematically raised the price over time in the expectation of increasing government
taxes on carbon.
Once the price is determined, an ICP can be debited directly to business units according to the carbon intensity of
their operations and activities, or merely used as a shadow price to determine the viability of future strategies and investment options. When debited directly to business units, captured funds can be redirected to carbon reducing projects
and/or to innovative research. That kind of implementation motivates internal efforts to boost carbon efficiency and updateheavily emitting technologies so that future charges are avoided. Companies that implement an ICP hope it will soften theblow if/when stiff carbon taxes are implemented by domestic or overseas governments in the future. One barrier to implementing an ICP has been the need to track and quantify carbon emissions at the level of business units, but as mandatory
carbon reporting requirements kick in and digitized carbon reporting technologies are adopted, that barrier is falling.

Corporate Net Zero Action Plan Do’s & Don’ts
Don’t:• Delay∙ There isn’t time to wait for government or science to further clarify what’s needed• Overutilize offsets∙ Offsets should only be used to remove residual emissions once direct carbon cuts are exhausted• Limit progress to your immediate footprint∙ Assess backward into your supply chain and forward into distribution, consumption and end use.
• Limit your plans to incremental progress

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International Trends for Carbon Neutrality∙ Work on multiple fronts at once
∙ Seek breakthroughs• Carbon-wash∙ Don’t announce a net zero target only; begin developing interim objectives toward a definitive action planDo:
• Dream big∙ Set science-based targets for 2050 that you don’t know how to reach today• Take action with 2030 interim plans∙ Assess your full carbon footprint Including suppliers and their suppliers. This vast endeavor will pay off interms of truly transforming your business model as new green suppliers bring their own solutions andconnections.
∙ Remove inefficiencies in your current operations first, then seek “green” solutions. This assures quick andvisible improvements, with business results.
∙ Allocate resources, designate manpower, and track progress• Lead from the top∙ Appoint a climate smart board∙ Link the C-suite, Finance and Sustainability Teams∙ Engage the entire organization, as well as stakeholders and partners• Collaborate on solutions∙ Join cross-disciplinary initiatives to tackle critical industry bottlenecks∙ Join buyer collectives to build demand and bring down costs of new solutions∙ Include SMEs
• Use respected organizations with proven effective tools for support• Leverage your net-zero efforts to differentiate yourself∙ More end-users (both B2B and B2C) seek green suppliers, so green efforts often elicit immediate returns• Fund the Future∙ Invest in breakthrough innovations that will revolutionize your industry

Evolving Investment Opportunities
Climate tech funding is booming now that net zero planning and action is taking the world by storm. Blackrock CEO
Larry Fink predicts that the next thousand unicorns will arise from scalable innovations that help the world to decarbonize
and make low carbon life affordable (Fink, 2022). Climate tech startups raised USD 32 billion in the first ten months of 2021
(CNBC, 2021) and corporate venture capitalists (CVCs) are now entering the fray. CVCs often seek strategic gains or risk
reduction as they strive to cut their own and their industry’s GHG emissions, as well as potential financial gains from backing the winning technologies of the future (CTVC, 2021). As of January 2022, analysts at venture tracker CTVC listed 43
CVCs launched by multinational companies in Energy, Transportation & Supply Chain, Agriculture & Industrial, andConsumer & Technology sectors. Dedicated funds run into the hundreds of millions – e.g., for VW -- or even billions of US
dollars in the case of Microsoft and Amazon (Greenbiz Editors, 2021).
Traditional venture capitalists (VCs) are also heading back into clean tech after an earlier investment bubble burst
around 2010. Chris Sacca, who was an early investor in tech firms like Twitter, Uber, and Instagram (Forbes, 2022) likens
the current period to the dawn of the internet. Those who invested too early or too late lost money, whereas those who0202022 CEIBS ESG White Paper

invested when the fundamentals were in place, made millions. He believes that fundamentals already support the rapid
growth and profitability of many types of climate tech (Jackson Hole Center for Global Affairs, 2021). His recently
launched fund -- Lowercarbon Capital -- raised USD 800 million from investors who care about climate change, as wellas those who care only for profit. According to Sacca, climate tech investments “will pay off for sheer business reasons
alone” (Loizos, 2021).

Climate-tech Startups
According to legendary venture capitalist Chris Sacca, the barriers to entry and the capex requirements forclimate-tech startups have fallen dramatically in comparison to early-stage clean tech businesses. Today’s
startups benefit from (Jackson Hole Center for Global Affairs, 2021):• Ubiquitous and low-cost computing power and renewable energy• Open-source software• Machine learning• Shared science labs
• Direct access to consumer, business and government buyers• Funding from investors and traditional bankers because of low cost and fast revenue business models

One way climate tech innovations can profit in the near term is to offer cost effective, high performing alternatives towidely used carbon intensive materials, products or processes. German startup Made of Air, for example, makes
carbon-negative bioplastics from forest and farm waste (Made of Air, 2022). The carbon embedded in the biowaste material inputs is locked up for the long term in a hardened thermoplastic compound that is being tested in building materials(Audi auto dealerships) and sunglasses (H&M) among other applications. Low costs and eager buyers seeking toachieve their own carbon reduction targets gave this startup the credentials to close a 5 million Euro round of seedfunding in October 2021 (Loma, 2021).
Similar fundamentals are found in the business model of Heart Aerospace, a maker of all-electric 19-seat airplanes(Lowercarbon Capital, 2022). Leveraging machine learning technology, the company’s founder designed the plane byrunning thousands of low-cost computer simulations (Shopify Plus, 2021). Despite early industry skepticism about the
product’s viability, airlines have now committed billions of dollars to order the machine for use in regional markets. Lower
purchase price, easier maintenance, independence from volatile energy markets, and low costs of operations all makethis product a preferred alternative to smaller fossil-fueled airplanes.
Another fast-growing innovation field is Carbon Capture & Sequestration. Worldwide, existing Carbon Capture

Utilization and Storage (CCUS)⑥ facilities sequester a total of 40 million tons of carbon annually. Although the International Energy Agency has deemed this amount ‘not on track’ to contribute adequately to net zero by 2050 (IEA, 2021), lastyear saw a sudden jump in the number of CCUS -- more than 100 are now under development globally. While this still falls
far short of the targeted capture capacity of 1.7 billion tons of CO2 annually by 2030 (triggered by the Paris Agreement),
it is good news that, since 2020, governments and industry have allocated some USD 18 billion to CCUS initiatives.
Going forward, scaling up fast enough to meet 2030 targets will depend on business model innovations such as
developing multi-user networks to attract industrial facilities (IEA, 2022). A key success factor for carbon capture will be
successful R&D into innovative solutions such as direct air capture (DAC) – which extracts carbon directly from the atmosphere for storage deep underground to achieve carbon removal (Budinis, 2021). DAC technology removes CO2 bypassing air through either liquid (chemicals) or solid filters. The process can be fueled by renewable energy, adding to its⑥ CCUS (Carbon Capture, Utilization and Storage) is drawing worldwide attention as it has a key role to play in the fight against global climate change. Nowadays, countries areinvesting more heavily in CCUS. There has been some headway in carbon dioxide flooding, but the technologies have yet to prove themselves commercially viable. CCUS is thedevelopment direction of CCS.

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net-zero effectiveness but also (currently) adding to cost. Also promising: cryogenic carbon capture which freezes GHGs,
then removes them from emissions as solids – a process scientists have called “minimally invasive and highly efficient”(NETL, 2022). One company already offering a carbon capture solution for long-haul transport companies is Remora. Late
last year, Remora launched a device allowing commercial trucks to suck up carbon directly from the tailpipe, then capture
pure CO2 which can be sold (Soltoff, 2021). This startup has already landed funding and support from innovation accelerator YCombinator among others.
We hope additional good ideas will be sparked by the $100M XPRIZE Carbon Removal contest launched andfinanced by Elon Musk in 2021 (De Cayeux and Hollett, 2021).

CONCLUSIONSIn this year’s report we have tried to accurately summarize the state of the world in terms of total net-zero commit-

ments (quite positive) and total interim action plans (still severely lacking). The situation ‒ whether discussed at theinternational, national, industry or enterprise level ‒ is both urgent and rather simple. The message we heard repeatedly
was the same from all sources: the time to act is right now. The decisions made and the actions taken in the coming few

years will set the world on either a path toward net zero or a path toward continued global warming, with certain anddevastating results. Already, some experts we interviewed have deemed the IPCC’s carbon reduction goals for 2030 and

2050 as unattainable, thus replacing the dream of staying within a temperature rise of 1.5 degrees with the nightmare of2, 3 or even 4 degrees of warming. The fact that many talented, knowledgeable experts are losing hope (and with it,

tragically also losing focus and momentum) gave us an added sense of urgency and purpose in writing this year’s report.
Wherever your company is now in terms of contributing to carbon neutrality, it is our hope that this chapter willassist you in galvanizing toward net zero commitment as well as action. We trust this chapter has shown the vast scopeand scale of the net zero movement, the depth of scientiﬁc research completed (and underway) and the breadth oforganizations available as support. Our message can be summed up in the ﬁnal closing words of 93-year-old naturalist

and media host David Attenborough who ﬁnished his COP26 address with a message which applies to all of us:“In my
lifetime, I have witnessed a terrible decline. In yours, you could and should witness a wonderful recovery. That desperate
hope, ladies and gentlemen, delegates, excellency, is why the world is looking to you and why you are here.”

ADDITIONAL INSPIRATION
Our favorite mini-cases showing company best practices
Maersk Collaborates for Breakthrough Solutions
The Problem: Shipping contributes 3% of global GHG emissions, making the industry a natural target for net zero. In
2018, the world’s largest shipping company – Maersk -- committed to achieving net zero operations by 2050 but had “noidea” how to achieve it. The task involves transforming 750 vessels to green fuels.
The Solution: In 2018, Maersk formed a cross-industry collaborative R&D center with partners in energy, engineeringand chemicals. By 2021, the coalition had developed a unique system using green electricity (created via solar or wind
power) to produce green hydrogen, then transform the hydrogen into green fuels suited to combustion engines. The
process (called Power-To-X), allows Maersk to retrofit its fleet rather than replacing it, thus achieving net zero faster.
Maersk’s first net-zero vessel is under development and will sail in 2023.
Key Insights:• While green fuels now cost 3 times more than existing bunker fuels, this cost can easily be borne by end users,
according to Maersk. For example, the retail cost for a laptop shipped from Asia to the US via green fuels would add a“green premium” of just 50 cents for the end user.

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2022 CEIBS ESG White Paper• What’s needed next (says Maersk) is a CO2 tax reflecting the full cost of fossil fuel usage and ending the ‘affordability argument’ against green fuels.
• Scaling up production of green fuels to serve the entire world’s shipping industry would carry a hefty price tag of$2 trillion, analysts say –but this is equivalent to only four years of current capital expenditure on the global oil and gas
industry.
(MAERSK, 2020)

Johnson Controls Issues Successful Green Bonds
The Problem: Green bonds -- those directly linked to a company’s commitment to meet sustainability targets -- offer
companies a gateway to the substantial funding needed for net-zero initiatives. But the issuance process can be daunting.
The Solution: Johnson Controls gained investor confidence with a clear and credible plan, attracting $625 million in
its initial offer (in 2020), then securing another $500 million in 2021. The two offers made Johnson Controls the first industrial company in the S&P500 to issue a Green Bond. (Johnson Controls International plc, 2021)
Key Insights:• JC publicly committed in 2021 to environmental targets approved by the Science Based Targets Initiative: reducing
operational emissions by 55%, and cutting customers' emissions by 16%, before 2030.
• JC sought an official “second party opinion” on the environmental framework drafted to meet their targets. Sustainalytics deemed JC’s roadmap to be "credible and impactful," called the KPIs "very strong", and rated the sustainable
performance targets as "ambitious-highly ambitious."• JC linked the interest paid on its bond to sustainability performance; if JC fails to meet its targets for reducing
Scope 1-3 carbon emissions by the deadline (2025), the company will pay higher interest rates to investors.
• JC launched an investor roadshow jointly organized by its finance and sustainability departments, forcing bothteams to listen carefully to investor comments, ideas and concerns.
• Also key to success: investor confidence that JC can meet its Scope 3 goals via its decarbonization solutions which
boost clients’ energy efficiency and reduce GHG output.
(Caleb Mutua, 2020).

FedEx Crafts a Holistic Plan for Net Zero by 2040
The Problem: In early 2021, FedEx pledged to achieve carbon neutral operations by 2040. This endeavor requires
transforming the planet’s largest cargo airlines (700 planes) and vast ground delivery fleet (180,000 trucks) using bothcurrently available and yet-to-be commercialized innovations. At present, the company’s carbon footprint comes almost
entirely (92%) from fossil fuels. (Fehrenbacher, 2021)
The Solution: FedEx developed a $2 billion investment plan to reduce carbon in current operations by means ofefficiency gains, replace equipment and processes with best solutions currently available, and revolutionize the solutions
needed for the future. Ultimately, FedEx plans to transform operations to clean energy, shift its full delivery fleet to e-vehicles (EVs) and its planes to biofuels, and offset remaining emissions with Carbon Capture and Storage (CCS)⑨.
Key Insights:• EV Efficiencies: In urban areas where ‘last mile’ delivery happens, the price of E-delivery vans is falling and electricity is becoming cheaper than diesel. Leveraging these savings, FedEx purchased its first 500 EV delivery trucks from GM
in December 2021, increasing its EV fleet to 3500. (Holland, 2021)• Funding: FedEx issued a sustainability bond to fund the changeover. Initial funding will go to charging infrastructure, which demonstrates tangible progress to bondholders• Measurable interim goals – Investors are reassured by clearly articulated milestones: By 2025, half of new delivery
vehicles will be “zero emission vehicles” (ZEV), and by 2030, 30% of the company’s planes will use bio fuel.

⑨ CCS, an abbreviation for Carbon Capture and Storage, is the process of capturing CO2 emissions from industrial processes or other point sources, and injecting the captured
CO2 into geological reservoirs. CCS technologies are considered the most cost-effective approach to cutting GHG emissions and curbing global warming.

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International Trends for Carbon Neutrality• Collaboration: FedEx is working with Red Rock Biofuels for aviation fuel transformation and ChargePoint on
charging infrastructure development. It collaborates and funds innovative research on carbon sequestration with Yale
University.

Our top picks on what to read or watch to motivate your team for the net zero journey
Read• How to Avoid a Climate Disaster: The Solutions We Have and the Breakthroughs We Need, Bill Gates• Net Positive: How Courageous Companies Thrive by Giving More than They Take, Paul Polman and Andrew
Winston• Climate Positive Business: How You and Your Company Hit Bold Climate Goals and Go Net-Zero, David Jaber• Net Zero Challenge: The supply chain opportunity, World Economic Forum in collaboration with Boston Consulting
Group
Watch
• “A Life on Our Planet,” David Attenborough (Netflix). Also, his latest series “The Green Planet” (BBC, 2022), and his
COP26 opening speech.
• “Countdown” video series (Ted Talks) – including “ Dreams and details for a decarbonized future” by Maersk global
chairman Jim Hagemann Snabe• Climate Solutions conversation with Chris Sacca @ the Jackson Hole Global Forum (Jackson Hole Center for Global
Affairs, 2021）• “What is net zero,” The Economist (YouTube)

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cles/2020/05/26/leading-danish-companies-join-forces-on-an-ambitious-sustainable-fuel-project• Makower, Joel; Golden, Sarahl; Anderson, Deonna, “Episode 270: Electrifying everything, more '30 Under 30' voices”, GreenBiz 350, May 28, 2021, https://www.greenbiz.com/article/episode-270-electrifying-everything-more-30-under-30-voices• Manning, Lauren, “Unilever to test carbon footprint labels on products in 2021: report”, FOODDIVE, July 15, 2021, https://www.fooddive.com/news/unilever-to-test-carbon-footprint-labels-on-products-in-2021-report/603432/• Mass.gov, “What is a Zero Net Energy Building?”, The Commonwealth of Massachusetts, 2022, https://www.mass.gov/service-details/what-is-a-zero-net-energy-building• Masson-Delmotte, V.; Zhai, P.; Pörtner, H.-O.; Roberts, D.; Skea, J.; Shukla, P.R.; Pirani, A.; Moufouma-Okia, W.; Péan, C.; Pidcock, R.; Connors, S.; Matthews, J.B.R.; Chen, Y.;
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2020-04-10 http://www.nea.gov.cn/2020-04/10/c_138963212.htm• NCSL, “State renewable portfolio standards and goals”, August 13, 2021, https://www.ncsl.org/research/energy/renewable-portfolio-standards.aspx• Newburger, Emma and Lucas, Amelia, “Beyond Meat uses climate change to market fake meat substitutes. Scientists are cautious”, CNBC, September 02, 2019, https://www.cnbc.com/2019/09/02/beyond-meat-uses-climate-change-to-market-fake-meat-substitutes-scientists-are-cautious.html• NYT, “Biden ‘Over-Promised and Under Delivered’ on Climate. Now, Trouble Looms in 2022”, New York Times, January 04, 2022, https://www.nytimes.com/2022/01/04/climate/biden-climate-change.html• Pike, Lili; Zhe, Yao, “Five things to know about China’s national carbon market”, China Dialogue, December 19, 2017, https://chinadialogue.net/en/business/10303-five-things-to-know-about-china-s-national-carbon-market/?gclid=EAIaIQobChMIvI3w1LbT9QIVeyGtBh3A3gWPEAAYASAAEgIDGfD_BwE• Reutersa, “China's top steelmaker Baowu Group vows to achieve carbon neutrality by 2050”, January 21, 2021, https://www.reuters.com/article/us-china-climatechange-baowu-idUSKBN29Q0G1• Reutersb, “China to add at least 90 GW wind and solar capacity to the grid in 2021”, Reuters, May 20, 2021, https://www.reuters.com/business/sustainable-business/china-add-least-90-gw-wind-solar-capacity-grid-2021-2021-05-20/• Reve, “Top 10 countries in wind energy capacity”, May 24, 2021, https://www.evwind.es/2021/05/24/top-10-countries-in-wind-energy-capacity/80896• Ricketts, Sam; Cliffton, Rita; Oduyere, Lola and Holland, Bill, “States are laying a road map for climate leadership”, CAP, April 30, 2020, https://www.americanprogress.org/article/states-laying-road-map-climate-leadership/• SAC, “The SAC Celebrates 10 Years of BOLD PROGRESS”, Sustainable Apparel Coalition, 2022, https://apparelcoalition.org• Schiermeier, Quirin, “China’s pledge on overseas coal — by the numbers”, Nature, September 29, 2021, https://www.nature.com/articles/d41586-021-02645-w• SEC, “SEC Response to Climate and ESG Risks and Opportunities”, U.S. Securities and Exchange Commission, 2022, https://www.sec.gov/sec-response-climate-and-esg-risks-and-opportunities• Shopify Plus, “Profitability vs Sustainability - Chris Sacca | Lowercarbon Capital | Podcast”, YouTube, December 03, 2021, https://www.youtube.com/watch?v=hQQJCGyizNQ• Slater, Huw; Shu, Wang; De Boer, Dimitri, “China’s national carbon market is about to launch”, China Dialogue, January 29, 2021, https://chinadialogue.net/en/climate/chinas-national-carbon-market-is-about-to-launch/?gclid=EAIaIQobChMIw_6t27PT9QIVkh6tBh1nGwKvEAAYAiAAEgIF5PD_BwE• Taylor, Kira, “EU’s proposed social climate fund comes under fire from all sides”, December 21, 2021, https://www.euractiv.com/section/energy-environment/news/eu-social-climate-fund-comes-under-fire-from-environment-ministers/• The Royal Society, “Low-carbon heating and cooling: overcoming one of the world’s most important net zero challenges”, The Royal Society, June, 2021, https://royalsociety.org/-/media/policy/projects/climate-change-science-solutions/climate-science-solutions-heating-cooling.pdf• Tollefsona, Jeff, “COVID curbed carbon emissions in 2020 — but not by much”, Nature, January 15, 2021, https://www.nature.com/articles/d41586-021-00090-3• Tollefsonb, Jeff, “Carbon emissions rapidly rebounded following COVID pandemic dip”, Nature, November 04, 2021, https://www.nature.com/articles/d41586-021-03036-x• UK, “Guidance: Streamlined energy and carbon reporting (SECR) for academy trusts”, November 30, 2021, https://www.gov.uk/government/publications/academy-trust-financial-management-good-practice-guides/streamlined-energy-and-carbon-reporting• UN, “COP26: Together for our planet”, 2022, https://www.un.org/en/climatechange/cop26• UNFCCC, “The Paris Agreement”, December 12, 2015, https://unfccc.int/process-and-meetings/the-paris-agreement/the-paris-agreement• University of Oxford, “80% of world economy now aiming for net zero – but not all pledges are equal”, November 01, 2021, https://www.ox.ac.uk/news/2021-11-01-80-world-economy-now-aiming-net-zero-not-all-pledges-are-equal• Vallejo, Lola, “China’s 14th five-year plan: an ambiguous start on the road to carbon neutrality”, IDDRI, Match 17, 2021, https://www.iddri.org/en/publications-and-events/blog-post/chinas-14th-five-year-plan-ambiguous-start-road-carbon-neutrality• Van Hoof, Sam, “European commission launches proposals to reach 55% emissions reduction by 2030”, July 30, 2021, https://www.unsdsn.org/european-commission-launches-proposals-to-reach-55-emissions-reduction-by-2030• Vidal, John and Adam, David, “China overtakes US as world’s biggest CO2 emitter”, the Guardian, June 19, 2007, https://www.theguardian.com/environment/2007/jun/19/china.usnews• Wernick, Adam, “Biden vows to take a 'whole of government' approach to climate change”, The World, February 12, 2021, https://theworld.org/stories/2021-02-10/biden-vows-take-whole-government-approach-climate-change• White Housea, “Fact sheet: President Biden’s leaders summit on climate”, April 23, 2021, https://www.whitehouse.gov/briefing-room/statements-releases/2021/04/23/fact-sheet-president-bidens-leaders-summit-on-climate/• White Houseb, FACT SHEET: The Bipartisan Infrastructure Deal Boosts Clean Energy Jobs, Strengthens Resilience, and Advances Environmental Justice, November 08, 2021,
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026

CHINESE EFFORTS
TOWARD CARBON
NEUTRALITYWe Are All Carbon-Cutting
Ambassadors
By He Jinyu
and Wu Fan

Sectoral Decarbonization Efforts Toward
China’s “30-60” Targets: Review and Outlook

He Jinyu

Wu FanProfessor of Strategy, CEIBS

Case researcher, CEIBS Case Center

The unprecedented policy support from the central and local governments to achieve “30-60”
decarbonization targets is motivating companies to navigate the next industrial revolution defined by“carbon neutrality” in a systemic, innovative manner. Although priorities evolve differently as industries enter different stages of development, the ability to measure each sector’s carbon footprint, coordinate with upstream and downstream stakeholders to seek “green” solutions, and look for new
business opportunities, is needed right now.

Chinese Efforts toward Carbon Neutrality“

In 2021, the expressions “peak carbon emissions” and “carbon neutrality” could beheard everywhere in China when talking about the economy and society. Chinese companies
immediately embraced these concepts, but were initially at a loss as about what to do. Eventually, as the objectives of the “30-60” targets became clearer, they began finding solutions
and planning their next steps in the light of the available scientific knowledge and their understanding of the market. This article aims to illustrate how the macro environment changed
over the past year, and attempts to explain the possible impact these decarbonization targets
may have on the Chinese economy. At the same time, this paper shares lessons from thebusiness world, and provides a toolkit and roadmap for companies on how to implement
national strategies, and keep track of government policy changes whilst exploiting emerging
market opportunities.

”

China’s “30-60” targets: background and policies

Global climate management has become one of the few topics, apart from WWII, which has impacted and influenced
worldwide politics and economics, since it is inextricably linked to the sustainable development of energy, industry,
economics, trade, finance, and technology worldwide. According to the Third National Climate Assessment Report1,
China has suffered climate-related economic losses equivalent to 1.05% of its annual GDP on average since 2000, morethan seven times the global average of 0.14%. Rapid economic growth and urbanization have made China the world’s
largest carbon emitter. The country’s CO2 emissions declined between 2013 and 2016, but rebounded later, indicatingthat the path to carbon reduction is still long and arduous for both China and the world.
China pledged to “reach peak carbon emissions before 2030, and carbon neutrality before 2060” in September
2020. A year later, China said it would update its nationally determined contribution (NDC) commitments, and impose
stricter policies and measures to deliver on its “30-60” targets. Incorporating these targets into the country’s overall socioeconomic, ecological development suggests profound systemic economic and social transformation. China is committed
to fighting climate change, by introducing step-by-step policy support and adopting a whole-of-government approach at alllevels (see Tables 1&2), including amendments to tax, pricing, finance, land, and government procurement policies with aview to fostering an environment which promotes green, low-carbon development, facilitates carbon emissions trading, andunlocks finance for green growth.

CO2 intensity

Energy intensity

per unit of GDP

per unit of GDP-18%-13.5%

Forest Coverage-24.1%

Share of non-fossil fuels in total

primary energy demand (TPED)
About 20%

Figure 1: Major climate and energy targets in China’s 14th Five-Year Plan2030

2022 CEIBS ESG White Paper

Table 1: Latest national policies in support of China’s “30-60” decarbonization targets
Date

Authority

Policies/Regulations

Content and impact

March
2020

The General
Offices of the CPC
Central Committee
and the StateCouncil

Guiding Opinions on Building
a Modern Environmental
Governance System

Establish an environmental governance system characterized
by clear guidance, informed decision-making, faithfulimplementation, effective incentives, multi-stakeholder
participation, and constructive interaction by 2025.

National Energy
Administration

Notice on Matters Concerning
the Preparation of the 14th
Five-Year Plan for theDevelopment of Renewable
EnergyLay a solid foundation for the accomplishment of the strategic
goal of ensuring renewable energy becomes the largest sourceof energy to meet future increases in energy consumption
during the 14th Five-Year Plan (FYP) period, boosting thenon-fossil fuel share of the total energy mix to 20% of total
consumed energy by 2030.

The State Council

Development Plan for the NEV
Industry (2021-2035)

E n c o u r a g e C h i n e s e N E V m a n u f a c t u re r s t o d e v e l o p
breakthrough technology in batteries, engines, and vehicle
operating systems, and substantially improve vehicle safety togain a competitive edge by 2025.

Energy Conservation and NEV
Technology Roadmap 2.0

The Roadmap sets 2025 short-term goals, 2030 interim targets,and 2035 long-term objectives for the development of China’s
automotive industry. It is expected that
China will see the NEV share of total new car sales jump toover 50%, to reach around 1 million hydrogen fuel-cell vehicles
by 2035.

April
2020

October
2020

October
2020

December
2020

The State Council

Energy in China’s New Era

Work on all fronts to change the ways energy is consumed,build a clean and diversified energy supply system, implement
a dual control system of total energy consumption and energy
intensity, and promote the clean and efficient utilization ofenergy.

December
2020

Ministry of Ecology
and Environment

Measures for the
Administration of Carbon
Emissions Trading (for Trial
Implementation)

Create a national market for carbon emissions trading, andestablish national carbon emissions registration and trading
agencies, as well as supporting systems.

January
2021

Ministry of Ecology
and Environment

Guiding Opinions on
Coordinating and Accelerating
Work Related to Climate
Change and EcologicalProtection

Create an overall pattern of integrating climate actions andecological conservation by 2030.

January2021

National
Development
and Reform
Commission

Catalog of Encouraged
Industries in Western Regions(2020 Edition)

Solar power plants in Shaanxi and Gansu, etc., are entitled to a
reduced corporate income tax rate of 15%.

The State Council

Guiding Opinions on
Accelerating theEstablishment andImprovement of a Green and
Low-Carbon Circular
Economic Development
SystemSubstantially improve the industrial structure, energy mix andtransportation structure, increase the proportion of green
industries, and cut emissions intensity; optimize the marketoriented green tech innovation system; and create preliminary
production, circulation and consumption systems featuringgreen, low-carbon and circular development by 2025.

February
2021

031

Ministry of Industry
and Information
Technology

Chinese Efforts toward Carbon Neutrality

Date

Authority

Policies/Regulations

Content and impact

February2021

National
Development
and Reform
Commission

Guiding Opinions on
Promoting the Integration ofPower Sources, Grids, andLoads and Storage, and theComplementary Developmentof Multi-Energy

Raise the proportion of renewable energy in transmission lines
to, in principle, no less than 50% by optimizing and integrating
power sources, grids, and loads.

February2021

National Energy
Administration

Notice on Guidance on
Stepping up Financial Support
to Promote the Healthy andOrderly Development of theWind and Photovoltaic Power
Industries

Adopt nine measures to give stronger financial support torenewable energy companies, thereby promoting the healthy
and orderly development of the wind and photovoltaic powerindustries

March
2021

National People’s
Congress
and Chinese
People’s Political
Consultative
Conference

Outline of the 14th Five-Year
Plan (2021-2025) for National
Economic and Social
Development and theLong-Range Objectives
Through the Year 2035

Reduce CO2 emissions per unit of GDP by 18% over the period
2021 to 2025; meet 2030 nationally determined contribution(NDC) commitments to fight climate change; and aim to reachcarbon neutrality by 2060.

April
2021

National Energy
Administration

Guiding Opinions on
Energy-Related Work for 2021

Cut coal use to below 56% of energy consumption; popularize
power generation from photovoltaic and wind power plants;
and focus on developing new business and new models.

May
2021

National Energy
Administration

Notice on Matters Concerning
the Development andConstruction of Wind Powerand Photovoltaic Power
Generation in 2021

Bring wind and photovoltaic power generation to 11% of total
electricity use by 2021, and boost the share of non-fossil fuelsin primary energy consumption to around 20% by 2025, and
25% by 2030.

July
2021

National Energy
Administration

Guiding Opinions on
Accelerating the Developmentof New Stored Energy

New stored energy capacity is expected to advance from theinitial stage of commercialization to large-scale development
by 2025, with an installed capacity of more than 30 million
kilowatts.

Action Plan for Carbon
Dioxide Peaking Before 2030

The goal to hit peak carbon emissions permeates thewhole process and every aspect of economic and social
development. Particular focus will be placed on implementationof ten major actions, including the action for green and lowcarbon energy transition, the action for energy saving, carbon
emissions mitigation and efficiency improvement, and theaction for carbon emissions peaking in the industrial sector.

Implementation Plan for
Promoting Green
Consumption

Comprehensively promote green consumption in key sectors,
including food, clothing, housing, transportation, daily
necessities, and travel; lubricate key processes such as
production, circulation, consumption, recycling, and reuse;and provide more support with regard to technology, service,system, and policy to systematically reduce losses and waste,save energy, and cut carbon emissions.

October
2021

January
2022

The State Council

National
Development
and Reform
Commission

Source: Collated by the case authors based on policies published on official websites of the State Council, and ministries andcommissions directly under the State Council.

032

2022 CEIBS ESG White Paper

Table 2: Latest regional policies in support of China’s “30-60” decarbonization targets
Date

Authority

Policies/Regulations

Content and impact

September
2020

Guangdong
Provincial
Development
and Reform
Commission

Action Plan for Nurturing
Emerging New-Energy
Industry Clusters of Strategic
Importance in Guangdong(2021-2025)

New energy refers to ten alternative energies, i.e. nuclear
energy, wind energy, natural gas and natural gas hydrates,
solar energy, hydrogen energy, bioenergy, geothermal energy,
ocean energy, smart grids, and stored energy.
Increase the share of non-fossil fuels in Guangdong’s primaryenergy consumption to around 30% by 2025.

Green FinanceCommittee of
GuangdongSociety for Financeand Banking

Guidelines for Green SCF
Services in the Greater Bay
Area – The Automobile
Industry

Make Guangdong the first Chinese province to launch green
supply chain financing innovations; support the developmentof major auto makers and their upstream and downstream
companies; facilitate the launch of Guangdong’s first pollutant
discharge trading program in Guangzhou; promote green
bonds and innovations in carbon finance; establish the
Guangdong-Hong Kong-Macao Greater Bay Area Green
Finance Alliance as a platform for interaction and information
sharing among companies in financial services within the
Greater Bay Area.

The People’s
Government of
Sichuan Province

Notice on Policies andMeasures of Sichuan to
Support the Development of
the New Energy and Smart
Car Industries

Promulgate 18 policies to support the development of newenergy and smart car industries; include hydrogen fuel-cell
products on a list of major technical equipment that Sichuanwould provide initial support; and encourage the use of NEVs
in highway passenger transportation, car rental, sanitation,
postal services, urban logistics and delivery, and airport andport business.

December
2020

Department ofIndustry andInformation
Technology of
Shanxi Province

Three-Year Action Plan for theDevelopment of Photovoltaic
Manufacturing in Shanxi(2020-2022)

Prioritize development of photovoltaic manufacturing in
Jinzhong, Lvliang, and Changzhi. Adopt a three-pronged
approach to create a photovoltaic manufacturing ecosystem:
step up efforts to nurture key projects and bring in investment;
integrate the entire photovoltaic manufacturing chain, which
involves silicon chips, cells, and modules; and, improve
supporting systems ranging from special-purpose equipment
and photovoltaic glass to diamond wires and silver conductive
pastes. Generate RMB 13 billion in revenue industry-wide by2022.

December
2020

Department ofIndustry andInformation
Technology of
Shanxi Province

Three-Year Action Plan for theDevelopment of Wind Power
Generation Equipment
Manufacturing in Shanxi(2020-2022)

Double Shanxi’s installed wind capacity to six million kilowatts
by 2022; and support growth of suppliers of components
and parts, such as electric generators, flanges, and brakes,
empowering them to generate over RMB 10 billion in the valueof output.

Jiangsu Energy
BureauSpecial Plan for theDevelopment of Renewable
Energy in Jiangsu During the
14th Five-Year Plan Period

Optimize solar energy use, and increase Jiangsu’s installed
solar photovoltaic capacity to 26 million kilowatts by the endof 2025, with distributed and centralized photovoltaic power
generation capacity standing at 12 gigawatts and 14 gigawatts,
respectively.

September
2020

October
2020

January2021

033

Chinese Efforts toward Carbon Neutrality

Date

June
2021

Authority

Policies/Regulations

Content and impact

Zhejiang Energy
BureauPlan for the Development ofRenewable Energy in Zhejiang
During the 14th Five-Year Plan
PeriodVigorously develop wind and photovoltaic power generation,
aiming to double wind and photovoltaic capacity; make betteruse of pumped hydropower storage; and install 50 million
kilowatts of renewable energy capacity by the end of 2025,
which accounts for over 36% of total installed capacity.

Beijing Municipal Guidelines
and Standards for Carbon
Neutrality and Carbon
Footprint Measuring

Enable organizers of big events, as well as businesses
and public institutions, to formulate and announce theirimplementation plans for carbon neutrality, take actions
accordingly, and measure carbon emissions from big events,
all based on the Standards. Stipulate how to offset carbon
emissions, contributing to more standardized management of
Beijing’s net-zero efforts.

Action Plan for the Development of the NEV Industry in
Anhui (2021-2023)

Nurture three to five influential NEV companies and an arrayof globally competitive key component manufacturers; build
at least 10 renowned brands; create world-class NEV andIntelligent Connected Vehicle (ICV) industry clusters; andproduce over 10% of China’s NEVs and source 70% of autoparts and components locally by 2023.

EnergyAdministrationof Shandong
Province

Plan for Energy Development
in Shandong During the 14th
Five-Year Plan Period

Adhere to “30-60” decarbonization targets; accelerate overhaulof energy development in terms of quality, efficiency, anddriving force; establish a fully clean, low-carbon, safe andefficient modern energy system; and speed up adjustment
and optimization of the energy mix by promoting the use ofrenewable energy, nuclear energy, natural gas, and electricity
from other provinces, while cutting coal consumption andphasing down coal-fired power.

Shanghai
Municipal People’s
Government

Implementation Opinions on
Moving Toward “30-60”
targets by Stepping Up Efforts
to Build Shanghai into an
International Hub for Green
Finance

Significantly expand the green finance market, play a growingrole in facilitating direct green financing, substantially increase
green loans, quicken the pace of product innovations in green
finance, improve organizational architecture of companies
in green finance, and ultimately create one of the best
environments in the world for the development of green financeby 2025.

Outline of the Development
Plan for Chongming Becoming a World-Class Eco-Island(2021-2035)

Consolidate Chongming’s position as a key connection in the
Yangtze River Economic Belt; protect its ecological resources
such as water, land, forests, gases, and beaches; lead thecharge to create a green, low-carbon circular economy; andbuild the district into a beachhead in green ecology, area inthe vanguard of green production, and demonstration zone forgreen lifestyle by 2035.

June
2021

Beijing Municipal
Ecology andEnvironment
BureauJune
2021

Department of
Economy andInformation
Technology of
Anhui Province

October
2021

October
2021

January2022

Shanghai
Municipal People’s
Government

Source: Collated by the case authors based on policies published on official websites of provincial/municipal governments andgovernment departments.

034

2022 CEIBS ESG White Paper

China has already made significant progress towards cutting carbon intensity. The nation’s carbon intensity in 2020
dropped by 48.4% from 2005 levels, meeting its climate change mitigation and adaptation and NDC commitments3. The
14th FYP (see Figure 1) has been praised for continuing carbon mitigation, but results vary according to sector and locality. China remains the world’s largest energy user and carbon emitter, now responsible for a third of the planet’s CO2
emissions, though it has taken decisive action to mitigate carbon. What is particularly noteworthy is that China’s steel,cement, and chemical sectors emit more CO2 than the UK and European Union combined4. Important pathways for China
to achieve carbon neutrality include increasing usage of non-fossil fuels, popularizing “negative emissions” technologies(NETs), promoting low-carbon regional development, and carving out a national green market.
Carbon neutrality by 2060 not only sets the tone for China’s sustainable, high-quality development in the coming
decades, but also propels China toward its second centenary goal①. One prerequisite for China to reach carbon neutrality
is the concerted efforts of governments, businesses, and the academic world. Likewise, stakeholders from industry,
academia, finance, and technology worldwide must band together to tackle climate change problems at scale. In short,
global coordination is a must. After all, China or any other country alone can neither make a difference to global climatechange nor transition to a green, low-carbon economy on its own. One thing is for sure: Carbon neutrality will be attainedin the foreseeable future. And the path to carbon neutrality is paved with both daunting challenges and opportunities toprosper in a sustainable manner.

Far-reaching impact of climate change and progress
toward “30-60” targets on the Chinese Economy
Management of climate risks: financially disruptive “green swan” events
In January 2020, the Bank for International Settlements (BIS) published a book entitled The Green Swan, in which it
first discussed “green swan5” events, the potential cause of the next systemic financial crisis. The term “green swan” finds
its inspiration in the concept of the “black swan.” “Black swan” events have three characteristics: First, they are unexpected and rare. Second, their impact is wide-ranging or extreme. Third, they can only be explained after the fact. “Greenswan” events are “climate black swans” that can affect every single agent in the economy, and threaten financial stability
by causing irreversible losses. Risks related to green swans are of a higher order than for black swans: First, there is ahigh degree of certainty that some combination of climate risks will materialize in the future. Second, climate catastrophes
carry with them far more devastating consequences: they could pose an existential threat to humanity. Third, the complex
chain reactions and cascade effects associated with extreme climate shocks could generate fundamentally unpredictable social and economic dynamics.
According to the Blue Book on Climate Change in China (2021) published by the China Meteorological Administration in August 2021, China was a “sensitive area” noticeably affected by global climate change. One manifestation of its
sensitivity was that temperatures in China had been increasing faster than the global average. China’s annual averagesurface temperature had risen dramatically since 1951, while its average annual rainfall had become increasingly heavy
from 1961 onwards. Furthermore, China reported more extreme weather events, including high temperatures and heavy
precipitation. All of the above indicated higher risks of climate change. In fact, China’s climate risk index had risen during
the past six decades, with the index’s average value from 1991 to 2020 increasing by 58% compared with the previous
three-decade period6.
As an integral part of any society or economy, companies suffer from the impact of climate change, without exception. How to evaluate and cope with climate risks? There are basically two types of climate change risks7: physical risks
and transition risks.
① China’s two centenary goals are to “build a moderately prosperous society in all respects” by 2021 and “build a modern socialist country that is prosperous, strong, democratic,
culturally advanced and harmonious” by 2049, the 100th anniversary of the founding of the People’s Republic of China.

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Chinese Efforts toward Carbon Neutrality

1. Physical risks: risks that arise from physical impacts of climate change(1) Catastrophic physical risks posed by extreme weather events (e.g. storms, floods, fires, or heat waves), which
may damage existing production facilities and foster vulnerabilities throughout value chains;(2) Chronic physical risks stemming from long-term changes in climate patterns, e.g. temperature changes, rising
sea levels, water scarcity, or biodiversity loss.
2. Transition risks: risks associated with a low-carbon transition or climate change adaptation strategies(1) Policy changes: impacts of climate policies that require energy efficiency improvements, force up prices for fossil
fuels via a carbon pricing mechanism, or encourage sustainable land use;
(2) Legal risks: risks of litigation brought by failure to eliminate/minimize adverse impacts on climate, or to adapt toclimate change;(3) Technological uncertainties: for example, if companies replace existing technologies with more climate-friendly
alternatives, this may strongly influence business investments;(4) Shifts in market sentiment: the shift among individual consumers and business clients toward climate-friendly
products and services could be a major blow to business operations;(5) Reputational impacts: as is often the case, a company notorious for harming the environment and aggravatingclimate change will have difficulty attracting, let alone retaining, investors, customers, employees, and business partners.

Impact of progress toward “30-60” targets on China’s economic and industrial transformation
To achieve “30-60” targets, China has to navigate a broad, profound systemic economic and social transformation
to set itself on a green, low-carbon development path. In this process, the most pressing challenge lies in decarbonizing
energy systems and the industrial sector. In addition to cutting production and supply chain emissions, it is also important
to encourage green consumption and establish a carbon trading market.
1. Sparking a clean energy revolution:
Pursuing “30-60” targets requires a shift from heavily emitting energy and electric systems to low-carbon ones. In theenergy sector, clean energy (non-fossil energy) will move from the fringe to the mainstream, whereas fossil energy will bephased out. Moreover, renewable energy, now already a cost-effective option, will be delivered at more affordable prices
in the future. In the electricity sector, new energy will play a key role. Coordinated development of “power sources, grids,
loads, and storage” will contribute to safer and more flexible electric systems8.
2. Overhauling the pattern of China’s economic growth:
China is now running into multiple obstacles and challenges in terms of industrialization, energy mix, industrial structure, position in global industry chains, and intervals between target dates for peak emissions and carbon neutrality. To
deliver fully on “30-60” targets, China will recast its pattern for economic growth. More specifically, it will create a greener
industrial structure by furthering supply-side structural reform and moving faster to build a low-carbon industrial system;
promote a circular economy in which carbon mitigation, resource utilization, and reuse are at the core of any businessmodel; unleash the potential of innovative transport modes through developing green smart transportation; constructgreen, low-carbon buildings on a large scale for purposes of energy conservation and emissions reduction9; and advanceefforts in precision farming and smart agriculture10.
3. Invigorating green finance and carbon emissions trading:Green finance holds great growth potential in China. So far, the country has designed relevant standards, statistical
criteria, information disclosure requirements, and evaluation mechanisms. Going forward, it will improve relevant systems

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2022 CEIBS ESG White Paper

to better support industrial, tax, land and environmental policies, launch more green financial instruments, refine incentive
mechanism for green finance, innovate financial instruments to adapt to the long turnaround times associated with green
projects, and direct financial resources toward green, low-carbon projects. As of early 2021, China Development Bank
had issued a cumulative total of RMB 70 billion in green bonds, with outstanding green loans exceeding RMB 2.3 trillion.
Data from the People’s Bank of China shows that by the end of 2020, China’s balance of green loans amounted to RMB
11.95 trillion, which was more than any other country in the world11.
Whilst being the world’s biggest greenhouse gas (GHG) emitter, China is surprisingly carbon-efficient. The massive
carbon-finance market justifies its ambitious “30-60” targets. In 2011, China launched a carbon emissions trading pilot
scheme in Beijing, Tianjian, Shanghai, Chongqing, Hubei, Guangdong, and Shenzhen. As the domestic institutional
environment improves, carbon finance is poised for a promising future. The Measures for the Administration of Carbon
Emissions Trading (Pilot) came into effect in December 2020, signaling the rapid establishment of a national carbon
trading market, opening the way for fast-track development of carbon finance. This will allow more Chinese financial
institutions to enter carbon finance, extending their scope of business to include carbon trading account opening, capital
settlement, pledged-carbon-asset loans, and capital preservation and appreciation12. On July 16, 2021, China’s
long-awaited national carbon emissions trading scheme (ETS) made its debut13, representing a major step toward meeting the nation’s carbon reduction commitments.
4. Catalyzing green consumption
Green consumption refers to green, low-carbon consumer behavior. In recent years, a growing proportion of
consumers in China have become ‘green-minded’, but further action is still needed to turn this awareness into consumer
appetite for green products and services. Green consumption will lead to a great leap forward in China’s economic transformation and high-quality development. On January 21, 2022, the National Development and Reform Commission(NDRC) promulgated the Implementation Plan for Promoting Green Consumption14, detailing and advising on how to shift
from old consumption patterns to green consumption. The plan aims to transform key sectors, including food, clothing,
housing, transportation, daily necessities, and travel, thereby systematically reducing losses and waste, saving energy,
and cutting carbon emissions. In addition, the plan suggests that the “Tan Pu Hui②” system should be put in place toengage the whole society in value creation and allocation: by 2025, green consumption will strike a deeper chord with
Chinese consumers, and green, low-carbon products will capture a much greater share of the market. By 2030, thegeneral public will go green unconsciously, and green, low-carbon products will dominate their respective markets. Overall, China’s low-carbon development path characterized by green consumption in key sectors will take shape.

Three phases toward carbon neutrality: roles andopportunities by industry
National progress in carbon mitigation confirms that carbon neutrality can be achieved in phases15 (see Figure 2).
These phases are correlated, though key industries vary according to phase. It is thus important for every industry todevise its own carbon-reduction strategy.

Hitting peak carbon emissions: policy interpretation and industry practices
In this phase, major tasks include cutting energy and carbon intensity, controlling coal consumption, and developing
the clean energy sector. The key is to tighten the control of energy supply and high impact sectors. At the core is technological innovation. Take for example China’s six most energy-intensive and highest GHG emitting sectors:② Tan Pu Hui: a mechanism for rewarding low-carbon behaviors and developing a marketplace for low-carbon goods and services, or to be more specific, a mechanism establishedbased on commercial incentives, policy support, and the Pu Hui Certified Emission Reduction (PHCER) trading system, under which energy saving and carbon cutting behaviors
of small- and micro-sized enterprises, households and individuals are quantified and priced.

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Chinese Efforts toward Carbon Neutrality

Phase I (2020-2030)
Peak carbon
emissions:Phase II (2030-2045)“

Control

Control carbon intensity
and the rate of emssions
growth, though fossil
energy and industrial
chemistry would remain
major forces driving
China's eonomic growth

”

Quick
reduction:

Phase III (2045-2060)“

Ultimate
decarbonization:

Reduce”“AbsorbAchieve net zero byabsorbing the remaining
unavoidable emissions
via carbon sinks andCarbon Capture Utilization and Storage (CCUS)
facilities

Widely use renewableenergy and materials,
and vigorously promoteclean and green alternatives, decoupling the
economy from carbon

Key industries:

Key industries:

Key industries:

petrochemical, chemical,
building materials, steel,
non-ferrous metals, papermaking, electricity, aviation

New energy, new materials

carbon sinks, CCUS

· Major tasks in Phase I:
technology/process/modeltransformation andoptimization· Major tasks in Phase II:technological improvements
and market expansion· Major tasks in Phase III:
tech/market development

Current strategy
for all industries”

Measure the corporate carbon footprint, define internal and external cabon-cutting priorities, coordinate with upstream and downstream stakeholders, boost
the development of new technologies, and actively seek business and investment opportunities

Figure 2: Three phases toward carbon neutrality
1. Low-carbon development and new energy transformation of the coal-fired power industry: Due to China’s energy
resource conditions (rich in coal), carbon emissions peaking in the electricity industry hinges mainly on coal consumption. Following this line of reasoning, coal-fired power planning over the 14th FYP period is a top priority. To reach China’s“30-60” targets, there is a pressing need for further transformation of the coal industry. Many public companies havemade “further transformation” the most frequently used words in their annual reports, hinting at their future development
paths. A new round of restructuring of coal industry chain and supply chain is inevitable during the 14th FYP period.
However, coal will continue to represent the largest proportion of energy consumption in the subsequent 10 to 20 years.
As the upward coal consumption trajectory is expected to continue during the 14th FYP period, China should push forward
reforms in the coal industry, and turn digital technologies into major growth drivers for industrial upgrading16. A case inpoint: Ordos is exploring using green electricity and hydrogen to produce methanol and urea, hoping to convert its
coal-driven chemical production bases into demonstrative industrial parks with near zero emissions.
2. Low-carbon transition of the steel industry and development of CCUS technologies: In China, of the 31 manufacturing segments, steel emits the most GHGs, accounting for roughly 15% of national carbon emissions17. Besides managing
energy consumption, developing CCUS technologies is also crucial to China’s economic transformation. According to theInternational Energy Agency (IEA), by 2050, CCUS facilities will sequester a total of 400 million tons of carbon annually,
contributing a cumulative 16% of global emissions savings from steel production18. Carbon capture is a mature, proven0382022 CEIBS ESG White Paper

technology applicable to multiple industries. In January 2021, China Baowu Steel Group, the world’s largest steelmaker,
published its roadmap to and timeline for green, low-carbon metal work. Its pathways19 include: enabling green, low-carbon development of the steel industry via technological innovation, and creating upstream and downstream synergies in
the industry chain; using sophisticated smart technologies to bolster efficient carbon utilization, thus producing greener,
higher-quality steel and related new materials; prioritizing the drawdown of carbon emissions, the root cause of climatechange, raising the proportion of natural gas, hydrogen energy and other clean alternatives in the energy mix; and heightening public awareness of the need to reduce their carbon footprint.
3. Low-carbon development of the cement industry: Cement is another top source of CO2 emissions in manufacturing. In China, emissions from cement production have been increasing uninterruptedly, currently responsible for around
9% of carbon emissions nationwide. China, the biggest cement producer in the world, represented approximately 60% of
global cement production in 2019 in terms of volume. McKinsey estimates that limiting global warming to 1.5℃ above
pre-industrial levels by mid-century is beyond reach, unless China can lessen cement-related emissions by over 70%20.
Taking into consideration costs, technical feasibility, and resource availability, factors that figure into the decarbonizationof China’s cement industry should include demand, energy efficiency, alternative fuel, and carbon capture technology. In
the second half of 2018, Conch Cement launched a pilot CCS project – the first and only CCS project in China’s cement
industry. The company invested over RMB 50 million in the CCS equipment, which was designed to capture 50,000 tonsof CO2 a year, a small fraction of the 1.5 million tons of CO2 it generated annually21. Future pilot CCS projects in the
cement sector will focus on making technological breakthroughs, drastically increasing the volume captured, and building up the CCS industry chain.
4. Low-carbon development of the petrochemical and chemical industry: petrochemicals and chemicals are a pillar of
China’s economic growth, yet are deemed a carbon-intensive industry. In 2020, the Chinese petrochemical and chemicalindustry emitted nearly 1.4 billion tons of CO2 equivalent, or, 13% of the national total, second only to the metallurgicalindustry in volume22. Industry insiders believe the petrochemical and chemical industry will embark on a journey of integration and upgrading in 2022. And starting in 2022, the industry will spur the substitution of alternative energy sources, andfully tap the growth potential of new energy and new materials23. Since pathways are clear-cut, companies have taken theinitiative to lower emissions. On December 31, 2021, the first comprehensive energy station of China Petrochemical
Corporation (also known as Sinopec) commenced operations in Jiangxi. The station had a daily hydrogen supply capacity of 500 kilograms and integrated a number of energy supply services, such as refueling (including hydrogen fueling),
charging, and photovoltaic power generation. This demonstrated Sinopec’s resolve to shape an industry landscape thatfeatured “one basis (energy resources), two vehicles (clean oils and modern chemical engineering), and three growth
drivers (new energy, new materials, and new economy).” By the end of 2021, Sinopec had installed 74 hydrogen fuelingstations, over 1,000 charging and battery swapping stations, and over 1,000 distributed photovoltaic power stations
nationwide.
5. Low-carbon development of the construction industry and “green building”: Construction constitutes 40% of theworld’s carbon emissions. The 2020 Research Report on Energy Consumption in Buildings Across China prepared by
CABEE Special Committee on Energy Consumption showed that in 2018, 51.3% of the entire country’s carbon emissions
came from construction24. Indeed, “green building” is the only road to high-quality development of the construction industry.
By definition, green building is the practice of creating quality structures based on scientific management and technologicalinnovation, and using processes that are environmentally responsible and resource-efficient throughout a building’s lifecycle. It upholds the philosophy of harmonious co-existence between humanity and nature. As at the end of 2020, pilot
projects for green building were launched in Hunan, Shenzhen (in Guangdong province), and Changzhou (in Jiangsu
province), and expected to penetrate other parts of China. In Hubei, for example, Green Building and TechnologicalInnovation Alliance issued a technical manual to provide guidance on how to design and construct green buildings. In
addition, in Jiangsu, Heilongjiang, Sichuan, and Tianjin, local governments advocated green building, prefabricated039

Chinese Efforts toward Carbon Neutrality

building, and smart building, as reflected in in their respective 14th FYPs for the development of the construction industry25.
6. Low-carbon transition of the transportation industry and net zero throughout the industry chain: A research reportby the Ministry of Ecology and Environment reveals that transportation contributes 15% of CO2 emissions in China, with
CO2 generated from road transportation providing a good chunk of that. Transitioning to green transportation is thus acurrent imperative. Shifts in public transportation, shared mobility, smart roads, and commuting patterns seem inevitable.
China’s top car rental site and service Shenzhou Zuche is committed to promoting green travel (a portable lifestylechoice) and car sharing (a low-carbon model of car usage). It has deployed green transportation infrastructure across thecountry, attracting a growing number of people into booking rental cars. New Energy Vehicles (NEVs) are not zero-emission vehicles. Rather, they transfer emissions, bringing lifecycle carbon emissions down to nearly 50% of the total③26. It is
widely acknowledged that hydrogen is the cleanest energy of the 21st century, holding the most promise. As a pioneer inhydrogen industry chain integration, Haima Automobile embraces green manufacturing and smart manufacturing, transitioning to producers of NEVs and smart cars. Its leitmotif is now, “Place a premium on smart cars, produce electricvehicles together with other automakers, stay committed to plug-in hybrid cars, and focus on hydrogen-powered cars.27”
In October 2021, the State Council issued the Action Plan for Carbon Dioxide Peaking Before 2030, which set out “tenmajor actions for carbon emissions peaking”28 and action on international cooperation and policy support. For companiesof all sizes, at different stages of development, and from a wide range of industries across China, what opportunities andchallenges could arise from such overall guidelines? How could companies adapt to changes in the environment andmacro-economic policies, and balance business value creation and corporate social responsibility, so as to drive China’stransition to a green economy? The table below, based on up-to-date information (see Table 3), provides thorough policy
interpretation and valuable regional experiences or corporate practices. It could be a how-to guide on low-carbon
business transformation.

Moving fast toward carbon neutrality: whole-industry emissions savings
Peak carbon emissions result primarily from energy-related CO2, whereas carbon neutrality is determined by six
GHGs58 (i.e. carbon dioxide, methane, nitrous oxide, sulfur hexafluoride, hydrofluorocarbons, and perfluorocarbons),
involving more human activities, such as industrial production, waste treatment, farming, land use change, and forestation. Another difference: to reach peak carbon emissions, the only thing that matters is the emissions trajectory, but toachieve carbon neutrality, both emissions trajectory and absolute volumes are of vital importance. China will fulfill its
carbon cutting commitments in phases, with “peak carbon emissions by 2030” as an interim target and “carbon neutrality
by 2060” as the ultimate goal. In this sense, “peak carbon emissions” and “carbon neutrality” are literally the same thing.
Such a close relevance could lead to the need for dialectical thinking and overall planning. Carbon emissions peaking asscheduled can pave the way for carbon neutrality, while a carbon neutrality deadline may specify a timeline for emissions
peaking.
China lags some countries and regions by 10 years in terms of its carbon neutrality deadline, but it is resolved to gofrom peak emissions to carbon neutrality in the space of just three decades. This compares to 40-50 years or longer foran overwhelming majority of the aforementioned countries and regions, where carbon emissions peaked early with virtually no government intervention59. These countries and regions where emissions are falling naturally will find it much easierto achieve carbon neutrality. However, China, with its artificially steep rise in carbon emissions due to its rapid development, has a tougher task to bring emissions down, and still needs to maintain and perhaps increase this “artificial
pressure” before it can meet its net-zero commitments.
After reaching peak emissions, fast-paced decarbonization will become an imperative. The main pathways include
expanding renewable energy capacity, developing new energy and carbon removal technologies (e.g. CCUS), minimizing③ The lifecycle of a vehicle involves sourcing of raw materials, manufacturing, and maintenance, etc.

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production costs of hydrogen, and ramping up R&D efforts to widen hydrogen use in shipping and aviation, as well as for
power generation and heating. Forecasts based on the Integrated Policy Assessment model for China by researchers
show that non-fossil energy use would increase to 77% by 2050 if China were to attain its “30-60” targets. This implies
fossil fuels and non-fossil fuels will swap positions in the energy mix. In such circumstances, emissions from fossil fuels
will need to be fully offset via various carbon sinks (e.g. green and blue carbon sinks and CCUS technologies)60.
Fueling the growth of alternative energy is the key to decarbonizing the transport sector. In recent years, the markets
for small new energy passenger cars and light delivery vehicles have matured. However, heavy-duty trucks and vessels
are beset by a lack of viable low-carbon alternatives. For instance, new energy heavy-duty trucks have mileage and load
constraints, while hydrogen- and ammonia-fueled vessels have glaring deficiencies in technical equipment, supporting
energy infrastructure, and risk remediation61. Since a shift to zero-emission vehicles (ZEVs) is important to decarbonization, automakers need to increase their ambitions in this regard and follow through.

Table 3: “Ten major actions for carbon emissions peaking”: policies and industry practices
Ten major
actions

Industries
concerned

Transformation priorities

Regional experiences and business practices

Coal-fired
power, oil andgas, clean
Action for green
power (e.g.
and low-carbon
energy transition wind, hydro,
nuclear, solar,
and hydrogen)Promote coal substitution as wellas transformation and upgrading;vigorously develop new energy;
develop hydro power according tolocal conditions; actively develop
nuclear power through a safe andorderly approach; rationallyregulate oil and gas consumption;
speed up the development of the
new electric power system so thatby 2030, provincial-level power
grids will be equipped with peakload response capacity of 5% ormore.

· Guangdong: exploited the industrial strength of the Guangdong-Hong Kong-Macao Greater Bay Area to inspire innovations
in hydrogen29· Southwest China: built a renewable energy system with hydropower being the mainstay30· Sinopec: picked up the pace of innovation in hydrogen and CCUS
technologies, in a bid to evolve into China’s largest hydrogenproducer31· CNOOC: clean and low-carbon energy would make up at least
60% of the energy mix by 202532· China Energy, China Huaneng, China Huadian, SPIC, and China
Datang: installed clean electricity capacity would account for 60%
of total installed capacity by 202533

Action forenergy saving,carbonemissionsmitigation andefficiency
improvement

All industries

Raise capacity for managing energy· Huawei: as a pioneer in green supply chain management, Huawei
conservation across the board;put a value on energy saving, efficiency improvement, ecological
implement key energy conservation
design, and circular economy in product lifecycle management34
and carbon abatement projects;· China Huaneng: China Huaneng’s solution to reduce emissions
improve energy efficiency of majorfrom coal-fired power plants was mentioned in a WEF white paperenergy consuming equipment;
entitled Global Innovations from the Energy Sector 2010-202035
strengthen energy conservation and· China Mobile: precisely conserved energy through real-timecarbon reduction in new types ofmonitoring of temperature
infrastructure.

Action for
carbonemissionspeaking in theindustrial
sectorSteel,
non-ferrous
metals,building
materials,
petrochemical
and chemical,
auto

Promote green and low-carbon
development in the industrial sector;· China Baowu: became the industry first to set a timetable for peak
push the steel, non-ferrous metals,
emissions and carbon neutrality, and launched the largest carbon
building materials, and petrochemineutrality-themed fund by asset size in China36
cal and chemical industries to peak
· Volkswagen Group China: supplied plants with renewablecarbon emissions; firmly curb theelectricity, with a view to building a green supply chain37
irrational expansion of energy-intensive, high-emission projects.

Construction
and building
materials (e.g.
cement)Promote green and low-carbon
transformation in urban and ruraldevelopment; accelerate energy
efficiency improvement tobuildings; accelerate the optimization of building energy consumption structure; promote thelow-carbon transition in ruraldevelopment and energy
consumption.

Action for
carbonemissionspeaking inurban and ruraldevelopment041· Landsea: focused on developing energy-saving and environmentally friendly residential buildings, and providing green property
management services (a vivid example of “green real estate”)38· Yichang, Hubei: announced the first implementation plan for
carbon dioxide peaking in China’s construction industry39· CSCEC: developed a cloud platform for green, smart construction,
enabling real-time monitoring of environmental and energy data;
and made full use of green energy, turning zero discharge of solid
waste into reality among certain affiliates40· Saint-Gobain: rose to challenges with respect to sustainable
construction, energy efficiency, and climate change by making
inroads into the high-performance building materials market41

Chinese Efforts toward Carbon Neutrality

Ten major
actions
Action for
promotinggreen andlow-carbon
transportation

Action for
promotingcirculareconomy forcarbonmitigation
purposeIndustries
concerned

Transformation priorities

Regional experiences and business practices

Railway, road
haulage,shipping,
aviation, andlogistics

Promote low-carbon transformationof transportation vehicles andequipment so that by 2030,
40% of new car sales will be
powered by new energy or clean
energy; develop green, efficienttransportation systems; accelerate
construction of green transportation
infrastructure.

· COSCO Shipping: offset emissions from crude oil shipping andfuel combustion by purchasing CCER④ credits· China Eastern Airlines: operated carbon-neutral flights· Shenzhou Zuche: promoted green travel and car sharing, a newmodel of car usage.42

Push industrial parks to develop ina circular manner; strengthen thecomprehensive use of bulk solid
waste; refine resource recycling
systems; step up efforts to reduceand recycle household waste.

· Reclothing Bank: committed to sustainable fashion projects since
inception in 201143· INCOM Recycle: committed to recycling and reuse since 2003,
and created the sustainable lifestyle brand BOTTLOOP44· Grandblue Environment: actively sought to develop the solid
waste and wastewater treatment business45· SF Express: introduced a smart circular packaging system, underwhich a π-box can be used 70 times at most with hook and loop
fasteners46· SAIC-GM: introduced the Ultium EV platform equipped with theindustry-first wireless battery management system; invested overRMB 50 billion in electrification and intelligent connectivity47· Tencent Cloud: built a futuristic energy Internet to enable decentralized transactions at lower costs· Newlink: reduced emissions using digital technologies; anddesignated as a “Low-Carbon, Innovative, and Socially Responsible Enterprise”48· 37 Interactive Entertainment: pledged to build core competitive
advantages through technological innovation and digitalization,purchase more green electricity, and invest at least RMB 500
million in six ESG initiatives by 202549

All industries

Action foradvancing green
and low-carbon
tech innovation

All industries

Improve innovation mechanisms
and systems; develop innovation
capabilities and talent; boost
application-oriented basic
research; accelerate the R&D andapplication of advanced, practicaltechnologies.

Action forconsolidatingand enhancing
carbon sinkcapacity

Green carbon(Forests ascarbon sinks⑤)Blue carbon(Ocean as
carbon sinks⑥)

Consolidate the carbon sequestration capacity of ecosystems;
enhance the carbon sink capacityof ecosystems; strengthen thefoundation for ecological carbon
sinks; promote carbon emissions
reduction and carbon sequestration in agriculture and rural areas.

· Shenzhen, Guangdong: compiled China’s first accounting
guidelines for blue carbon sinks50· Weihai, Shandong: released China’s first development plan forblue carbon economy· Zhanjiang, Guangdong: launched a blue carbon trading program,which was the first of its kind in China51· East China Forestry Exchange: piloted a national green carbon
trading platform52

All industries

Strengthen publicity andeducation for ecological civilization; advocate green andlow-carbon lifestyles; encouragecompanies to fulfill their social
responsibility; and conduct
intensive training for cadres.

· “Ant Forest”: encouraged over 500 million users to lead a
low-carbon lifestyle, contributing to the planting of 100 million trees
in areas susceptible to desertification53· Society of Entrepreneurs and Ecology (SEE): planned to plant “100million saxaul trees” between 2014 and 2023 through joint efforts
by governments, herdsmen, environmental organizations,entrepreneurs, and the masses54· Shenzhen, Guangdong: introduced the “Tan Pu Hui” system,
allowing small- and micro-sized enterprises, households andindividuals to earn points which could be redeemed for rewards bytaking part in low-carbon activities such as buying green products55

All industries

Set scientifically-sound targets;
promote green and low-carbon
development according to local
conditions; formulate local plans
based on coordination between
central and local authorities; andcarry out pilot projects.

· Guangdong-Hong Kong-Macao Greater Bay Area: 13 financial
institutions embraced China’s first environmental information
disclosure mechanism, catalyzing whole-industry transition togreen finance56\· Guangdong: became the first pilot city in China to create a spot
carbon trading market worth over RMB 4 billion57

Action for
fostering agreen andlow-carbon
society

Action for
carbonemissionspeaking in all
regionshierarchicallyand orderly④ CCER, an abbreviation for Chinese Certified Emissions Reduction, is the second kind of basic product in the carbon emissions trading market. The first kind is carbon
credit – a permit from the government that allows a company to emit a certain amount of CO2 or other GHGs.
⑤ Green carbon (green carbon sinks) refers to CO2 captured by forests from the atmosphere and stored in the plants and soil. Obviously, green carbon sinks decrease theconcentration of CO2 in Earth’s atmosphere.
⑥ Blue carbon (blue carbon sinks) is the term for atmospheric carbon captured by and stored in ocean and coastal ecosystems. It is reported that blue carbon is a vital part of the
global carbon cycle, because ocean and coasts act as sinks for a fourth of man-made CO2 and over 90% of GHGs.

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2022 CEIBS ESG White Paper

Also important is breakthrough innovations in new materials. Industry insiders hold that materials can be a vehicle forany technology, and green innovation in cutting-edge technologies initially embedded in new materials is a critical factor
in achieving “30-60” targets62. The sea change in energy mix will lead to growing demand for new materials. One example: rapid iteration of battery materials is essential to a boom in NEVs. Today, plant-based materials, by virtue of its
eco-friendliness, inexhaustibility, and biodegradability63, are widely used in energy, chemicals, healthcare, agriculture, andmanufacturing. In the future, they will become mainstream new materials. For some new materials used in emerging industries, China is still heavily reliant on imports. So, it is high time to produce locally to tap into the segments with huge growthpotential64.

Achieving carbon neutrality: further decarbonization and carbon sinks
Starting in 2045, China will take its last step toward carbon neutrality by enhancing decarbonization and carbon
sinks. Commercializing NETs that strike a balance between economic growth and environmental protection, especially
CCUS and BECCS, will be high on China’s agenda. Between 2045 and 2060, a wider range of industries will shift theirdecarbonization efforts up a gear, the vast majority of the population will go green, and energy use in industrial production, power generation, transportation, and daily life will be generally clean and efficient.
Carbon neutrality is not a synonym for zero emissions. In actuality, carbon neutrality is achieved when all the direct
and indirect carbon emissions from businesses, products, individuals, or events are balanced by forests and commercial
carbon sinks. It is practically impossible for humanity to emit no CO2. Though the electricity sector may source 100%
renewable energy, certain industrial processes and sectors like shipping and aviation find it unrealistic to achieve zero
emissions. Therefore, carbon dioxide removal (CDR) technologies are indispensable to “negative emissions”65. In order
to offset emissions, China will work on two fronts: increase in natural carbon sinks (forests and oceans) and application of
CCUS technologies.
Academic research shows that NETs featuring CCUS coupled with new energy underpin the target of going carbon
neutral. The cost of limiting global warming to below 2°C through the 21st century relative to pre-industrial levels could
increase by 138% in the absence of CCUS technologies, according to the IPCC (the UN-created Intergovernmental Panelon Climate Change) Fifth Assessment Report66. Mitigation can be more cost-effective if using an integrated approach thatcombines cross-sectoral measures to deploy CCUS, boost energy efficiency, save energy in end-use sectors, andincrease the use of hydrogen and stored energy. Also, widespread deployment of CCUS involves significant co-benefits.
For example, equipping a thermal power facility with CCUS not only prevents premature failure of its existing power units,
but also saves it from having to invest in other low-carbon electricity infrastructure, which undoubtedly brings down
economic costs of getting to net zero. From R&D to pilot projects, China has made breakthroughs in CCUS technology
and industry. At present, six CCUS projects are running in oil fields in north China, but most of them have not achieved
economies of scale67.

Recognizing long-term investment opportunities in the carbon neutral future
China has enacted policies to act on its carbon neutrality ambitions, speeding up the transition to a green, low-carbon circular economy. Its energy supply urgently needs to switch to electrification and new energy, as green buildings,
NEVs, and industrial carbon capture technologies are gaining traction on the demand side. The domestic carbon trading
platform is still in its embryonic stage, but holds huge transformative potential. More active trading in financial derivatives
like carbon futures is expected. Besides rising to challenges by cutting emissions decisively, Chinese companies should
simultaneously recognize and seize long-term growth and investment opportunities, which could give fresh impetus tocompany development. In light of the massive investment needed to achieve carbon neutrality, private capital could be astrong supplement to government input. At the same time, the market’s appetite for green investment could be a booster
for development of green finance. In this article, we have tried to summarize investment opportunities along the five industry chains68 (see Table 4) for reference.

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Chinese Efforts toward Carbon Neutrality

Table 4: Investment opportunities in the carbon neutral future – sectoral carbon-cutting pathways
and corresponding industry chains
SectorIndustry chain

Scope of investments
Photovoltaic power, wind power, distributed generation, stored energy (electrochemical

Electricity

New energy

energy and hydrogen), Ultra-high-voltage (UHV) electricity transmission, smart grid(energy Internet)

Manufacturing

Transportation
Building
materials

Public benefit

Energy saving andcarbon reduction

NEVGreen building
Environmental
protection

Low-carbon transformation of industrial processes, energy-saving equipment, hydrogenand fuel cells, recycling and remanufacturing of materials, reuse of resources, andbiomaterials

NEVs, new-energy batteries, EV chargers, smart urban rail system (IoT and AI)
Green building materials, new high-performance materials, prefabricated buildings,
energy-saving retrofitting of existing buildings
Environmental protection equipment, pollution abatement, CCUS, and waste recycling
and reuse

Reflections on China’s progress toward “30-60” targets
Overcoming misconceptions
There are two schools of thought in China: some people believe that the sooner carbon emissions peak, the better,
while others advocate developing fossil-fueled assets and the high- intensity chemical industry till 2030 to push peakemissions up as high as possible. Obviously, both extremes should be avoided. Why? The former underestimates thedifficulty of reaching peak emissions and cutting carbon, as well as China’s reliance on fossil energy, adversely impacting
the country’s economic growth. The latter oversimplifies the situation, paying no attention to heavy “path dependence”
and “sunk costs” incurred by delayed mitigation, as well as the pressure for a very rapid decrease in carbon in the final
decades before 2060. Typically, a thermal power plant is designed to run for 30-40 years. Coal-fired power units there
usually cannot function at full capacity, yielding measly economic returns. Installing a vast quantity of coal-fired power
units today will definitely erode new energy market share. Worse still, elimination of those power units from the market by
2030 will engender a colossal waste of the initial investment. During the 14th FYP period, China should follow the “goldenmean” principle (i.e. the middle way), that is, insist on using “efficient, low-carbon, clean, and flexible” form of coal-fired
power on a proper scale, and continue to conduct low-emission and energy-saving R&D69 in pursuit of cleaner coal-fired
power.
Some industry insiders argue that coal-fired power will remain the cornerstone of power supply for the foreseeable
future, because of the particularities of new energy as well as economic and safety concerns posed by yet-to-be commercialized energy storage technologies. Nevertheless, coal-fired power ought to play a different role. Coal-fired power
plants and grid companies claim that they are caught between the Scylla of the market price of coal and the Charybdis
of a price ceiling on electricity. To resolve this contradiction, they have called on relevant authorities to deepen market-oriented reform of the energy pricing mechanism. This is also conducive to enhancing grid stability and sound development
across the entire industry chain. Experts suggest abandoning the one-size-fits-all approach to curbing power-plantemissions, and making carbon footprint measuring a driver of industry transformation70.

044

2022 CEIBS ESG White Paper

Low-carbon transformation in energy and manufacturing is currently under the spotlight. Unsurprisingly, the “energy
revolution” is now a frequently used phrase. When supply-side emissions reduction reform is in full swing, people are likely
to overlook the demand-side reform, which is equally important. The truth is demand-side emissions cutting can not only
ease the burden on the supply side, but also “increase the willingness of consumers to pay a premium for low-carbon
products”71. The synergy between supply- and demand-side reforms is indispensable for smooth industry transformationand sustainable economic growth. In addition to cutting emissions directly from operations, companies could take theirsocial responsibility a notch up by impelling the staff to live a greener life (exemplified by green travel, zero food waste,
garbage sorting, and tree planting), and stimulating green consumption in key sectors, such as housing, transportation,and daily necessities.

Reflecting on carbon cutting “movements” and power rationing
Judging from China’s carbon footprint, industrial structure, and resources/energy mix, “30-60” targets are by nomeans easy to achieve. Most Chinese companies have reduced emissions by improving management efficiency andcapitalizing on advanced technologies, but some have tried in vain to cut carbon via so-called “movements”: One is tomake an empty promise to generate buzz, and seldom put carbon reduction plans into practice. The other is to initiate
overly aggressive carbon cutting campaigns, including setting carbon reduction goals beyond their reach, overemphasizing net zero, and cutting all energy-intensive, high-emission projects in traditional manufacturing72. These corporate
movements are two extremes in response to a national call for action on carbon cutting, exerting a negative influence on
corporate sustainability and economic and social development – and thereby not conducive to achieving the “30-60”
targets.
During the 13th FYP period, all Chinese provinces, municipalities and autonomous regions successfully controlled
total energy consumption and energy intensity in accordance with their respective action plans, which was proof thatnational goals were reasonable and attainable (barring unforeseen circumstances). But starting in September 2021, quite
a few energy-intensive public companies claimed they had to temporarily halt production due to limited electricity supply.
More than that, homes were affected by power cuts as electricity was rationed in 11 provinces and regions. This could be
attributed to a document released by the NDRC in mid-August 2021, which stated that based on regional performancemeasured against “dual-control” criteria, energy intensity in some geographies was rising in the first half of 2021. In thatsame document, nine provinces and regions were warned in particular for their poor record73.
Shortly afterwards, some regions set about lowering overall energy consumption by means of mandatory shutdownof inefficient factories, electricity rationing in high intensity sectors, and blackouts that cause livelihood disruptions. Thiswas just a last-minute effort, indicating that local governments and businesses had misinterpreted the new development
philosophy, underestimated the difficulty of low-carbon transformation, and marked a disappointing start to the green
transition. Achieving “30-60” targets is a formidable task. It can be likened to a final exam, where “dual control” could be
the most important exam question, carrying the most weight. The only way to get the right answer will be to do solid work,
knowing that a journey of a thousand miles begins with a single step, and a last-minute effort hinders business growth aswell as economic and social development. However, the question persists about how to cooperate with stakeholders on
both the supply side and the demand side to create synergies for this national and even global endeavor.

Suggestions for how companies could help achieve “30-60” targets and high-quality
development
This article proposes an ideal roadmap for companies to help achieve “30-60” targets (see Figure 3). The roadmap
encompasses major pathways and measures, enlightening companies as to how to prepare for transformation, formulate
some form of ESG strategy, and deal with the impact of climate policies.
Company executives, who oversee the decision-making process and strategy implementation, are of vital importance to coordinated corporate carbon-cutting actions and high-quality company development. They may incentivize
045

Chinese Efforts toward Carbon Neutrality

employees to explore possible high-quality development paths amid the company’s low-carbon transition, by means ofpromotion and higher pay. One way a company can sharpen its technological innovation capabilities and achieve
high-quality development is to incorporate the philosophy of low carbon into product R&D.
Strategically, companies may create a task force charged with devising short-, mid- and long-term carbon reductionplans, setting goals and priorities accordingly, and ensuring a clear division of responsibilities. In practice, companies
should employ a top-down approach to strategies according to government policies, sectoral characteristics, and theircurrent state of development, so as to steadily accelerate carbon abatement and business transformation.

• Measure the corporate carbon footprint (track and quantify carbon emissions at the level ofbusiness units)

Goal-setting
andpathways• Set carbon-cutting goals for 2030 and 2060 on the basis of the business's characteristics• Conduct a feasibility study on carbon-cutting pathways and processes• Upgrade production facilities/bases, and improve operational efficiency

Internal:
corporate
governance

External:synergies
across thevalue chain• Popularize renewable energy or clean electricity• Purchase CCER credits• Combine low or negative emissions technologies with intelligence and information
technologies• Incorporate the philosophy of sustainability into product design, and help decarbonize the supply chain• Drive transformation across the industry chain, both upstream and downstream(source less raw materials from upstream suppliers, and procure products withsmall carbon footprints, if possible)• Launch products and services instrumental to decarbonizing other industries

ESG
stategyandinvestment• Enhance the green value and social impact of the business through carbon disclosureand ESG reporting• Properly evaluate and proactively address climate risks (policy changes, technologicalunertainties, and shifts in market sentiment)• ESG investing (Sustainable investing, socially responsible investing, green finance)

Figure 3: Roadmap for companies to help achieve “30-60” targets

046

2022 CEIBS ESG White Paper

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29 Nanfang Daily, “Guangdong Is Moving Toward ‘30-60’ Targets via a Green Transition”, January 11, 2022, http://www.cnbayarea.org.cn/news/focus/content/post_654967.html.
30 EY, “The Energy Industry’s Transformation in the Context of China’s ‘30-60’ Targets”, July 2021.
31 Tencent, “Actions Taken by Three Major Oil Companies to Help Achieve ‘Carbon Neutrality’”, February 2, 2021, https://new.qq.com/omn/20210202/20210202A03Y6V00.html.
32 Tencent, “CNOOC Plans for Achieving Carbon Neutrality and Sets a 2025 Interim Target of Clean and Low-Carbon Energy Making up at Least 60% of Its Energy Mix”, January
15, 2021, https://new.qq.com/omn/20210115/20210115A0D7YR00.html.
33 CSR reports and official websites of five major power-generation companies in China, December 2021.
34 Tencent, “New Trends in Green Supply Chain Management in the Context of ‘30-60’ Targets”, December 10, 2021, https://new.qq.com/omn/20211210/20211210A09LJ800.html.
35 The Paper, “China Huaneng’s Solution to Save Energy and Reduce Emissions Mentioned in a WEF White Paper”, May 30, 2020, https://m.thepaper.cn/baijiahao_7634082.
36 He Liping, “China Baowu Launches a RMB 50 Billion Carbon Neutrality-Themed Fund in China, the Largest of Its Kind by Asset Size”, The Paper, July 15, 2021, https://www.thepaper.cn/newsDetail_forward_13595045.
37 Cj.sina.com, “Volkswagen Group Supplies All of Its MEB Plants in China with Renewable Electricity, Aiming to Achieve Carbon Neutrality by 2050”, December 15, 2021,
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38 Landsea, “Company profile”, https://www.landsea.cn/Group/Profile.aspx.
39 NewEnergy.IN-EN.com, “The First Implementation Plan for Carbon Dioxide Peaking in China’s Construction Industry Announced!”, July 16, 2021, https://newenergy.in-en.com/html/newenergy-2407421.shtml.
40 State-owned Assets Supervision and Administration Commission of the State Council, “CSCEC: Moving Toward ‘Peak Emissions’ and ‘Carbon Neutrality’”, April 12, 2021,
http://www.sasac.gov.cn/n2588025/n2588124/c17979581/content.html.
41 Caixunnews.cn, “Setting Sights on 100-Billion-Yuan New Materials Market Saint-Gobain Pays a Visit to DANSN”, July 29, 2022, https://hea.china.com/article/20210729/072021_839581.html.
42 Finance.sina.com, “Incorporating CSR and the Philosophy of Low Carbon into Transportation — Shenzhou Zuche Enhances Green Urban Mobility”, January 6, 2022,
https://finance.sina.com.cn/tech/2022-01-06/doc-ikyakumx8662687.shtml.
43 Harper’s Bazaar, “Reclothing Bank: Environmental Protection Is Not Just a Slogan!”, April 14, 2019, https://baijiahao.baidu.com/s?id=1630784437906713757.
44 INCOM Recycle’s official website, http://www.incomrecycle.com/.
45 Oshark, “Problems Besetting Grandblue Environment’s Solid Waste Treatment Business”, August 30, 2020, https://xueqiu.com/3093244593/157984747.
46 Tencent, “A π-Box Can Be Used 70 Times! Why the Smart Circular Packaging System Could Gain Recognition in the Context of ‘30-60’ Targets?”, December 1, 2021,
https://new.qq.com/omn/20211201/20211201A0215M00.html.
47 Zhang Jiadong, “SAIC-GM Invests RMB 50 Billion to Accelerate Transformation: Starting with the Ultium EV Platform”, guancha.cn, October 20, 2021, https://m.thepaper.cn/baijiahao_14988192

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Chinese Efforts toward Carbon Neutrality

48 Cj.sina.com, “Using Digital Technologies to Reduce Emissions Newlink Designated as a ‘Low-Carbon, Innovative, and Socially Responsible Enterprise’”, January 10, 2022,
https://t.cj.sina.com.cn/articles/view/6572680996/.
49 Finance.china.com, “Li Yifei: 37 Interactive Entertainment Will Venture into Metaverse and Other New Arenas to Build Core Competitive Advantages”, January 21, 2022,
https://finance.china.com.cn/qy/qyjj/20220121/5733779.shtml.
50 NetEase, “Shenzhen’s Special Ecological Zone Compiles China’s First Accounting Guidelines for Blue Carbon Sinks, Applying the EOD Model in Project Management”, May 11,
2021, https://www.163.com/dy/article/G9N8N4090514K880.html.
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52 The central government Web portal, “State Forestry Administration: A Pilot National Green Carbon Trading Platform Debuts on November 1”, November 2, 2011, http://www.gov.cn/jrzg/2011-11/02/content_1983845.htm.
53 Christine Chou, “How Alipay Users Plant 100m Trees in China”, Alizila, April 22, 2019, https://www.alizila.com/how-alipay-users-planted-100m-trees-in-china/.
54 SEE’s official website, http://foundation.see.org.cn/Brand/Project/2019/0918/5.html.
55 Tencent, “Shenzhen Residents May Earn Points Which Could Be Redeemed for Rewards by Taking Part in Energy-Saving and Carbon-Cutting Activities”, November 17, 2021,
https://new.qq.com/omn/20211117/20211117A02T2F00.html.
56 Guangdong-Hong Kong-Macao Greater Bay Area Web portal, “First Seen in China! 13 Financial Institutions in the Guangdong-Hong Kong-Macao Greater Bay Area Publish
Their Environmental Information Online”, July 15, 2021, http://www.cnbayarea.org.cn/homepage/news/content/post_535600.html.
57 Chen Lili, “Emissions Quotas Traded in Guangdong Experiences a Nearly 20-Fold Increase”, gmw.cn, July 23, 2021, https://m.gmw.cn/baijia/2021-07/23/1302423858.html.
58 Ren Lihai, “Sulfur Hexafluoride: The Most Horrible Greenhouse Gas”, tanpaifang.com, March 19, 2020, http://www.tanpaifang.com/tanguwen/2020/0319/69262_2.html.
59 Zhang Yaxin, Luo Huilin, and Wang Can, “An Analysis on Trends in International Net-Zero Efforts”, Advances in Climate Change Research, 2021, 17(01):88-97, https://www.cnki.com.cn/Article/CJFDTOTAL-QHBH202101010.htm.
60 Science and Technology Daily, “An Overhaul of Energy Mix After China Hits Peak Carbon Emissions”, January 27, 2022, http://www.chinapower.com.cn/tanzhonghe/dongtai/2022-01-27/131517.html.
61 Li Xiaoyi and Tan Xiaoyu, et al., “Research on Pathways for the Transportation Sector to Reach Peak Emissions and Carbon Neutrality”, Strategic Study of CAE, 2021(23)6:
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62 Fu Xiaobo, “An Important Pathway for Reaching Peak Emissions and Carbon Neutrality: Technological Innovations in New Materials”, Science and Technology Daily, November
18, 2021, http://www.stdaily.com/kjrb/kjrbbm/2021-11/18/content_1232618.shtml.
63 Tencent, “Plant-Based Materials Will Become Mainstream in the Carbon Neutral Future”, December 20, 2021, https://new.qq.com/omn/20211220/20211220A04GF200.html.
64 Chen Jianhua, “New Materials Contributes Actively to Carbon Neutrality”, China Securities Journal, January 10, 2022, https://www.cs.com.cn/xwzx/jr/202201/t20220110_6233922.html.
65 Lin Boqiang, “Carbon Neutrality by 2060: China’s Pathways, Opportunities, and Challenges”, China Business News, November 19, 2020, https://j.eastday.com/p/1605705443020222.
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72 Zhang Ying and Jia Ming, “A Three-Pronged Approach to Redress Businesses’ Carbon-Cutting ‘Movements’”, National Business Daily, August 11, 2021, https://finance.sina.com.cn/stock/hyyj/2021-08-11/.
73 Baijiahao.baidu.com, “What Are the Reasons for China’s Power Outages?”, September 27, 2021, https://baijiahao.baidu.com/s?id=1712039705268758792&wfr=spider&for=pc.

048

HANDS-ON EXPERIENCE OF
CEIBS ALUMNI COMPANIESIN CARBON NEUTRALITYSEE
By Zhao Liman*

Uniting Entrepreneurs toProtect the Environment
Qian Xiaohua
CEIBS EMBA 2000 Alumnus
6th President of SEE“Despite our diverse professional backgrounds, we’re united by thecommon goal of protecting the environment. At the same time, promoting
green supply chains has become our core focus. We advocate for agreen economy to help achieve carbon dioxide peaking and carbon
neutrality targets, but it is currently difficult to measure people’s daily
per-capita carbon emissions. I believe that these long-term targets must
be realized through commercially sustainable projects, and by giving fullplay to the creativity and capabilities of entrepreneurs.”

Review“SEE is an organization that brings together environmentally minded entrepreneurs to form aplatform that encourages businesses to contribute to environmental protection and sustainable development. Three organizational features are indispensable for SEE to fulfill this function: first, a mechanism that ensures the long-term dedication of all members; second, incentive structures to motivate
members; and third, a mechanism that aligns the individual business goals of companies with social
welfare and environmental protection, so as to ensure commercially sustainable solutions.”

Wang Yajin

Professor of Marketing, CEIBS
Research Area Director of ESG
Programme Co-Director of CEIBS-Tencent Joint Programme* Zhao Liman is a case researcher at the China Europe International Business School Case Center.

Hands-on Experience of CEIBS Alumni Companies in Carbon Neutrality

Introduction

A healthy natural environment is vital to the sustainable development of human society, and environmental
protection yields benefits that can last for many generations. On June 5, 2004, some 100 entrepreneurs gatheredin the Tengger Desert in Alxa League, Inner Mongolia to establish the Society of Entrepreneurs and Ecology(SEE). Amidst this vast expanse of sand, the entrepreneurs published the Alxa Declaration, in which they committed to invest one hundred thousand yuan per year to mitigate sandstorms and protect China’ s ecological environment. Four years later, in 2008, SEE went on to establish the SEE Foundation.
The SEE Foundation spearheaded various initiatives to prevent desertification, such as the “One Hundred Million Saxaul” project and a groundwater protection project; ten brand projects, including the “Real Estate Green
Supply Chain Initiative” which aimed to reduce carbon emissions in the real estate industry; and the first blue
carbon sink project in China to achieve carbon neutrality. By rallying entrepreneurs around commercially sustainable, non-profit environmental protection projects, SEE made a significant contribution to environmental protectionin China.

On April 22, 2021, which marked the 41st Earth Day, China’ s President Xi Jinping delivered an important speechentitled “Working together to build a community of life for man and nature” . In his speech, he noted that mankind faced
unprecedented challenges in global environmental governance, and that the international community required unprecedented ambition and action, needed to assume responsibility and show unity, and work together to build a communityof life for man and nature.
On the same date 16 years earlier, and nearly one year after its founding, SEE launched the “SEE EcologicalPrize” , the first non-governmental prize to encourage efforts made in the area of environmental protection and sustainable development. By the time of writing, the prize had been awarded nine times, and had emerged as an important
award in the environmental field.
The Society of Entrepreneurs and Ecology (SEE), which was established on Jun 5, 2004 by some 100 Chinese
entrepreneurs, was an organization that sought to engage entrepreneurs in social responsibility and environmental protection. At the time of writing, after 17 years of development, SEE had come to encompass more than 900 member
businesses and 32 project centers nationwide, and provided support to over 800 environmental protection and social
welfare organizations. At the same time, SEE was involved in a broad range of environmental protection projects thatspanned desertification prevention, climate change and commercial sustainability, ecological protection and nature
education, and marine conservation.

Starting from “a grain of sand”
Focusing on CSR
In the autumn of 2003, Liu Xiaoguang, then president of Beijing Capital Co. Ltd., travelled to the Tengger Desert toattend a small entrepreneur’ s seminar. He was shocked to see the extent of desertification there: “Human existence is
as insignificant as a grain of sand. Even if you’ re a billionaire, wealth alone is meaningless.” Falling upon his knees, Liubegan to contemplate what he could do to alleviate environmental problems such as the one he had witnessed.
The topic of the seminar in the desert was “How Entrepreneurs Maintain their Faith” , and the discussion centered052

2022 CEIBS ESG White Paperon the responsibilities and mission of entrepreneurs. A friend of Liu’ s who was also attending, Song Jun, had recently
invested in a desert eco-tourism project in Alxa League, where he had dedicated eight years of his life to combating
desertification. Liu was deeply touched by Song’ s sense of social responsibility. “This should be our mission as entrepreneurs, and how we should live up to ourselves!” wrote Liu in his travel notes.1
Following the seminar, Liu started lobbying others, and in particular friends from the business world, to contributeto environmental protection. He established SEE’ s strategy of “building long-term mechanisms instead of making
one-off contributions” and stressed the need for long-term personal engagement and financial commitment. He also
called on member companies to dedicate themselves to environmental causes for at least 10 years.
At SEE’s kick-off meeting on February 14, 2004, Liu related enthusiastically:“We are responsible not only for realizing economic gains and maximizing investment returns, but also for improving social welfare. To be a company of lasting value, we must integrate social responsibility into our business model, sothat our business’s development also drives social progress.”2
SEE was formally founded on June 5, 2004, which was World Environment Day. Founding members marked theevent by publishing the Alxa Declaration, which read:“We hope to make China’ s economy more prosperous and its people wealthier, cultivate friendlier relations
between people, and create a healthier and more beautiful natural environment. We hope to build a global village and aworld of universal harmony where everyone’s dream may come true.”

Why have we descended on the Alxa Desert from across China?
Why did we establish SEE to help curb sandstorms in China?
Because we have hopes and dreams!

HOPE

We hope to make China’s economy more prosperous, and its people
wealthier;

HOPE We hope to cultivate friendlier relations between people;

HOPE

We hope to create a healthier and more beautiful naturalenvironment;

HOPE We hope to build a global village;

DREAM And a world of universal harmony where everyone’s dream cancome true.

Our companies hail from various regions and industries, and our corporate structures vary, but we’ regathered here in the Alxa Desert to build recognition for SEE both domestically and internationally, so as tomake it the most important social welfare organization in China focused on preventing sandstorms.
From the Alxa Declaration

Excerpts from the Alxa Declaration

053

Hands-on Experience of CEIBS Alumni Companies in Carbon Neutrality

Based on this founding purpose, SEE’ s members continually expanded their engagement in environmental protection and social welfare activities, including through carrying out projects directly, supporting projects initiated by otherorganizations, and helping entrepreneurs to contribute to environmental causes. One important development was theinauguration of the “SEE Ecological Prize” , which offered funding to winning organizations and facilitated the sharing ofbest practice and resources between companies.

Improving governance structures and delivering sustainability
SEE upheld the governance principles of equal participation, democratic decision-making, checks and balances,
openness and transparency, and accepting supervision from member businesses as well as the general public. Members of governance bodies were appointed via election, major decisions were approved via vote, and the SEE Statutewas rigorously adhered to.

Congress ofMembers

Board ofSupervisors

Board ofDirectors

Articles of
Association Committee

Agenda committees

Secretariat

Desertification
Control Committee

Membership
Services Center

Shen Gang Project Center

Yangtze River Project Center

Membership
Representative Committee

Binhai Wetland
Protection Committee

Institution and ProjectCenter Service Center

Jianghuai Project

Heilongjiang Project Center

Membership
Development Committee

Yangtze River
Protection Committee

Cooperation &Development Center

Taiwan Project Center

Inner Mongolia Project Center

Biodiversity
Protection Committee

Huanghe Project Center

Sanjiangyuan Project Center

Integrated Operation Center

East China Sea Project Center

Ningxia Project Center

Climate Change
and Commercial
Sustainability Committee

Internationalization Center

Shanxi Project Center

Bohai Project Center

Project Center
Construction Committee

North China Project Center

Jiangnan Project Center

Membership Exchange
and Training Committee

Bamin Project Center

Silu Project Center

Investment Committee

Southwest Project Center

Poyang Lake Project Center

Qilu Project Center

Taihang Project Center

Pearl River Project Center

Taihu Lake Project Center

Bazhu Project CenterFree Trade Island Project CenterNorthwest Project Center

Daliao Project Center

Tianfu Project Center

Liangshan Project Center

Hunan Project Center

Qilianshan Project Center

Chongqing Project Center

Qomolangma Project CenterIndustry Development& Support Committee
Natural Education
Committee
Green Supply
Chain Committee

Project committees

Special committees

Fundraising &Communication Committee
Project Review Committee

Budgeting Committee

Governance Structure054

2022 CEIBS ESG White Paper

SEE was committed to “protecting and restoring China’ s natural environment, which included combating desertification among other things, while urging and motivating Chinese entrepreneurs to assume more environmental andsocial responsibility.” In 2008, SEE initiated the Beijing Entrepreneur Environmental Protection Foundation (SEE Foundation). Wu Jinglian, a renowned economist and the Foundation’ s first chairperson, commented that “building SEE Foundation on top of SEE’ s sound governance structures and processes brought greater procedural integrity to our work,and made us better organized as a non-government entity.”Thanks to this improved governance structure, SEE was able to better align the commercial activities of member
companies with social and environmental commitments. At the end of 2014, SEE Foundation was upgraded to a public
foundation dedicated to environmental protection and social welfare, under whose umbrella ten brand projects werelaunched. Two of the Foundation’ s signature projects, namely the “One Hundred Million Saxaul” project and the Real
Estate Green Supply Chain Initiative both generated a positive social impact, while also enabling substantial carbon
emissions reductions and protecting ecosystems.

The “One Hundred Million Saxaul” project“Love as we do, plant as we do”
From its inception, SEE dedicated itself to protecting the environment in the Alxa region by planting psammophytessuch as saxaul and hedysarum. The former is a plant with strong tolerance of drought, coldness, and salt and is highly
adaptable to environments with heavy wind erosion and exposure to sand burial. Therefore, it is an ideal plant for windbreaks, fixing sand, and protecting desert ecology.
Based on its experience from previous projects, SEE formally launched the One Hundred Million Saxaul projectwith the goal of planting around a hundred million psammophytes, including saxaul, over a period of ten years, andrestoring 1.3 million square km of desert vegetation to improve the local ecology and prevent desertification fromspreading, while generating additional economic benefits that would improve the wellbeing of local herdsmen.
To this end, SEE partnered with the local government, cooperatives, and herdsmen from the Alxa League, and055

Hands-on Experience of CEIBS Alumni Companies in Carbon Neutrality

sought to secure funding from various organizations and individuals dedicated to combating desertification and ecological restoration, so as to rally diverse interest groups behind this common purpose.

Collaboration on the “Ant Forest” projectIn August 2016, SEE and Ant Financial jointly launched the “Ant Forest” project. This mobile phone mini-app
allowed Ant Financial users to grow virtual trees by reducing their day-to-day carbon footprint. For each virtual tree thatusers grew, Ant Financial and SEE worked together to plant a real saxaul shrub in heavily desertified regions of China,
together with the support of local authorities.
Qian Xiaohua, then the president of SEE, recalled: “At first, neither we nor Ant Financial anticipated that this project
would be so popular or generate such strong network effects. Yet just one year after its launch, we had planted a totalof 1.1 million shrubs across an area of more than 500 thousand square km3. By the end of August 2019, we had 5 hundred million users, and had achieved carbon emission reductions of over 7.92 million metric tons, together planting 122
million shrubs over a total area of around 1.2 million square km4.
In September 2019, the United Nations Environment Program recognized Ant Forest as a “Champion of the Earth” ,its highest honor in environmental protection, for encouraging over 500 million people to adopt low-carbon lifestyles5.

Reaping the rewards of the project
While the One Hundred Million Saxaul project presented numerous challenges, it enabled breakthroughs on multiple fronts, including in scientific research, government partnerships, generating publicity, and engaging the public. The
project helped to increase soil coarseness, provided effective windbreaks, and fixed sand in the Alxa Desert, delivering
a range of ecological, social, and economic benefits.
By the end of 2021, the One Hundred Million Saxaul project had planted more than 75.1 million psammophytes in
Alxa League’ s core ecological zone6, restored 1.06 square km of saxaul shrubs, and engaged 489 herding households
in ecological protection. As the coverage of saxaul bushes increased, other psammophytes and perennial species
such as Zygophyllum xanthoxylon, Reaumuria soongorica, and Spiraea thunbergii also began to thrive, providing habitat for foxes, sandgrouses, and wild rabbits.

056

2022 CEIBS ESG White Paper

Green supply chains
On January 1, 2016, Qian Xiaohua took office as the 6th president of SEE. Based on the success of the One Hundred Million Saxaul project, he carried out a major reorganization of ongoing projects and launched new project
brands, including “Free Flying Wings” for bird habitat protection, “Blue Defenders” for curbing industrial pollution, and“Green Supply Chains” for China’ s real estate industry. He was most proud of this final project, which was the culmination of joint efforts by SEE and industry leaders, as it was something that had been advocated for many years.

Bringing low carbon to real estate
In 2016, China accounted for around 20% of the world’s global carbon emissions, with nearly 40% coming from thereal estate and the construction sectors. To encourage more real estate developers to contribute to the implementationof the Paris Agreement and drive global efforts to cut carbon emissions, SEE, CURA (China Urban Realty Association),
CRECC (China Real Estate Chamber of Commerce), Landsea Holdings, and Vanke jointly established the “Real Estate
Green Supply Chain Initiative” on June 5, 2016. This project sought to help steel, cement, aluminum alloy, and timber
suppliers to improve their environmental performance, in a bid to reduce pollution and carbon emissions across the
supply chain and promote more sustainable development.
Real estate companies and their upstream suppliers were key participants in the Real Estate Green Supply Chain
Initiative ( “the Initiative” ). Under the Initiative, procuring companies agreed to follow green procurement plans and only
source materials from green suppliers (the “only buy green” principle). At the same time, third-party agencies provided
technical support and advised suppliers on how to achieve compliance, and nominated suppliers with good environmental performance for inclusion on a procurement list (which included a white list and “green list” ). Procurement whitelists were issued to real estate businesses by the Initiative’ s Promotion Committee and Working Group (which comprised members from co-initiating institutions) who oversaw implementation of the lists and urged non-compliant suppliers to make rectifications.

Committee and Working Group

ts”
Lis

vid
e

ite

Wh

in “

Green procurement according to “White
Lists” and supervise reetification

How the Real Estate Green Supply Chain Initiative worked
057

o jo

Third-Party Independent
Technical Support Institutions

pt

Pro

Provide lists of suppliers
for screening

nu
Sig

Real EstateEnterprises

Set standards andscreen out “White Lists”

on rts,oati
ific n rep nert
ioe c etio rat
vid spe cla
Pro ls, in n de
e
tio
ia
d
i
ca
ter
rov ions
ma rectifitdp
an ggesse
rvi on suipe
Su ificattrec“W
sup hiteerv List
ise s”,
Pro
rel coo
ate
vid
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ep
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ork te, a
ure
s
nd
me
nt
fee
db
ac
k

(SEE, CURA, CRECC, Vanke, Landsea,
FECO, IPE, CABEE, BNBM Group, CREA)

Suppliers

Hands-on Experience of CEIBS Alumni Companies in Carbon Neutrality

Expanding influence by formulating standards
On November 1, 2016, China’ s real estate industry published a white paper on procurement standards for a green
real estate supply chain. On November 16, an evaluation of the environmental benefits of the Real Estate Green Supply
Chain Initiative was unveiled at a side event of the UN Climate Change Conference. Eric Solheim, the UN Environment
Executive Director and Under-Secretary-General of the UN, commended this innovative model for its contributions totackling climate change.
Following its inception, the Real Estate Green Supply Chain Initiative had a major impact on China’ s real estateindustry. By the end of 2016, 71 real estate companies had joined the Initiative. These companies had a combined
sales revenue of 1.3 trillion RMB in 2015, accounting for 15% of the sector’ s total, and had business dealings with over
2,000 supply chain partners7.
On March 22th, 2017, after extensive deliberation, review, and consultation, a white list for the Initiative was formally unveiled. The list initially included 153 companies, of which 145 in the cement sector and 8 in the timber sector. Following this, a growing number of product categories and companies were added to the list.
Taking the pollution compliance requirements of the white list as a baseline, in July 2019, the Initiative also established a “green list” to better respond to emission reduction policies in China and overseas. The requirements of thegreen list, which were based on prevailing national and local standards, were published in 2020, and mainly comprised
indicators for resource usage, energy usage, environmental impact, and other criteria used to screen suppliers. For
example, the list required suppliers to meet national water-saving standards, obtain energy management certification,and disclose their greenhouse gas emissions. The green list provided strong incentives for companies to combat
climate change and pursue carbon neutrality, and promoted energy conservation, emission reduction, and green
development in the real estate industry and its suppliers by rewarding and showcasing businesses with good practices.
In 2020, the Initiative also set up a blacklisting system. Under this system, the Initiative evaluated the environmental
performance data of companies (from data in the public domain) and notified companies that performed poorly. These
companies would subsequently be reviewed periodically, and if they did not rectify any problems identified, then theywould be placed on a black list and denied all future orders from the Initiative’s member companies.

“The past five years have seen an increasing number of businesses joining the Real Estate Green Supply
Chain Initiative. For many, our ‘only buy green’ motto is deeply ingrained in their operating philosophy. Such
responsible actions by Chinese real estate companies are significant both for tackling climate change and preventing and curbing pollution.”– Tian Ming, Member of the Promotion Committee of the Real Estate Green Supply Chain Initiative

By the end of 2021, over 100 enterprises had joined the Initiative, with annual sales exceeding 2 trillion RMB, or
20% of the industry total. The white list had been expanded to encompass a total of 3,874 companies in 13 categories①,
while the green list included 22 companies in 7 categories. In terms of green procurement, between 2019 and the timeof writing, SEE together with CURA jointly made green procurement purchases worth RMB 5.1 billion; this value rose toroughly RMB 10 billion in 2020 and RMB 17 billion in 2021. In addition, the Initiative joined the Aupup Certification Alliance, where it would implement the same white list and green list system. To mark its fifth anniversary, the Initiative also
launched a green supply chain index for real estate businesses and published a ranking of the top 20 companies in theindustry. SEE hoped to extend the Initiative to other industries such as textiles, electronics, and chemical engineering,and had already seen some preliminary success in the first two of these.

0582022 CEIBS ESG White Paper

Blue carbon ecosystems
On June 8, 2021, World Oceans Day, SEE Foundation signed a tripartite agreement with the Third Institute of
Oceanography (at the Ministry of Natural Resources), and the Administration Bureau of the Zhanjiang Mangrove National Nature Reserve, for the transfer of carbon allowances from the Zhanjiang Mangrove Afforestation Project. Over 300
guests from China and overseas attended the launch of this project, which was China’ s first blue carbon sink. Following
the signing ceremony, 32 public bodies and social welfare organizations jointly launched the Blue Carbon Ecosystem
Protection and Restoration Initiative, which called for all sectors of society to research, protect, and restore blue carbon
ecosystems and actively promote mechanisms such as blue carbon trading, which realized the value of ecologicallybeneficial products, in order to help China achieve carbon neutrality by 2060.
At the time of writing, blue carbon trading mainly focused on three blue carbon ecosystems that were certified by
the Intergovernmental Panel on Climate Change, namely mangrove ecosystems, seagrass meadow ecosystems, andsalt marsh ecosystems. These ecosystems perform important ecological functions including fixing carbon, reducing
emissions, maintaining biodiversity, purifying water, providing shelter from wind, and attenuating waves. Researches
had demonstrated that mangrove ecosystems had the greatest blue carbon potential in terms of carbon fixation andstorage, functions which they performed 3–5 times more effectively than tropical rain forests, making them one of themost ecologically diverse ecosystems on earth. Based on these findings, SEE decided to involve itself in a mangrove
carbon sink project.
The project, which was co-initiated by the Third Institute of Oceanography and the Zhanjiang Mangrove Nature
Reserve, developed 380 acres of mangroves planted within the reserve from 2015 to 2019 as a blue carbon sink certified by the Verified Carbon Standard (VCS) and Climate, Community & Biodiversity Standards (CCB), making it the firstsuch project in the world. It was calculated that these mangroves could achieve carbon emission reductions of 160,000
metric tons between 2015 and 2055, while companies could purchase carbon allowances to offset their own emissions.
Any proceeds from this carbon trading were to be reinvested in the project, allowing it to constantly renew its ability toprotect ecological balance and benefit adjacent communities.
By introducing this market-based mechanism, the mangrove carbon sink project helped to improve the quality andstability of mangrove ecosystems, while also tapping their economic, ecological, and social benefits. This provided a
successful model for protecting and restoring the ecology of mangroves in China.

Showing reverence for nature“At this unique juncture between China’ s ‘two centenaries’ 8 , SEE plans to continue exploring green
approaches to development, promoting green transformation in industry, onboarding more non-governmental
partners, and expanding partnerships to build a broader platform that will help deliver carbon peaking by 2030
and carbon neutrality by 2060. Let us embrace change, drive development through innovation, and walk handin hand. I, together with the governance team, call on you to make changes step by step and pursue environmental protection sustainably, moderately, and with great determination, so as to improve the natural environment.”– Sun Lili, 8th President of SEE

On September 29, 2021, SEE Foundation was presented with the 3rd “Capital Charity Award” . During the award
ceremony, Xu Xiaonian, SEE’s incumbent president, stated: “Entrepreneurs at SEE are closely involved in environmental

059

Hands-on Experience of CEIBS Alumni Companies in Carbon Neutrality

protection activities across China and encourage their employees to support environmental causes. I’ ve previously
argued that entrepreneurs should engage in charitable causes for their own good, and out of a sense of responsibility
and concern for society and their country, rather than in response to external pressures, government requests, or athirst for fame9.”
SEE sums up its sustainable development philosophy with the motto “Reverence for nature, sustainable development” . Its successive presidents and more than 900 member companies are committed to promoting these values togain broader influence. By engaging with a wide range of well-known international environmental organizations such as
the UN Climate Change Conference, the UN Environment Assembly, and the UN Climate Action Summit, SEE demonstrated the level of commitment of Chinese social welfare organizations both to China, and to the rest of the world.
Man is part of nature, and “nature’ s inherent balance is the most infallible law on earth.” 10 We hope that more andmore entrepreneurs can join the path of green, low-carbon, and ecologically sound development, and work together topromote harmony between man and nature, and make our planet a better place to live.

References
1 Society of Entrepreneurs and Ecology: Successorship of Presidents. Chinese Philanthropists, Vol.12, 2017
2 Society of Entrepreneurs and Ecology: Successorship of Presidents. Chinese Philanthropists, Vol.12, 2017
3 When “Ant Forest” Meets “One Hundred Million Suosuo: More than Engaging 200 Million Users. ifeng, https://news.ifeng.com/a/20170906/51893513_0.shtm
4 “Ant Forest” Is Beginning to Protect Nipponia Nippon. NetEase News. https://www.163.com/dy/article/EPFIE7470512MPDJ.html
5 “Ant Forest” Being Awarded Champion of the Earth”. Renmin Ribao. http://env.people.com.cn/n1/2019/0920/c1010-31363445.html
http://ww6 Cui Lvping. Hengchang Public Welfare Joins Hands with SEE to Launch the “One Hundred Million Suosuo” Project. Rmzxb. 2022-01-12．
w.rmzxb.com.cn/c/2022-01-12/3026151.shtml
7 Relishing China’s Water Landscapes on World Water Day. How SEE is sharing water resources. Soho.com, 2017-3-27. https://www.sohu.com/a/130589100_682605
8 The “two centenaries” refers to the 100th anniversary of the founding of the CPC and the 100th anniversary of the founding of the People’s Republic of China (PRC), the former
one aims to build a “moderately prosperous society”, while the latter one aims to “fully build a modern socialist country”, eventually achieving the “the great rejuvenation of theChinese nation” through the continuation of “struggle”.
9 SEE Awarded the Third “Capital Charity Prize”. Tencent, 2021-09-29. https://new.qq.com/omn/20210929/20210929A08FBN00.html
10 This is quoted from Tao Te Ching, the anthology of Taoist philosophy in China.

060

Landsea
By Zhu Qiong*

Pioneering Carbon Neutrality
Tian Ming
CEIBS EMBA 2005 Alumnus
Founder and chairman of Landsea Group

Review

Construction-related carbon emissions account for nearly 40% of
China’s total emissions. Given that China wants to achieve carbon
neutrality, the construction industry will prove the ultimate battlefield in its
struggle to achieve this goal. Emission reduction, which was once something optional, will soon become mandatory for real estate developers.
Viewed in this context, Landsea offers considerable value, partly due toits (low-carbon) technologies and innovations, but more importantly
because in addition to creating green buildings, it also operates asustainable business model.

Reducing the energy consumption and carbon emissions of buildings is an important way toachieve China’s “dual carbon” goals of carbon peaking and carbon neutrality. Landsea’s journeyoffers us valuable insights. Firstly, energy conservation and emission reduction can create an uncontested “blue ocean” inside the existing “red ocean”, enabling companies to escape cutthroat competition. Secondly, going green is a step-by-step process, so a short-term, speculative mentality won’t
work. Companies need to set sustainable goals and adapt their operations to gradually ramp up
green capabilities. Thirdly, building a greener business requires support from other supply chain
participants. Companies need to bring all stakeholders on board and establish a mechanism that
motivates upstream and downstream suppliers to continue optimizing their businesses.

Zhao Xiande

Professor of Operations and Supply Chain Management, CEIBS
JD.COM Chair Professor in Operations and Supply Chain Management
Associate Dean (Shenzhen Campus)
Director, CEIBS-ZKH Centre for Innovation in Supply Chains and Services
Co-Director of the Digital Transformation of Enterprises program* Zhu Qiong is a case researcher at the China Europe International Business School Case Center.

Hands-on Experience of CEIBS Alumni Companies in Carbon Neutrality

Introduction

From its very establishment, Landsea chose to pursue a green strategy. It joined the UN Climate Neutral
Network back in 2010, marking an important step toward achieving carbon neutrality in architecture. Later, Landsea
experimented with low emission, green building projects, which included China’s first zero-emission public building,the ZED Pavilion at Shanghai EXPO 2010; the first house in China to receive certification from Germany’s Passive
House Institute (PHI); and the Landsea Green Centre in Shanghai, a demonstration project certified by five international green building certification programs. As of June 2021, Landsea had completed 141 green building projects,of which 51 received 3-star certification under China’s Green Building Evaluation Standard and 21 received international green building certifications. The first three-star green buildings in Shanghai, Nanjing, Hangzhou, Suzhou,
Wuxi, and four other cities were all Landsea-made. After China introduced new national green building standards in
2019, two of the first six projects to receive three-star certification were also from Landsea.

Several of Landsea’s

past green residential projects delivered energy-saving rates of 80% or above, exceeding the 65% national requirement applied at the time. At the time of writing, 70% of all of Landsea’s past projects were for green buildings.

In China’s real estate market, Landsea Group (hereafter referred to as “Landsea”), a company specializing in developing green buildings, consistently stood out from the crowd. Most developers sought to rapidly grow their market shareby churning out cookie-cutter houses sold off-plan to increase capital turnover. Landsea, on the other hand, took time toresearch the local climate and surroundings of each of its projects to create truly bespoke green buildings. As a result of
this unconventional approach, by the end of 2020, Landsea’s annual revenues remained in the tens of billions of yuan,
while many conventional developers were raking in hundreds of billions.
However, such a large revenue gap didn’t trouble Landsea’s founder and chairman Tian Ming who, in the context ofChina’s carbon neutrality drive, anticipated explosive growth for his business in the future.
In 2010, Landsea became the first Chinese property developer to join the Climate Neutral Network①, marking animportant step toward achieving carbon neutrality in buildings. Following that, Landsea adopted a range of emission
reduction technologies to make buildings greener. Its low-emission, green building projects included China’s firstzero-emission public building, the ZED Pavilion at Shanghai EXPO 2010; the first house in China to receive certificationfrom Germany’s Passive House Institute (PHI); and the Landsea Green Centre in Shanghai, a demonstration projectcertified by five international green building certification programs for its ultra-low emission and energy consumption.
As of June 2021, Landsea had built 141 green buildings, of which 51 received 3-star certification under China’s
Green Building Evaluation Standard and 21 received international green building certifications. The first three-star green
buildings in Shanghai, Nanjing, Hangzhou, Suzhou, Wuxi, and four other cities were all Landsea-made. After China
introduced new national green building standards in 2019, two of the first six projects to receive three-star certification
were also from Landsea. Several of Landsea’s previous green residential projects delivered energy-saving rates of 80%
or above, exceeding the 65% national requirement in force at the time. At the time of writing, 70% of all of Landsea’s past
projects were green building projects.
Landsea’s strong growth momentum was the result of 20 years of commitment to a differentiated green strategy andresearch into low-carbon, green building technologies.
① The Climate Neutral Network is an initiative of the United Nations Environment Programme (UNEP) to promote regional, national, and global collaboration to reduce carbon
emissions and address climate change.

062

2022 CEIBS ESG White Paper

SUPPORTING GREEN
DEVELOPMENT
FOR 20 YEARS

1.0 Green living product2006-2010

Exhibit: Landsea
International Block

Expansion

2001

2003

Start up

Hit the groundrunning• Established on
Dec. 24 inNanjing, starting
the first green
year.

2004

• Rapid expansion with 1.0 green living
product launched in core cities of the
Yangtze River Delta including Suzhou,
Wuxi, Changzhou, Hangzhou, andShanghai. Expansion to middle andwestern China to gradually establish agreater presence across the country.

2005
Start the green journey• First traditional
residence project
Landsea Xiyuan was
launched, obtaining
the largest sales
amount in Nanjing in
2003.

2.0 Green living product• Launched first 1.0 green living
product Landsea International Block,
whose high comfort living concept of“constant temperature, humidity, andoxygen” was recognized,
establishing a competitive advantage
of green differentiation.

• Focus on
differentiated green
development
strategy.

Exhibit: Zhongshan GreenCounty of Landsea

2012

2011

Deep green development

Green upgrade• Proposed Deep Green Strategy• Established Green Fir Capital,
focusing on city upgrading area,
repositioning, rebuilding, operating,and managing existing buildings.

• Launched 2.0 green living product• Concept product Padova Residence specifies the
new R&D direction of building more comfortable,
healthy, people-oriented, and green homes.
• Established the Landsea Taihu Lake Green
Building R&D Base, which focuses onenergy-saving, healthy, and pollution-free green
building and earned the National Green Building
R&D Demonstration Base award.

Household-stylegreen living product

3.0 Green living product

Exhibit: Landsea
Linglong Island

Exhibit: Landsea
Xihua Mansion

2013

2014

2015

2017

Personalized exploration

First passive house

Further green upgrade

Mutenka house• Acquired a Hong Kong listedcompany (00106.HK) andsuccessfully listed.
• Landsea Homes enter the U.S.
market.

• Built Bruck Passive House, thefirst passive house built forareas where it is hot in summer
and cold in winter according toGerman passive house standard,
and awarded China's First
Platinum Certificate issued by
DGNB.

• Launched 3.0 green living productand proposed passive building
design concept including efficient
filtration of PM2.5 and international
formaldehyde control standard.
Landsea Screen was first used tovisualize indoor air environment.

• Cooperated with Japanto build Mutenka
house, which is closest
to nature.

®

• Launched firsthousehold-style urban
residence, Landsea
Linglong Island, realizingslight adjustment of
indoor environment asneeded to meet
personalized demand.

New-generation
Free Ark
Exhibit: Landsea
Dezhou Shang County

2020
New journey

2019
Authentication

City upgrading• Landsea passive house in
Northern China was built
according to cold weather andlocal residents' living habits andwas the first project to beawarded PHIPlus.

• Launched first urban residence
upgrading project Landsea New
Mansion, which reconstructed
the old buildings into healthierand more comfortable ones.

-• Launched new-generation residential product Free Ark, independently
developed by Landsea and owning complete intellectual property rights
including over 100 patents such as invention patent, utility model patent,
and copyright, and symbolizing Landsea's progress on the road topromote projects as required.

Landsea’s strategic roadmap
063

2018

Hands-on Experience of CEIBS Alumni Companies in Carbon Neutrality

Pursuing a green strategy
Landsea was founded in Nanjing in 2001. In 2004, the company pivoted towards green technologies in a bid to set
itself apart from competitors. This positioning was informed in part by Tian’s vision of establishing a time-honored brandthat valued nature, people, sunshine, and green living. At the same time, as a latecomer to the real estate business, Landsea had no choice but to adapt strategically to survive in a cutthroat market, which was teeming with “tigers and wolves”,
as Tian once described it.

Products
While Landsea was working on its second real estate project, it found itself encircled by these “tigers and wolves”.
“The big players—Vanke, Wanda, and China Overseas Land & Investment—are the ‘lions and tigers’ in this game. Their
brand awareness, capital, and power are at levels beyond our reach. Meanwhile, the well-connected local developers are‘hyenas’ who can acquire land at low prices, giving them a cost advantage that just isn’t available to us,” recalled Tian.
Therefore, he decided to adopt a different approach, and after researching the Chinese and overseas markets, he determined to focus on green buildings, which were still a novel concept in China at the time. Green buildings, according tohim, were buildings that minimized resource and energy consumption throughout their life cycle, from construction,utilization, operation, to demolition. Their competitive edge was derived from providing a better living experience by countering negative climatic or environmental conditions. For example, in the Yangtze River Delta, the weather was often damp
and cold in winter but suffocatingly hot in summer. Moreover, the East Asian rainy season could be extremely humid.
However, with green buildings, it was possible to keep temperature, humidity, and oxygen levels within set limits all year
round, providing a living environment that was healthier and more comfortable.
When Landsea embarked on its green building journey, Europe boasted the world’s most advanced technologies at
the time for delivering constant temperature, humidity, and oxygen levels in buildings. However, instead of importingthese mature core technologies from Europe, Landsea decided that it would develop its own technologies in-house, withthe guidance of European experts. As a consequence, Landsea’s first green residential project took two and a half years
to complete, much longer than a typical cycle. “It was too costly to import all of the equipment. Consumers couldn’t afford
it. Moreover, developing these technologies in-house allowed us to enhance our R&D capabilities for green buildings,”
said Tian, “this also provided an opportunity to adapt products to local needs in China to further reduce energy consumption. For example, we decided to use more energy-efficient ground source heat pumps as a heating source.”
From 2004 to 2020, Landsea Green Properties launched green housing projects in over 30 first and second-tier cities
and key economic regions across China while upgrading and iterating its products. To offer a personalized living experience, it also developed green apartments, condos, and a complex nicknamed “Green Ark” in addition to its original
products which delivered centralized energy control.
The first three generations of Landsea’s products all used large-scale, centralized systems that served an entire
residential compound, including ground source heat pump stations, radiant ceiling heating and cooling systems, and air
purification systems. However, these centralized systems didn’t allow for customization. For example, if a temperature
control system was set to 24 degrees, the actual temperature experienced by residents of the same community would
vary depending on the location, height, and aspect of their homes. Some might find the temperature too high and would
need to leave their windows open for fresh air, while others might find it too cold. Therefore, to cater to individual needs,
Landsea began researching distributed systems so that they could provide individual air purification, radiant ceiling, andenergy supply systems for each home. In this way, residents could adjust systems to suit their own preferences. Landsea
began to roll out its distributed system technology in 2013.
In addition, Landsea also built two “Padova Residences” that featured cutting-edge green technologies. Located in
the Nanjing Zhongshan Green County project, these buildings incorporated glass louvers into the balcony design, which064

2022 CEIBS ESG White Paper

allowed for solar heating in winter and natural air cooling on hot summer days. Homes were also supplied with hot wateraround the clock. These two experimental buildings became Landsea’s most energy-efficient project at the time. However, due to their high construction costs, these “buildings of the future” ultimately didn’t scale.
In 2020, Landsea launched Free Ark, a green residential complex supported by more than 100 patented Landsea
technologies. Free Ark featured a hybrid energy control system that combined the advantages of centralized and distributed approaches. Compared with a fully distributed system, the hybrid model improved energy efficiency by 10–20%.
However, unlike centralized systems, each home also had a sub-system that allowed residents to control their own
settings, including pre-set modes such as “at home”, “away”, or “on vacation”. Users could use the touch-screen control
panel in their home, or adjust settings remotely through a smartphone app.
Landsea’s green properties commanded a 20–30% premium over regular homes in the same neighborhood. However, these higher prices didn’t drive consumers away. For example, in Nanjing’s Hexi District, three properties from different
developers hit the market at around the same time: Wanda began its sales first, and Vanke’s project followed within ten
days, while Landsea was the last to open. The opening prices for these three companies’ developments were RMB 5,100,
5,200, and 8,200 per square meter, respectively. On their launch days, Wanda sold 17 units, Vanke 22, and Landsea 79.
The new Free Ark development commanded an even higher premium. Meanwhile, properties at “The Mansion”, a Landsea project in Chengdu that emulated the original Free Ark model, sold at RMB 27,000 per square meter, while theaverage price of neighboring properties was 20,000.
The price of Landsea properties also held firm in the second-hand market. For example, at the time of writing,second-hand homes at the Suzhou Landsea Nanmen Green County development could fetch RMB 57,000 per square
meter, almost 70% higher than the regional average.
Landsea’s initial target customers were teachers, professors, and overseas returnees, who, according to Landsea,
appreciated the quality of life and health benefits offered by green buildings, and were willing and able to pay a premiumfor these things.
In 2009, as the government introduced property controls to rein in rising housing prices, the demand for high-end
residential properties in China plateaued. In response, Landsea started to market its products to young first-time homebuyers. It developed cost-effective homes equipped with air filtration systems, thermal insulation, and energy-saving
airtight doors and windows to attract young homebuyers.

Building operations
Landsea’s green strategy extended beyond the design and construction stages, and continued to be applied oncebuildings were completed and entered into use. To ensure continued low emissions once buildings were operational,
Landsea made plans for green operations early in the product design phase.
Landsea designers would carry out a feasibility study of a project’s floor area ratio, landscaping ratio, building density, and product specification based on its location, surroundings, geological conditions, climate, and local culture. They
would then use a computer model to calculate the wind speed, temperature, sunlight, and noise levels for the site, basedon which they would determine the layout of facilities, building orientation, and landscaping plan to optimize both theindoor and outdoor environment. For example, it was important that homes were heated by the sun during the winter,shaded by trees, and cooled by a natural breeze in the summer; similarly, outdoor activity areas needed to be shelteredfrom strong winter gales but equally benefit from a cool breeze in the summer. According to Landsea, natural ventilation
alone could cut energy consumption by about 10%, while captured solar radiation could save a further 5%.
To fully harness the benefits of green buildings once operational, in 2005, Landsea founded Landsea Green Life, aproperty management company. The Green Life team was actively involved in the planning, design, and construction of065

Hands-on Experience of CEIBS Alumni Companies in Carbon Neutrality

Landsea’s green buildings, giving them in-depth knowledge of the technologies and products involved, and ensuring thatthey could effectively operate and maintain facilities and systems.
In addition, Landsea Green Life also reduced the carbon emissions of the communities it managed throughrecycling. Waste was sorted and re-used: worn-out tires could be transformed into shelves for potted plants, while foodwaste and other bio waste were used as organic fertilizer.
In shared indoor spaces and common areas, Green Life used smart controllers to adjust lighting, which reduced
energy consumption. It also used AI technology to manage elevators so that they always took the most efficient route, andshut down idle facilities to conserve energy.

The supply chain
From its very first green building project, Landsea sought to develop a green supply chain. It required suppliers to
not only deliver products that met green standards but also practice environmental compliance.
Starting in 2016, Landsea began using the “Blue Map” website published by the Institute of Public and Environmental Affairs (IPE), a non-profit organization, to check the environmental compliance records of suppliers. It also included
environmental compliance clauses in its tendering documents. In the event that environmental violations occurred, Landsea’s suppliers were required to make disclosures on the IPE website and take corrective measures; suppliers who failed
to rectify violations in a timely manner were disqualified.
Landsea’s suppliers not only included manufacturers of environmentally friendly equipment (such as HVAC equipment, canopies and blinds, and ground source heat pumps) that had grown alongside the company but also world-renowned brands such as BASF, a leading supplier of high-tech, environmentally-friendly materials. Moreover, as Landsea’s
projects gained in popularity, its suppliers were also rewarded. Some were able to draw on endorsements by Landsea to
win new contracts. In the case of BASF, its partnership with Landsea to build passive homes provided an opportunity for
it to bring its innovative thermal insulation materials to the Chinese market.
Landsea stood by sustainable forest operations and responsible trade in forest products. It published a Wood
Product Procurement Commitment, in which it undertook not to source wood from protected forests, not to use CITES-listed tree species unless suppliers could obtain a permit from an endangered species management authority, and not topurchase wood from areas with indiscriminate logging or disputed forest rights, nor from plantation forests that wereconverted from natural forests. In 2020, 100% of Landsea’s timber products were traceable.
Thanks to its continued efforts in establishing and operating a green supply chain, Landsea ranked first amongdevelopers on the Corporate Information Transparency Index (CITI) in China’s real estate sector for five consecutive
years. CITI, developed jointly by IPE and the Natural Resources Defense Council (NRDC) in 2013, was the world’s firstquantitative system to assess the environmental management performance of brands with supply chains in China.
Landsea understood that the entire sector needed to work in unison to build a greener supply chain. Therefore, itcalled on its peers to work together. In June 2016, Landsea launched the China Real Estate Industry Green Supply Chain
Initiative (“Green Chain Initiative”) together with SEE Conservation, the China Urban Realty Association (CURA), China
Real Estate Chamber of Commerce (CRECC), and Vanke. The initiative urged developers to procure only from green
suppliers, which forced upstream suppliers to comply with environmental protection laws, conserve energy, and reduce
emissions.
By 2021, the number of Green Chain Initiative members from the real estate and related sectors grew from 48 to 100,
the number of whitelisted building material categories that met the industry’s environmental standards grew from 4 to 13,
and the number of whitelisted suppliers increased from 159 to 3,874. Whitelisted suppliers were eligible to receive large
bulk orders that were placed jointly by Green Chain Initiative members.

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Green building technologies
As the cornerstone of Landsea’s green strategy, the company’s green building technologies were the accumulationof its 18 years of in-house R&D.
From 2004 until the time of writing, Landsea invested more than RMB 100 million annually in technology R&D. Landsea’s vice president Xie Yuanjian joined the company in March 2004 as CTO, making him the first person to assume thisposition in China’s real estate industry.
Xie founded Landsea’s R&D department and led the team that developed the technologies used in the company’s
very first green building project. In 2008, Landsea leveraged its strong R&D capabilities to launch Shanghai Landsea
Building Technology Company, a subsidiary specialized in technology. In 2013, this subsidiary was transformed into astandalone entity named Shanghai Landleaf Building Technology Company (Landleaf). Landleaf not only provided
services to Landsea, but also offered technological support to external clients. It became one of the three pillars of Landsea’s “deep green” strategy.②
In addition, in September 2010, Landsea founded Landsea Europe R&D GmbH, which was its Europe-based
technology arm. Landsea Europe connected the local project management team with over 20 European companies andfacilitated cooperation in green building projects, offering project management, technological consulting, contracted
construction, and project development services to Chinese and German companies.
In 2011, Landsea invested RMB 220 million in a 40,000-sqm green building R&D base near Taihu Lake in Huzhou,
Zhejiang Province. The R&D base would focus on research into integrated green building design, smart and efficientenergy consumption, environmental protection, renewable energy development and utilization, and testing of new
products.
As of mid-2021, Landleaf had obtained 271 technological patents (including 62 invention patents).
“Real estate is not a technology-oriented industry. The technologies used in green buildings are mostly generic,well-established technologies. The key is to find a way to identify and integrate existing technologies to provide a healthy,
comfortable living environment with a pleasant temperature, humidity, and ventilation while saving energy and resources.
We’ve spent years researching this subject, which constitutes our technology moat against the competition,” said Xie.

An asset-light business model
As Landsea grew its expertise in green building R&D, it also developed the capability to provide technical services
to external clients. This not only diversified Landsea’s revenue streams, but also enabled it to move from an asset-heavy
to an asset-light business model.
When Landsea started developing green homes, like many other developers, it had to go through the usual
asset-heavy process of raising capital, acquiring land, construction, and sales. However, around 2010, Tian increasingly
realized that this model would prevent the company from scaling up. After listing in Hong Kong through a reverse IPO in
2013, there was growing investor pressure on Landsea Green Properties to grow the business. Moreover, China’s realestate market was already past its peak. Within this context, Tian determined: “Quality (of operations) would become themost important factor in the real estate industry, and the market would be increasingly driven by capital. If Landsea
continued with its asset-heavy model and focused its efforts on just a few projects, one problematic project could endan② In August 2012, Landsea launched its Deep Green strategy, extending its business scope from green real estate development to green technology services, green elderly care,and green financial services. Green technology services were delivered mainly through Greenleaf. For green elderly care, Landsea leased apartments from its existing projects,
refitted them, and used them to provide an age-friendly living environment for senior citizens. Green financial services were delivered mainly by Green Fir. (Please refer to theGreen Fir Investment chapter for more information.)

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Hands-on Experience of CEIBS Alumni Companies in Carbon Neutrality

ger the entire company. However, if Landsea leveraged its technologies, brand, and capital to participate in more
projects as a stakeholder, it could greatly diversify its portfolio and hedge risks.”
It was a combination of this focus on scaling up, Tian’s outlook on the industry’s future, and Landsea’s formidable
technological capabilities that led the company to pivot toward an asset-light model in late 2014.
This transformation was three-pronged. First, Landsea established partnerships to work on new projects, introduced
new developers or financial backers to invest in Landsea’s existing projects, or invested in projects spearheaded by otherdevelopers. In principle, Landsea would no longer develop any projects on its own. Second, Landsea used its technological expertise to acquire the management rights for projects in which it was a minor shareholder, which earned it returns
on capital investment plus management fees. Thirdly, Landsea developed asset-light services, for example, contracted
construction, customized design, and development services.

A new approach for developing properties
In July 2014, Landsea experimented with this new, asset-light model under which it managed projects while holding
a minority stake. Nanjing Langming, a Landsea subsidiary, acquired a piece of land in Suzhou in partnership with theSuzhou Science and Technology Park Cultural and Tourism Company. Landsea held a 20% stake in the project, and was
responsible for its development and management. In addition to the share of profits it was entitled to as a shareholder, italso charged development management fees, product integration fees, and brand loyalties as the project manager. In
addition, because Landsea’s properties were high-tech, the property management work was naturally awarded to Landsea’s property management company.
The Suzhou project revealed to Landsea the value and appeal of its green building brand, technologies, andmanagement skills. This strengthened the company’s conviction in the merits of its new asset-light business model.
For subsequent projects, in addition to partnering with other developers, Landsea also sought collaboration withcompanies or institutes beyond the real estate sector. In 2015, Landsea typically held a 70% stake in joint projects it wasinvolved in. However, from 2017 onward, that ratio dropped to just 30% as a result of Landsea’s asset-light transformation.
Tian wanted to reduce Landsea’s equity stake in projects, while still retaining the right to manage them.

Breaking into the renovation business
The role of Green Fir Investment
Later, Landsea expanded its asset-light model to include the renewal and renovation of existing developments.
Green Fir Investment, the real estate finance platform under Landsea, became an important pathway to revamp existing
housing projects.
Founded in 2012, Green Fir was initially a financial service vehicle for Landsea’s green building projects. In 2015, as
Landsea was transitioning to an asset-light model, Green Fir diversified its services to cover financing, investment, andasset management.
In 2016, Green Fir established an urban renovation investment vehicle together with CITIC Capital, Ping An Real
Estate, and Zhongrong International Trust to support the renovation and transformation of existing property developments
in first-tier and leading second-tier cities. Green Fir would first identify old buildings that were undervalued, energy-intensive, and poorly operated, draw on its expertise to redesign, renovate, and manage these buildings, and finally exit
investments.
Through this model, Green Fir brought Landsea new business opportunities in the renovation market, enabling Landsea to put its technologies to use to make cities better and greener, while also fuelling its own business growth. By
mid-2021, it had invested in over 20 urban renewal projects, including apartment and residential buildings, long-term
rental apartments, offices, and apartments for the elderly. During this period, Green Fir managed 12 equity funds and six

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co-investment vehicles. The size of the equity funds under its management exceeded RMB 12 billion.
Launch of the Landsea Bespoke brand
In February 2021, Landsea launched its high-end brand Landsea Bespoke, which offered premium, customized
interior design services to transform clients’ homes into low-emissions, healthy, and comfortable eco-homes.
According to Landsea, this service included revamping doors and windows, installing equipment and appliances,
fitting out interiors, and ongoing operation and maintenance. “The installation of our products will turn the home into asmart living environment. Our smart systems and equipment automatically adjust parameters according to the preferences of occupants and real-time weather conditions.”
Through an asset-light model, Landsea grew its business, tapped more opportunities, and branched out to offer
services including project management, investment and financing, engineering and construction, marketing, and069

Hands-on Experience of CEIBS Alumni Companies in Carbon Neutrality

customized interior design. This expansion into new areas also diversified Landsea’s revenue streams.
During the first half of 2021, Landsea’s operating revenue was around RMB 3.54 billion, a 24% year-on-yearincrease. The net profit of the core business increased by 30% to RMB 130 million. Gross profit increased by 58% to RMB
800 million. Signed sales contracts had a total value of around RMB 23.4 billion, up 81.6% from the previous year, of
which the added construction capacity available for sales grew at a three-year compound rate of 220%, and the contracted construction business accounted for 46% of Landsea’s real estate business in China, a year-on-year increase of 29%.
Although Landsea was still not in the same league as China’s biggest property developers, its status as a pioneer ofcarbon-neutral buildings, as well as its strong brand, technologies, and products would give it a compelling advantage
as China stepped up its efforts to become carbon neutral. Moreover, Landsea’s relationship with other developers was
also in the process of evolving from competition to cooperation.

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37 Interactive Entertainment
By Yang Wei and
Cao Zhijing*

A Gaming Company with a
Sustainable Development Strategy
Zeng Kaitian
CEIBS EMBA 2013 Alumnus
Cofounder and Vice President of 37 Interactive Entertainment“37 Interactive Entertainment’s mission is to become a leading
player in the cultural and entertainment industry and pursue a sustainable development strategy that will help us make a contribution towards
China’s targets of peaking carbon emissions, achieving carbon neutrality, and delivering common prosperity. In order to be a sustainable company, we believe that we need to remain committed to our founding
purpose and live up to our responsibilities.”

Review“It is the shared responsibility of all companies to make a contribution to reducing emissions andachieving carbon neutrality. As this case study demonstrates, low-carbon concepts can be integrated
into corporate strategies at various levels—even for industries and companies that are not particularly
energy or emissions-intensive—and enable them to achieve a sustainable balance between corporate interests and social responsibilities. At the same time, policy support is also needed to engage
more companies in this drive and raise awareness of sustainable development and the transition to a
low-carbon economy.”

Yang Wei

Assistant Professor in Management, CEIBS* Cao Zhijing is a case researcher at the China Europe International Business School Case Center.

Hands-on Experience of CEIBS Alumni Companies in Carbon Neutrality

Introduction

It was the end of 2021, and Zeng Kaitian, cofounder and Vice President of 37 Interactive Entertainment, had
just finished another debriefing on the construction plan for the company’s new global headquarters. In light of thecompany’s vision to improve quality of life and provide a better working environment, and in response to the government’s targets of peaking carbon emissions and achieving carbon neutrality, the company’s executives decided toconstruct the headquarters in accordance with China’s most stringent environmental building standards (3-star
rated building).
Over a period of several years, 37 Interactive Entertainment developed a range of measures to reduce its
carbon emissions. These included establishing an industry-leading method for calculating the company’s carbon
footprint, committing to become carbon neutral, purchasing renewable energy, and developing games with environmental themes. The company’s executives, including Zeng Kaitian, were committed to finding more ways to ensurethat the company lived up to its environmental responsibilities, especially by wielding its advantages as a gaming
company to influence society. In addition, Zeng also held discussions with the board’s Sustainable Development
Working Group on integrating social responsibilities into the company’s strategy and day-to-day operations.

About 37 Interactive Entertainment
37 Interactive Entertainment was established in 2011, and went public on the Shenzhen Stock Exchange in 2015 via
a backdoor listing.
The company’s marketing and R&D headquarters were located in Guangzhou. By 2021, the company’s main linesof business were mobile and browser games. In addition to its in-house studio THREE SEVEN GAMES, the company also
operated the publishing platforms 37 Online, 37 Mobile, and 37GAMES (for overseas users), as well as MiaoCode, an
online programming education platform for children aged 4 to 12.
Following the launch of its first products, 37 Interactive Entertainment became a highly influential brand. Its twobrowser games, Empire of Heros and Archangel’s Sword, which were adapted from classic mobile games, helped it toaccumulate a vast user base. In 2016, in light of the increasing popularity of mobile gaming, the company developed
various games for mobile devices, including big hits such as the Song of the Cloud City and Soul Land: Duel of Soul
Masters.
According to its financial statements from 2020, 37 Interactive Entertainment reported an operating revenue of 14.4
billion RMB, a YoY increase of 8.86%. Its mobile game business generated 13.3 billion RMB in revenue (92.33% of total
revenue), a YoY increase of 10.9%, while revenue from overseas markets increased by 104.34% to reach 2.14 billion
RMB, or 14.88% of total revenue. The net profit attributable to shareholders was 2.76 billion RMB, a YoY increase of
30.56%.

Corporate social responsibility: become a leading player in the cultural and entertainment industry and pursue a sustainable development strategy
The founders of 37 Interactive Entertainment, including Zeng Kaitian, defined the company’s vision as “become aleading player in the cultural and entertainment industry and pursue a sustainable development strategy”. This wasformally incorporated into the company’s culture in 2020—several of the founders were keen marathon runners, andhoped to apply the “marathon” mindset to help the company create a more sustainable future. They also believed that072

2022 CEIBS ESG White Paper

integrity and innovation were the two central pillars of the company’s social responsibilities. As Zeng explained “Integrity
means that we need to ensure our content is compliant with regulatory requirements, particularly with regard to theprotection of minors, while innovation means that we need to fulfill our social responsibilities in an innovative way, i.e. by
wielding our advantage as a game company to provide educative and innovative content”1.
Like many companies, the first stages of the CSR strategy implemented by 37 Interactive Entertainment consisted ofcharity work, with a particular focus on poverty alleviation—a national strategic priority. For this purpose, in 2014 thecompany established the Guangdong Youxin Foundation, with Li Weiwei, the company’s President, as the Chairperson
and Zeng Kaitian, the company’s Vice President, as the Director. In the seven years after the Foundation’s establishment,
it provided funding for over 2000 senior high school students in remote mountainous areas. In 2018, the scope of thecompany’s CSR strategy was expanded to include other issues, such as the protection of traditional culture and thedevelopment of tools for managing public services and government affairs. Zeng explained the reasoning behind thecompany’s strategy: “Many people associate social responsibility with charity work, but that’s not the whole picture. Forus, living up to our social responsibilities is an integral part of our overall corporate strategy.”
In 2013, 37 Interactive Entertainment began to prepare for listing on the stock market, prompting the company toestablish a CSR governance strategy. This was followed by changes in China’s regulatory environment and expectations
from international investors, which impelled the company to enhance CSR performance. As Zeng explained, “External
supervisory and regulatory pressure encouraged us to go the extra mile. If you want to develop a successful brand,
become an industry leader, and expand overseas, you need to do much more than just sell good products and be profitable—as well as making money, you also have to demonstrate that you’re socially responsible and willing to engage withsociety. Our CSR strategy sends a signal to investors that we have a long-term commitment to sustainable development.”
The company also launched its products in overseas markets, targeting consumer groups who valued CSR performance. By 2021, 37GAMES, the company’s overseas subsidiary, had become one of the top ten platforms for new gamereleases with a monthly operating revenue of 600 million RMB, covering over 200 countries and regions. As it gained
influence in overseas markets, the company began to prioritize feedback from European and American users in its branding strategy. Compared with domestic users, overseas users attached more importance to companies’ values, businessphilosophy and CSR performance. As a result, the management team decided to adopt an international positioning
strategy and benchmark the company’s CSR system against international standards. “We want to emulate great companies such as Microsoft and Apple in brand building and make a positive contribution to society”, said Ye Guoying, Vice
President of Branding at 37 Interactive Entertainment.

Organizational and management reform
Shortly after going public, the company began to overhaul its organizational structure in order to improve CSR governance. Four special committees were established under the Board, namely the Audit Committee, Nomination Committee,
Salary and Assessment Committee, and Strategy Committee, three of which were directly charged with CSR governance:
the Audit Committee was responsible for reviewing the implementation of anti-fraud and other business ethics systems;
the Salary and Assessment Committee was responsible for evaluating sustainability performance and determining the
remuneration of management-level staff; and the Strategy Committee was responsible for assessing CSR-related risks
and opportunities and formulating the company's sustainable development policy. In 2020, 37 Interactive Entertainment
proposed 8 CSR objectives, including strengthening governance mechanisms, improving compliance, implementing
laws and regulations, managing data security, and nurturing talent.
The same year, the company established the Sustainable Development Management Committee (later renamed theSustainable Development Working Group) under oversight of the Strategy Committee. Its role was to carry out CSR risk
assessments and coordinate with the company's various departments to ensure that they each fulfilled their respective073

Hands-on Experience of CEIBS Alumni Companies in Carbon Neutrality

responsibilities. Sustainable development was also factored into the development of the company’s core businesses.
According to Ye, many game products were assessed by the Working Group at the time of their inception to ensurecompliance with the company’s CSR strategy. “We act as a bridge between the various departments and the Board toensure that we develop in line with the company’s values.”

CSR and carbon neutrality practices in the gaming industry
Improving living standards led to an increase in demand for cultural and recreational activities. This was evident fromthe increasing popularity of mobile games, which offered numerous advantages over conventional games—they supported a wide range of devices, could be played while on the go, and were generally easy to play. According to statistics from2021, the total number of game players was approaching 3 billion globally—approximately 40% of the world’s population2. As a result of this trend, game companies were under pressure to develop better products and live up to their social
responsibilities.
Starting in 2018, the Chinese government issued a series of regulations and established a number of self-regulatoryorganizations to oversee the successful development of the gaming industry. Companies started to place more emphasison launching better products, making a positive contribution to society, and promoting technological empowerment. They
also enacted a range of measures on data security, addiction prevention, and child protection, and actively engaged incharitable causes. The 2021 CSR Report on Gaming Companies released by People.cn evaluated the CSR performanceof gaming companies from four different perspectives: the economy, society, industry, and culture and technology3.

Efforts to achieve carbon neutrality in the gaming industry
Against the backdrop of a rapidly changing climate and an increase in extreme weather events, reducing emissions
became an issue of common concern across the international community. In response, countries launched a range ofplans and initiatives. China, for its part, set itself the target of achieving peak carbon emissions by 2030 and carbon
neutrality by 2060.
According to experts, carbon emissions in the gaming industry were primarily caused by hardware manufacturing
and replacement, streaming media, and data centers. Compared with other industries, the gaming industry was lessenergy-intensive and generated fewer emissions, and was therefore not a focus of government regulation. However, its
rapid development led to an increase in its contribution to total energy consumption. Achieving peak carbon emissions
and carbon neutrality required cross-sector collaboration, forcing gaming companies to live up to their environmental
responsibilities and integrate environmental protection into their strategic planning.
In September 2019, the UN Environment Program launched the “Playing for the Planet Alliance” at the UN Climate
Change Conference, leading many internationally renowned game companies to respond with their own environmental
action plans. For example, Microsoft committed to manufacture 825,000 carbon-neutral Xbox consoles and set up a $1
billion Climate Innovation Fund to accelerate the development of carbon reduction, capture, and removal technologies4.

Race to zero
In 2018, hundreds of companies, including 37 Interactive Entertainment, were included in the MSCI Emerging
Markets Index. In the same year, MSCI launched its ESG Ratings service, and 37 Interactive Entertainment was given a
B rating—the industry average. This provided the company with a key impetus for making further progress. Althoughcarbon emissions were not a significant factor in the ESG rating for tech companies, the fact that carbon emissions wereconsidered at all encouraged 37 Interactive Entertainment to attach greater priority to its carbon footprint.

0742022 CEIBS ESG White Paper

In the same year, the company invited SGS, an internationally renowned certification agency, to help it obtain dataon its carbon emissions. The company then used this data as a benchmark for its carbon neutrality planning, with the aimof realizing carbon neutrality by 2025. In addition, it also set an interim target of reducing carbon emissions by 15% by2022, with 2019 as the base year. Zhang Junwei, Social Responsibility Director of 37 Interactive Entertainment, explained
the reasoning behind the company’s decision. “The fact that international agencies provide these standards indicatesthat carbon neutrality is the trend for the industry’s future. Based on our calculations, the cost of reducing emissions would
not place a significant burden on the company’s operations, so we set ourselves the ambitious goal of realizing carbon
neutrality by 2025.”
The company’s decision to go carbon neutral predated the peak emissions and carbon neutral targets set by thecentral government. “We set these goals not as a response to policy mandates, but rather as part of our own strategy.”
Nevertheless, based on the company’s survey of relevant stakeholders in 2020, the government’s emissions-reduction
targets significantly increased external pressure on the company to act on environmental issues, including conserving
energy, reducing CO2 emissions, and using renewable resources.
In order to ensure effective governance of emissions reduction targets, the Strategic Committee under the Board was
responsible for setting goals and carrying out assessments, reviews, approvals, and oversight. The Sustainable Development Working Group was responsible for carbon accounting and reporting, while the Personnel and Administration center
was responsible for implementing measures to reduce energy consumption.

Options for reducing emissions
At the time of writing, game companies were not under great pressure from policymakers to reduce emissions. For
37 Interactive Entertainment, which focused on digital games and did not manufacture games consoles, there was notmuch scope for reducing direct emissions. However, in order to support the government’s targets, the company still
adopted a range of measures to save energy and reduce emissions in its daily operations. These included more stringent
oversight of daily energy consumption, such as by controlling the use of air conditioners and other energy-intensive appliances, and switching off unnecessary power supplies. It also continued to improve the management of resources, suchas by purchasing drinking water filters and promoting the use of digital tools to reduce plastic and paper waste andcarbon emissions.
Given the limited scope for reducing direct emissions, 37 Interactive Entertainment chose to offset its emissions bypurchasing renewable energy on the energy trading market. “Currently, there are three main market channels for companies to join the green transformation, namely Green Electricity Certificates (GEC), green electricity, and emissions
trading.”
China’s GEC system was established in 2017, under which renewable energy companies were issued uniquely
coded GECs for each 1,000 kWh of green electricity they supplied to the grid. GECs were sold by approved generators—
primarily onshore wind and solar power companies—to users who could purchase them in recognition of the environmental value of the green electricity for which they were issued. Revenues from GEC sales were directly deposited into theaccounts of generating companies, which were then no longer subsidized for the equivalent amounts of electricity5. By
the end of November 2021, a total of 30.97 million GECs had been issued for subsidized green power projects. Of these,
78,000 had been sold, at an average price of 145 RMB for wind power and 660 RMB for solar power. The number of GECs
for non-subsidized projects reached 5.76 million, of which 45,550 had been sold, at prices ranging from 30 to 50 RMB6.
The green electricity trading system, on the other hand, offered a more direct proof of green electricity consumption.
In September 2021, China formally launched a pilot scheme for green electricity trading, which allowed companies topurchase green electricity directly from generating companies, or from power grid companies that purchased green
electricity from generating companies under guaranteed purchase schemes. Provincial-level grid companies and power
consuming entities could purchase through centralized bidding or listing mechanisms. The price of green electricity

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Hands-on Experience of CEIBS Alumni Companies in Carbon Neutrality

included both its economic cost and the environmental value it generated, making it 5-10% more expensive than thebenchmark price. Additional profits from transactions were retained by the generating companies7.
In terms of emissions trading, trial schemes were successively rolled out in Shenzhen, Shanghai, and Beijing from2013. In 2017, China launched preparations for the national emissions trading system, and in July 2021, the market was
officially opened, enabling the rights and responsibilities associated with carbon emissions to be explicitly measured andcommoditized. According to forecasts by researchers at the time of writing, the price of CO2 emissions was expected togradually increase from 49 RMB/metric ton in 2021 to 71 RMB/ metric ton in 2025 and 93 RMB/ metric ton at the end of
the decade8. By December 31, 2021, the emissions trading system in China had been in operation for 114 trading days,
during which time 179 million metric tons of emission quotas were traded, amounting to a total transaction value of 7.67
billion RMB. The closing price on that day was 54.22 RMB/ metric ton, 13% higher than the opening price on July 16th, thefirst day of trading9.
The coal power industry was one of the first sectors to be included in the emissions trading system. Other energy-intensive industries, such as steel, cement, chemical engineering, and metallurgy were also subjected to controls on totalenergy consumption and energy intensity10. In 2019, 37 Interactive Entertainment released its first carbon accounting
report, which put the company’s greenhouse gas emissions for the reporting year at 2830.51 metric tons of CO2 equivalent, over 95% of which were indirect emissions from purchased electricity.
Given that the company was not energy or emissions-intensive, GEC and green electricity trading were the mostfeasible ways for it to reduce carbon emissions. As Zhang Junwei explained, “Currently, the cost of direct emissions
trading is still high. After calculating the cost, we believe that GEC and green electricity trading would be more feasible.”
However, as the company had to share the same office building with other companies, it was not able to open its own
account for purchasing green electricity. Supported by the Beijing Office of the WWF (World Wide Fund for Nature), thecompany consulted with the State Grid and finally chose GEC trading to meet its emissions reduction commitments. From2019 to 2020, the company purchased 3 million kWh of electricity in the form of International Renewable Energy Certificates (I-RECs) via the China Emissions Exchange to support green power projects such as the Qinhuangdao Datan Wind
Farm and the Chaohu Guanhu Wind Farm.
In addition to participating in market-based mechanisms, 37 Interactive Entertainment also adopted low-emissions
and eco-friendly designs for its new global headquarters. According to statistics at the time of writing, construction
accounted for nearly 40% of the world’s total carbon emissions, with China’s construction sector—the world’s largest—
accounting for 20% of the world’s emissions11. Developing green buildings was therefore of great importance to China’stransition to a low-carbon economy. “The global HQ building that is currently under construction is benchmarked against
the 3 Stars Green Building Standards and has incorporated low-emissions designs in its elevators, air conditioning,lighting, and greening systems, creating a new low-carbon and eco-friendly landmark”, said Ye. He also noted that theinauguration of the HQ building would allow the company to have its own account for purchasing green electricity.

Emissions reduction performance
37 Interactive Entertainment was the first company in the industry to voluntarily disclose its carbon emissions to the
Carbon Disclosure Project (CDP). The project identified three categories of greenhouse gas emissions—Scope 1, Scope2, and Scope 3 emissions. As the company did not manufacture any physical products, its direct (Scope 1) emissions
were primarily generated by fire extinguishers, fuel for business vehicles, and refrigerating facilities. Scope 2 (indirect)
emissions were mainly generated by electricity that the company purchased for office use. Its Scope 3 emissions consisted of other indirect sources of emissions generated by upstream and downstream activities.
CDP mainly evaluated emissions using the first two categories. In the latter half of 2020, in light of domestic andoverseas policies, and given that its carbon emissions were mainly generated by day-to-day business operations, thecompany decided to raise the share of renewable electricity in its energy mix to 48% in order to facilitate its zero-carbon076

2022 CEIBS ESG White Papertransition. In 2020, the company reduced its emissions by 11.33% compared with the previous year, after taking into
account the offsetting effect of the green electricity it purchased. By the end of 2021, it was expected to have reduced its
overall emissions by almost 30%.
Thanks to its continued efforts, the company’s MSCI ESG Rating continued to improve, from B in 2018 to A in 2021,
becoming the first public online media company in China to attain an A rating, ahead of most of its global peers (among
the top 20%).

Digital empowerment
The increasing popularity of digital technologies led to steady growth in the market for online games. In addition totheir entertainment value, online games could also be used for educational purposes, knowledge dissemination, andpromoting positive values. At the 2019 UN Climate Summit, some companies stated that the mobile game sector shouldplay a leading role in promoting climate change awareness among the billions of users in emerging markets12. 37 Interactive Entertainment also pledged to “fully utilize our advantages as a gaming company and use games to influence publicawareness and behavior.”
Compared with conventional games that were mostly for entertainment, functional games focused more on raisingpeople’s awareness of social and sector-specific issues. Their accessibility, diversity, and scenario-based approach
made them better positioned to educate and inspire their audience. 37 Interactive Entertainment developed a range offunctional games such as “I’m a Scroll Painter” (designed to inform users about cultural heritage), “Go! The Cyber
Warrior” (designed to promote awareness of cybersecurity), “Sanitation War” (designed to teach users about household
sanitation and hygiene), and “What Kind of Garbage Is It?” (for educating people how to separate waste). Compared withconventional educational methods, functional games were more interactive and more likely to be well-received by thegeneral public.
In 2020, to promote awareness of International Biodiversity Day, 37 Interactive Entertainment teamed up with the
Wildlife Conservation Society (WCS) to launch the functional game “Rally! Save Wildlife” supported by the EU’s wildlife
crime program. The WeChat-based game took more than two years to develop, with WCS providing a range of expertise.
Thanks the worldwide network of WCS offices, the game even reached Chinese communities in Southeast Asia. Following
the launch of the new game, 37 Interactive Entertainment also joined hands with The Nature Conservancy (TNC) to develop a functional game named Oyster Reef Defense. By completing the various stages of the game, users were able tolearn more about marine ecosystems. Although the two games were not directly related to reducing emissions, they fell
under the general umbrella of environmental protection and received a positive response, demonstrating the potential ofgames to promote positive social values.
Although using games to raise awareness of scientific concepts and social values could be highly rewarding, Zhang
acknowledged that such a strategy also came with many difficulties. “Functional games cost less to develop and arecompatible with many different devices, but their user base is much smaller compared with popular games. If we choose
to incorporate environmental protection concepts into our popular games, these concepts need to be aligned with the
product R&D cycle and launch schedule. There are also numerous other challenges, from the initial conceptualization
phase to subsequent software updates and publicity work.”
The company also developed “MiaoCode”, an online programming education platform for adolescents, and used theplatform to promote awareness of environmental protection among more than 10,000 adolescent users. In April 2021, itorganized a programming contest in collaboration with The Nature Conservancy (TNC), calling for entries related to
species protection, climate change, wetland protection, and other environmental issues. As explained by the company’s
spokesperson, “Protecting the environment is not something we can achieve overnight, and requires dedication overmany generations. These types of events can help to raise awareness of environmental issues among young people.”13077

Hands-on Experience of CEIBS Alumni Companies in Carbon Neutrality

In July 2021, 37 Interactive Entertainment joined the Playing for the Planet Alliance—one of the second cohort ofChinese companies to make this decision—committing itself to support the development of renewable resources andraise awareness of the environment, such as by embedding environmental protection concepts in game scenes, and bypromoting low-carbon practices through its games and welfare programs. As Zhang explained, “Joining the alliance will
help us to stay up-to-date with the CSR projects launched by our peers, establish partnerships with cutting-edge companies to drive industry-wide improvements, and establish a positive image in overseas markets.”
As the company’s charitable foundation, the Guangdong Youxin Foundation launched a series of support initiatives
and scholarships for student groups, in close alignment with the company’s talent strategy. In September 2021, it
launched a sustainable development contest for college students, which featured themes related to the UN’s 2030
Agenda for Sustainable Development (such as tackling climate change and protecting biodiversity), and gave students
the opportunity to propose awareness campaigns or innovative solutions based on their knowledge. Companies could
provide help by offering sustainable development courses and expert Q&As. The contest attracted entries from more than
600 teachers and students from around 50 leading universities. “We want to raise students’ awareness of CSR-related
concepts, including carbon neutrality. In the future, the company may also help these students to turn their valuable ideas
into innovative projects or business startups”, said Zhang.

International initiatives
In 2020, 37 Interactive Entertainment became the first Chinese gaming company to join three UN initiatives: Race toZero, the Science based Targets Initiative (SBTi), and Business Ambition for 1.5℃.
“Initially, we did not give much thought to how to reduce our carbon emissions—as a CSR-minded company, we justwanted to make a contribution to combating climate change. At that time, CSR for us just meant having a positive impact
on society”, said Zhang. Later, as the company engaged itself in a wider range of CSR activities and came into greatercontact with international organizations, it began to realize the value of integrating CSR into its own operations. “Whether
a company lives up to its social responsibilities, performs CSR-related risk assessments and takes proactive measures
not only affects its reputation, but also has a direct impact on its operations.”“Joining these initiatives involved more than just obtaining a few certificates. It required us to revamp our entire
management system, including how we assign responsibilities and coordinate tasks between different departments.”
Tasks such as purchasing green electricity and developing games with environmental themes required engagement fromall departments—in order to oversee this process, the company’s Social Responsibility Department was responsible forraising specific objectives and orchestrating their implementation among relevant departments. “Ensuring that we live up
to our social responsibilities is not the job of a single department or team. Rather, it requires engagement from various
departments within the company, including different departments at different stages.”
In addition, by joining international emissions reduction initiatives, the company was able to gain an insight into
potential operational risks, including risks associated with day-to-day operations. Headquartered in the subtropical cityof Guangzhou, the company was vulnerable to extreme weather events such as typhoons, storms, and heatwaves. When
implementing its carbon neutrality objectives, the company enacted risk control measures to safeguard its long-term
development, such as enabling staff to work remotely, and backing up important data in inland cities less susceptible toextreme weather.
The company's low-carbon transition also presented a number of risks, including the risk of greater economic andmanagement costs in the short-term for purchasing clean energy. However, at the time of writing, the low-carbon transition was encouraging more and more companies to invest in green and sustainable resources. “International organizations have introduced a series of CSR indicators into their evaluation methods, so we have to assess the reasons behind
their decisions”, said Zhang.

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Working together for a better environment
37 Interactive Entertainment believed that its long-term success hinged on sound industry-wide institutions. It adopted this stance towards various CSR-related issues such as child protection, data security, and carbon neutrality. “Emissions targets cannot be achieved by a single company alone—they are the shared responsibility of the entire industry.”
In December 2020, at the invitation of the British Embassy in China, the company joined Longi, Rolls Royce, andUnilever in kicking off the “Race to Zero (China) Initiative. As Zhang explained, “This demonstrates that we have a solid
record in terms of fulfilling our social responsibilities”.
In 2020, together with 13 organizations and companies including the Guangdong Game Industry Association,
Tencent, and NetEase, 37 Interactive Entertainment played a leading role in drafting the standards for the Social Responsibility Management System for Video Game Companies, which were ratified by the Internet Society of China in April
2021. As the representative of the drafting group, Zhang believed that the gaming industry needed to constantly update
its understanding of corporate social responsibility. “If corporate philanthropy was CSR 1.0 and its continued improvement was CSR 2.0, then our CSR management system could be called CSR 3.0.”14
At the end of 2021, the Carbon Disclosure Project was still calculating company emissions in terms of Scope 1 andScope 2 emissions. With regard to Scope 3 emissions—namely other indirect sources of emissions generated by
upstream and downstream activities—companies were required to make disclosures, but did not need to make any
commitment to reducing these emissions. Given the possibility of Scope 3 emissions being included in future emissions
calculations, 37 Interactive Entertainment believed that companies should start to address them. “This would require
collaboration with upstream and downstream companies across the entire industry. Previously, industry-wide efforts were
almost impossible due to a lack of data. However, I believe that the greater the challenges we face, the greater the potential for progress. All companies with CSR strategies should think of more ways to achieve their targets.”079

Hands-on Experience of CEIBS Alumni Companies in Carbon Neutrality

References
1 37 Interactive Entertainment. 37 Interactive Entertainment Teams up with Partners to Explore Social Responsibilities of Game Companies. Baijiahao,2021-12-28 [2022-01-08]
https://baijiahao.baidu.com/s?id=1720355324632254712&wfr=spider&for=pc.
2 Dianyu. 2021 Global Game Market Report: Market Set to Exceed 200 Billion USD. Baijiahao, 2021-07-06[2022-01-08]. https://baijiahao.baidu.com/s?id=1704519212850973028&wfr=spider&for=pc.
3 2021 CSR Report on Game Companies. People.cn, 2021-07-05[2022-01-08]. http://jinbao.people.cn/n1/2021/0715/c421674-32159165.html.
4 Tencent Institute. What Impact Will Cloud Games Have on Carbon Neutrality Targets? Tech Companies Are Taking Action. 2021-04-22[2022-01-08]. https://mp.weixin.qq.com/s/Z9J1UWat5JiKj1hmX46wXA.
5 Qingtong Viewpoint. The Role of GEC Trading, Green Electricity Trading and Emissions Rights Trading in Achieving Peak Carbon and Carbon Neutrality Targets. Baijiahao,
2021-10-27[2022-01-08]. https://baijiahao.baidu.com/s?id=1714733365255733911&wfr=spider&for=pc.
6 BJX.com.cn. A New Era in Energy Consumption and Green Electricity Trading. Sohu.com, 2021-11-26[2022-01-09]. http://news.sohu.com/a/503699453_131990.
7 PV Power Map. Green Certificates, Quota System, Emissions Trading and Green Electricity. Sina Finance. 2021-09-14[2022-01-09]. https://cj.sina.com.cn/articles/view/3282136660/c3a16e5401900uh5t.
8 Tanxunwang. Special Report on National Carbon Emissions Market in 2021, sina.com, 2021-12-21[2022-01-09]. http://k.sina.com.cn/article_7725195395_1cc7520830010114j4.html.
9 Hunantoday. Successful Conclusion of the First Trading Cycle on the Chinese Carbon Market, Tencent News, 2022-01-03[2022-01-09]. https://xw.qq.com/cmsid/20220103A09UZC00?pgv_ref=baidutw.
10 Mutouguancha. Price of Carbon Emissions Poised to Exceed 100 RMB per Ton: Skyrocketing Growth in Renewable Electricity Forecast for 2022. Tencent News,2022-01-09[2022-01-09]. https://xw.qq.com/cmsid/20220109A032Z300.
11 Schneider Electric. Construction Sector, Which Accounts for 40% of Global Emissions, is in Need of a Green Transformation. Baijiahao. 2021-03-09[2022-01-08]. https://baijiahao.baidu.com/s?id=1693718691620791146&wfr=spider&for=pc.
12 Tencent Institute. What Impact Will Cloud Games Have on Carbon Neutrality Targets? Tech Companies Are Taking Action. 2021-04-22[2022-01-08]. https://mp.weixin.qq.com/s/Z9J1UWat5JiKj1hmX46wXA.
13 Huanqiu.com. Programming Competition Formally Opened for Registration. Baijiahao,2021-04-22[2022-01-08]. https://baijiahao.baidu.com/s?id=1697716656371623171&wfr=spider&for=pc.
14 37 Interactive Entertainment. Cyber Games Forum on Social Responsibilities and Commitments. 2021-11-26[2022-01-08]. https://mp.weixin.qq.com/s/jT21wHJbBDN4arU2NcEZbA.

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Saint-Gobain
By Rui Meng,
Chen Bingliang andGong Ming*

A Commitment to Net-Zero
Zhu Yulu
CEIBS EMBA 2016 Alumnus
Vice President, Chair-in-Office, and CFO at Saint-Gobain, China“Today’s generation faces multiple challenges, including climatechange, environmental degradation, and workplace inequality. All ofthese challenges require us to live up to our responsibilities with an effective CSR strategy. Despite the higher costs involved, a successful CSR
strategy is incredibly valuable, both for companies and individuals.”

Review“Saint-Gobain believes in the power of long-term growth. It incorporates CSR into its long-term
development strategy, which has proven very effective. The company has been particularly successful in reducing carbon emissions, adopting emissions management strategies from which we candraw valuable lessons. Firstly, it takes accurate measurements of its carbon emissions and has established an internal carbon pricing system. This has facilitated innovation in emissions control technologies and helped to optimize manufacturing processes. Secondly, it has linked emissions reductions
to remuneration and incentive policies. This motivates employees to reduce emissions, improve
efficiency, and innovate. Thirdly, it has embraced the circular economy concept and promoted therecycling of resources. In addition to making the economy more resilient, this also creates win-win
outcomes for the environment and stakeholders. As Saint-Gobain has demonstrated, CSR is not, as
traditionally perceived, a burden for companies. On the contrary, it provides them with a valuable
channel to leverage internal and external resources and become more competitive.”

Rui Meng
CEIBS Professor of Finance and Accounting
Parkland Chair in FinanceDirector of CEIBS Centre for Wealth Management
Co-Director of CEIBS Centre for Family Heritage
Program Director of Family Office Diploma Program* Chen Bingliang is a researcher at the CEIBS Case Center; Gong Ming is an assistant researcher at the CEIBS Dean’s Office.

Hands-on Experience of CEIBS Alumni Companies in Carbon Neutrality

Introduction

Saint-Gobain was an international company headquartered in France. Established in 1665, it ranked 266th on
Fortune Global 500 companies list in 2021.1 The company specialized in designing, manufacturing, and distributing
high-performance materials and provided a range of integrated solutions. Its products included glass, construction
materials such as gypsum and adhesives, piping materials, abrasives, highly functional plastics, and ceramic materials. The company employed 170,000 people worldwide, providing services in over 70 countries and regions for theconstruction, transportation, infrastructure, and industrial sectors. It first entered the Chinese market in 1985, andsubsequently opened 54 manufacturing bases in Mainland China with over 8,000 employees.
Saint-Gobain embedded CSR into its development strategy2 and attached particular importance to sustainable
development, making sustainability one of the pillars of its value proposition.3 In 2003, the company signed the UN
Global Compact, accepting the ten principles of human rights, labor, the environment, and anti-corruption. In 2015,
in response to the UN’s Sustainable Development Goals, the company set itself a number of ambitious environmental targets for 2025: a 20% reduction in CO2 emissions, an 80% reduction in water consumption, and a 50% reduction in unrecycled waste. In 2019, as part of the Climate Action Summit convened by the General Secretary of theUN, Saint-Gobain signed the “Business ambition for 1.5°C” pledge, committing itself to reach net-zero emissions by
no later than 2050. “The 2050 vision is critical to driving our medium and long-term investment policy as well as
industrial roadmaps, R&D programs, and product development strategy”, explained Pierre-André de Chalendar,
Chairman and CEO of Saint-Gobain.4
Saint-Gobain aligned its growth strategy with its net-zero targets – a process that involved reducing the company’s carbon emissions while seeking new business opportunities in the low-carbon economy.

Saint-Gobain’s net-zero roadmap
Clear emissions targets
The first stage of Saint-Gobain’s emissions-reduction strategy was to develop an accurate mechanism for calculating
its emissions. To eliminate the impact of its manufacturing and operational activities on climate change, the company
categorized its emissions into Scope 1 (direct emissions from the company), Scope 2 (indirect emissions from the company’s electricity consumption), and Scope 3 (all other indirect emissions in the company’s value chain, including frompurchasing, sales, and logistics). Its goal was to reduce emissions from all three scopes.
Saint-Gobain’s manufacturing processes depended on fossil fuels and chemical reactions, resulting in the generation of large amounts of CO2. In 2019, Saint-Gobain emitted more than 8 million metric tons of Scope 1 CO2, 15% of which
was attributable to the production of raw materials and 85% to direct energy consumption. Its Scope 2 emissions amounted to 2.7 million metric tons, and were primarily attributable to electricity consumption in its factories and offices (27% of
Scope 2 emissions were generated in the Asia Pacific region, 28% in the Americas, and 45% in Europe). The company’s
Scope 3 carbon emissions were approximately 24 million metric tons, of which procurement and distribution accounted
for 22%, shipping 37%, and raw materials and energy supply 39%.

Key milestones in emissions reduction
To achieve its net-zero target, Saint-Gobain set itself two key milestones. The first milestone focused on cutting
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2022 CEIBS ESG White Paper

emissions from manufacturing activities to reduce total Scope 1 and Scope 2 emissions by 33%, and Scope 3 emissions
by 16% by 2030. The second milestone was set for 2050, when the company expected to reach its net-zero goal bydelivering widespread emissions reductions across all its operations. As an international company, Saint-Gobain had
numerous subsidiaries worldwide—some of these operated in countries or regions without stringent emissions regulations, but the headquarters applied the same targets to all of the company’s subsidiaries. The company also used benchmarking methods to manage its factories, motivating them to emit less by ranking their emissions.

Action plans
Saint-Gobain formulated action plans to reduce its emissions across all three scopes. Reductions in Scope 1 and 2
emissions focused on improving energy efficiency through technological advancements and innovations, such as data
analysis and Industry 4.0 technologies, as well as by developing more clean energy technologies (Cleantech). Regarding
Scope 3 emissions, Saint-Gobain utilized its leading position in the value chain to leverage its influence on suppliers,
starting with shipping carriers before expanding its efforts to include all suppliers.
The implementation of Saint-Gobain’s net-zero roadmap was overseen by the company’s CSR Committee, which
operated under the supervision of the board of directors and was tasked with ensuring alignment between Saint-Gobain’s
corporate strategy and its net-zero roadmap. In addition, the Executive Committee, which was responsible for overseeing
the company’s operations, carried out regular evaluations on emissions reduction performance, and also managed risks
and identified corresponding opportunities. All business units and overseas subsidiaries were required to set emissions
targets, action plans, and priorities based on the company’s overall roadmap.

Short-term goals

Scope
1&2

1. Improve energy efficiency· Increase the number of sensors and utilize
Industry 4.0 technology· Improve data acquisition and analysis;
optimize manufacturing processes

2. Recycle more resources· Recycle and reuse waste heat
· Improve product designs and increase therecycling rate
· Use more recyclable materials in manufacturing processes

Reduce carbon emissions from logistics

Scope
3

· Encourage carriers to reduce carbon
emissions· Install more monitoring sensors on transport vehicles to optimize transportationroutes and improve eﬃciency.
· Encourage carriers to use vehicles poweredby clean fuel, such as low carbon fuels(natural gas, hydrogen, etc.)· Replace road transport with rail andwaterway transport

Long-term goals
1. Reduce use of raw materials· Replace with lightweight materials· Replace with less carbon-intensive materials· Reinvent products and industrial processes
2. Use fewer fossil fuels; use more biofuels,
solar, and wind power
3. Develop and employ carbon capture technologies· Use carbon capture and reuse technologies
in manufacturing processes· Use high-efficiency technologies at all
manufacturing sites
Encourage all suppliers to reduce carbon
emissions· Revise requirements for suppliers; makecarbon emissions a criterion for supplierselection· Collect detailed data on suppliers’ carbon
emissions· Benchmark suppliers’ carbon emissions· Encourage suppliers with high carbon
emissions to adopt a science-based target
framework

Saint-Gobain’s emissions action plan083

Hands-on Experience of CEIBS Alumni Companies in Carbon Neutrality

Net-zero management strategy
Internal carbon pricing
Saint-Gobain established an internal carbon pricing mechanism to put its net-zero measures into practice. For example, the headquarters required subsidiaries to put a price tag on carbon emissions when evaluating investment, M&A,
and R&D projects. The carbon price was set at €75 per ton for industrial investments, and a higher rate of €150 per ton
for R&D investments to incentivize the development and use of new technologies.
According to Paul Sheng, CEO of Saint-Gobain China, the internal carbon pricing mechanism had a number ofeffects. Firstly, it prepared managers for future challenges associated with a potential carbon tax. Secondly, a fixedinternal carbon price helped decision-makers within the company to reach a consensus, such as how to set priorities for
cutting emissions. Thirdly, pricing carbon emissions encouraged the adoption of low-carbon technologies and equipment. Fourthly, it incentivized management to improve the company’s business model. “Saint-Gobain has higher manufacturing costs than its competitors in emerging markets, and now we also have to control costs associated with carbon
emissions. This means that we have no choice but to optimize our products and manufacturing processes”, explained
Sheng.
In May 2021, Saint-Gobain commissioned a new construction material factory in Yangzhou, which used a material
called FGD gypsum, a by-product from a local power plant, to cut costs associated with emissions and recycle wastefrom the power plant. In addition, most of the factory’s manufacturing equipment was low-carbon. These measures
helped the factory save at least 20,000 metric tons (approximately €1.5 million) of carbon emissions every year. The
construction materials produced by the factory were able to replace high carbon steel, concrete and other traditional
materials, enabling the construction industry to save 500,000 metric tons of carbon emissions every year—equivalent tothe carbon capture capacity of nearly 6,600 acres of forest.
Driven by the internal carbon pricing policy, Saint-Gobain’s Chinese factories drew up a diverse range of emissions
reduction plans in preparation for future changes in emissions regulations or increases in the company’s internal carbon
prices.

Incorporating emissions reductions into remuneration and incentives
Saint-Gobain incorporated emissions reductions into the company’s remuneration and incentive policies to motivate
employees to drive reductions in emissions. For core management staff and high-potential employees with management
potential, the company offered a package of long-term incentives, including a performance share plan, performance unit
plan, and stock options.
In 2020, the board of directors decided to adjust the weighting of various indicators for assessing staff performance.
The importance of return on capital employed (ROCE), an economic indicator, dropped from 65% to 60%, while theweighting of CSR indicators rose from 15% to 20%. The remaining 20% was linked to the company’s share price. Among
the CSR indicators, the weighting of emissions reduction performance was raised from 5% to 10% to reflect its increasing
importance. These adjustments covered 2,313 employees over the period from 2021 to 2023.

Internal carbon fundIn light of the need for innovation and broad participation, Saint-Gobain launched an internal carbon fund to engage
all its employees on the road to carbon neutrality, and pledged to allocate around €100 million to the fund each year until
2030. Every employee was eligible to make investment or R&D proposals, which were evaluated and selected by thefund’s management committee not according to their financial profitability, but on their ability to reduce carbon emissions.
When evaluating proposals, the committee compared the total emissions that each proposal would generate, and thendetermined whether the proposals were worth investing in, factoring in the company’s internal carbon prices.
0842022 CEIBS ESG White Paper

Saint-Gobain’s total reductions in CO2emissions over three-year period

Number of shares vested(10% linked to emissions reductions)

Higher than
3.7%

Between 2.8%
and 3.7%

Lower than
2.8%

All

Decreasing
by linearinterpolation

None

Long-term remuneration plans linked to emissions reductions

New opportunities
Transformation into a provider of decarbonization solutions
As a major emitter, the construction industry was under considerable pressure to join the transition to a low-carbon
economy. Given that many of Saint-Gobain’s products were construction materials, it sought to grasp the opportunities
presented by the low-carbon transition. To this end, the company headquarters established a new “sustainable solutions”
department, mainly responsible for providing low-carbon solutions to customers and coordinating with internal business
units to transform Saint-Gobain’s business model from a product supplier to a solution provider.
Saint-Gobain developed a series of solutions to facilitate the full lifecycle management of buildings and reduce theircarbon footprint. The company aimed to achieve two goals—to make buildings more energy-efficient, and to develop
more lightweight building materials. The first goal required solutions for improving temperature control and energy
efficiency in buildings by developing high-performance insulation materials and surface coatings. To achieve the second
goal, Saint-Gobain replaced carbon-intensive materials with lightweight alternatives, such as by replacing steel andconcrete with prefabricated, 3D-printed gypsum components. These lightweight construction materials helped reduce
industrial emissions and had multiplier effects on the whole value chain thanks to their ease of shipment, installation, anddisassembly.
To promote the widespread use of its low-carbon solutions, Saint-Gobain developed an online platform called“Green Building”5, which helped clients certify their sustainable building projects according to leading standards such as
LEED, BREEAM, WELL, and HQE International.

Circular economy
In light of the worldwide trend towards reducing carbon emissions, Saint-Gobain also developed a circular economy
strategy to reduce its energy consumption. The company was committed to using recyclable and renewable materials in
all its business units and overseas subsidiaries, a task overseen by one of its vice presidents.
Saint-Gobain’s circular economy strategy focused on three key areas: replacing virgin raw materials with recycledmaterials, prolonging the life cycle of products by making them easier to repair and disassemble, and expanding thecompany’s service portfolio by offering disposal and recycling services for construction waste. Following collection,
construction waste was sorted by a third party and reused in the manufacturing of gypsum powder, plastic board,
vitreous enamel, glass wool, and other materials.
At some Saint-Gobain factories, recycled materials accounted for over 30% of all materials used, with no adverse
impact on product quality and performance. The company also used digital technologies to make waste recycling
services more efficient and accessible for customers. For example, if a customer wanted to have their construction waste

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Hands-on Experience of CEIBS Alumni Companies in Carbon Neutrality

collected, they could upload a photo of the waste to a mobile app, which automatically analyzed the image and generated a suitable recycling plan. The customer could then select a convenient time for the waste to be collected. The company also participated in a project called ILOOP, which was funded by the European Union and investigated how to
produce glass wool with materials recycled from landfill sites. ILOOP was a win-win project: in addition to addressing
landfill waste, it also generated economic value.6
Saint-Gobain’s Chinese factories also made efforts to recycle waste. For example, outfalls were not required, as all
wastewater was reused in manufacturing processes following sedimentation and filtration. Some factories also enhanced
their recycling technologies to reuse waste residues, thus becoming zero-waste factories.
According to Joyce Zhu, vice president of Saint-Gobain China, the circular economy created a more resilient growthmodel. “If a company attempts to cut its carbon emissions without an effective strategy, it is likely to face higher costs andlose competitiveness. The circular economy, on the other hand, enables companies to balance their various interests,
such as using fewer resources, becoming more sustainable, developing cheaper and better products, and increasing
returns for shareholders.”

Cooperation with stakeholders
Working with governments and social organizations to drive the industry’s low-carbon
transition.
In addition to reducing its own emissions, Saint-Gobain also worked with governments and social organizations todrive the industry’s transition to a low-carbon growth model. As one of the 55 members of the European Round Table ofIndustrialists, the company participated in regular meetings with top EU leaders, and lobbied policymakers to introduce
carbon taxes for more industries. To enable more companies to achieve net-zero by 2050, Saint-Gobain also urged otherplayers in the construction industry to adhere to stricter emissions standards.
In addition, Saint-Gobain launched and participated in numerous social initiatives and established emissions-focused cooperation frameworks that brought together governments, universities, social organizations, and professional
communities. For example, the company played an active role in the Corporate Leadership Group founded byCambridge University, aiming to cap global carbon emissions at no more than one trillion tons and achieve carbon
neutrality by 2050. The Corporate Leadership Group also called on leading companies to act as role models, share experiences, and influence policymakers.
Saint-Gobain was also a member of the Energy Transitions Commission (ETC), an organization dedicated to achieving carbon neutrality in the production and consumption of energy and comprised of representatives from 50 industry-leading companies and organizations, each of which had a proven track record in developing net-zero roadmaps andidentifying new business opportunities for a zero-carbon economy.
Saint-Gobain was also committed to facilitating the net-zero transition of the global construction industry. Driven by
rapid changes within the industry, all stakeholders agreed on the need to make buildings greener. In light of this trend,
and to expand its influence, the company played an active role in the Green Building Council and chaired the council
committee. The Green Building Council was a global network dedicated to promoting green building technologies andbest practices. Through its network of over 70 branches in different countries and regions, it mobilized and coordinatedsupport from businesses and government agencies, and promoted the implementation of the United Nations Sustainable
Development Goals and the Paris Climate Agreement within the construction industry.
Saint-Gobain was also a founding member of the Global Alliance for Building and Construction. Based at the United
Nations Environment Program (UNEP), this organization was an essential pillar of the Paris Agreement. It aimed to build
an efficient, resilient, and net-zero future for the construction industry.
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Training for downstream distributors and end-users
Saint-Gobain also offered comprehensive training and support to encourage downstream distributors and end-users
to reduce emissions. For example, it launched an online training website (seformeravecsaint-gobain.com), while branches and subsidiaries provided offline courses for local customers, teaching them how to make buildings more energy-efficient and environmentally friendly. End users were provided with a convenient toolkit to demonstrate how different building materials and construction plans would affect carbon emissions. The company also built several “green building
centers” at various sites worldwide, which allowed architects and designers to learn more about environmentally-friendly
building practices. In addition to giving customers a better understanding of the concepts behind green buildings, thesemeasures also helped promote the company’s low-carbon products.

Helping upstream carriers to switch to cleaner fuels
Owing to its use of heavy raw materials and production of large finished goods, Saint-Gobain required an extensive
worldwide shipping network. Most smaller carriers in the Asia-Pacific region relied on fossil fuels, resulting in high carbon
emissions during transportation. To motivate carriers to switch to low carbon natural gas or hydrogen fuels, Saint-Gobain
provided subsidies and acted as a guarantor, enabling carriers to access low-interest loans from financial institutions. At
the time of writing, Saint-Gobain China was working with its logistics suppliers to explore the feasibility of a green urban
logistics program, with financial backing from its strategic financial partners.

Progress in reducing emissions
According to the latest annual report released by Saint-Gobain at the time of writing, the company had made significant progress in reducing its emissions.8 In 2020, its Scope 1 emissions amounted to 7.9 million metric tons, down 2%
from the previous year. Combined Scope 1 and 2 emissions were 10.4 million tons, a decrease of 3.7%, while Scope 3
emissions totaled 17.4 million tons.① In the same year, Saint-Gobain’s CO2 impact (Scope 1 & 2) on revenue was 0.27
kilograms per euro. At its peak ten years earlier, the corresponding figure was 0.47 kilograms per euro. By 2020, thecompany had achieved a 22.2% reduction in Scope 1 and 2 emissions, and was therefore well on its way to achieving its
first milestone—a 33% reduction in total emissions by 2030.

① Saint-Gobain re-measured Scope 3 emissions based on the methodology of the Science Based Targets initiative. Due to a change in the measurement methodology, a reductionin Scope 3 emissions was not announced in 2020.

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Hands-on Experience of CEIBS Alumni Companies in Carbon Neutrality

Embedding CSR in corporate strategy
Saint-Gobain demonstrated a steadfast commitment to CSR. We interviewed numerous individuals from various
levels of management, all of whom reported that their managers would frequently highlight the value of CSR, and that theywould convey CSR concepts and values to their subordinates. The CSR strategy was presented in a separate section on
the company’s website, demonstrating its philosophy of “CSR Embedded in Strategy”.8 Although the focus ofSaint-Gobain’s CSR strategy shifted from health and safety to sustainability and carbon neutrality, the underlying logic
remained the same: “addressing the major challenges facing humanity”.9
In light of the challenges posed by climate change, Saint-Gobain updated its strategy in 2021: to become apurpose-driven company.10 Saint-Gobain defined its purpose as “making the world a better home”, stating a wish to
expand its impact beyond specific industries or regions. To achieve this goal, the company employed 4,000 researchers
at eight research centers worldwide to develop new materials and solutions. At the time of writing, the research teams
were focusing on three key areas: reducing the weight of materials, improving recycling rates, and enabling the full lifecycle management of materials. Developed in response to growing pressure to reduce emissions, these solutions were both
economical and environmentally friendly.
Joyce Zhu explained the role of Saint-Gobain’s CSR strategy in the company’s long-term success. “In the short term,
adhering to high CSR standards will increase our costs, and even make us less competitive, but in the long run, it will
generate huge value. CSR forces us to enhance our operational efficiency and control risks. It also helps us build trust
among our stakeholders, including customers, employees, and government agencies.”

References
1
2
3
4
5
6
7
8
9
10

See: https://fortune.com/company/saint-gobain/global500/
See: https://www.saint-gobain.com/en/corporate-responsibility
See: https://www.saint-gobain.com/en/group/our-strategic-plan-grow-impact
See: https://www.saint-gobain.com/en/news/saint-gobain-commits-net-zero-carbon-emissions-2050
See: https://www.greenbuilding.saint-gobain.com/
See:https://www.isover.fr/recyclage-de-la-laine-de-verre-la-commission-europeenne-financera-le-projet-i-loop-disover-0
See: https://www.saint-gobain.com/sites/saint-gobain.com/files/sgo2020_urd_en_mel_210326.pdf
See:https://www.saint-gobain.com/en/corporate-responsibility/our-responsibility/csr-embedded-strategy
See: https://www.saint-gobain.com/en/group/our-purpose
See: https://www.saint-gobain.com/en/corporate-responsibility/our-responsibility/csr-embedded-strategy

088

INCOM Recycle
By He Jinyu andDaisy Qiu*

Venturing into the Circular Economy

Liu Xuesong
CEIBS EMBA 2001 Alumna
Deputy General Manager of INCOM Recycle
Collaboration makes a difference. If the government and industry
work together, then the circular economy will gain traction and achieve
leapfrog development. Environmental protection requires a comprehensive system in which everyone must play their part.

Review
The “30-60” decarbonization goals① present new challenges and opportunities for businesses in
China. The INCOM case has three implications for other companies that do not want to miss the boat:
first, seize momentum generated by government policies and growing public [environmental] awareness; second, integrate technology, marketing, systems, and partnerships in innovative ways; third,
design aesthetically appealing products that impress consumers.

He Jinyu
Professor of Strategy, CEIBS* Daisy Qiu is a case writer at the CEIBS Case Center.

① In September 2020, China announced it would hit peak carbon emissions by 2030 and achieve carbon neutrality by 2060. These targets are referred to as the “30-60 goals”.

Hands-on Experience of CEIBS Alumni Companies in Carbon Neutrality

Introduction

At the time of writing, China was by far the world’s largest producer and consumer of plastic, accounting fornearly one third of global production. In 2019, around 30%1 of China’s plastic waste was sent for recycling,
compared to 34.6% in the EU2. About 45% of unrecycled plastic waste was incinerated, while the rest went to landfill
or was otherwise discarded. Clearly, the country still had a long way to go in improving its waste recycling.
In 2005, Beijing INCOM Recycle Co., Ltd. (“INCOM”) established what was then Asia’s largest PET plastic
bottle recycling factory. In the ensuing decade or more, INCOM strived to promote the sustainable use of renewable
resources. The company took innovative and practical steps to develop a sustainable green business model thatwas profitable, while also benefiting the environment.
More recently, INCOM’s management drew inspiration from other industries by incorporating Internet technologies and fashion industry management concepts into the plastic waste recycling business. The management also
addressed pain points in the recycling industry, which included low efficiency, secondary pollution, and a focus on
mainly low value-added use cases. INCOM subsequently developed its own smart recycling solutions, food-grade
recyclables, and eco-friendly fashion brand (BOTTLOOP), which enabled it to close the loop on its circular supply
chain.
Within the context of China’s 30-60 goals, there was growing government, corporate, and public awarenessabout the importance of recycled plastics in energy saving②, carbon emission mitigation③, and environmental
protection④. The plastic recycling industry faced unprecedented opportunities, as well as technological andcompetitive challenges.

About INCOM
Founded in 2003, INCOM specialized in PET plastic recycling⑤. In 2005, it built what was then Asia’s largest PET
plastic bottle recycling factory, pioneered China’s bottle-to-bottle recycling efforts, and created high value-added applications for recycled PET in China. By replacing virgin plastic with recycled PET plastic, INCOM reduced CO2 emissions
by around 110,000 tonnes per year⑥.

② As shown in a report of the Ellen MacArthur Foundation, in 2020, 6% of global fossil fuel consumption was devoted to the production of plastics, which was equivalent to theannual oil consumption of the global aviation sector. The report found that if strong growth of plastics usage continued, the plastics sector would account for 20% of total fossil
fuel consumption by 2050.
Source: “The New Plastics Economy: Rethinking the Future of Plastics & Catalyzing Action”, Ellen Macarthur Foundation, 2016, accessed December 28, 2021.
③ The Ellen MacArthur Foundation estimated that the plastics sector would account for about 15% of the global annual carbon budget by 2025. Higher plastic waste recycling
rates and lower CO2 emissions by the plastics sector are critical to achieving the goal of holding global warming to well below 2°C. Three key options were outlined forhandling plastic waste: recycling, incineration, or disposal in landfill. According to published research findings, based on the Life Cycle Assessment (LCA), 5 to 10 tonnes of
CO2 are released per 1 tonne of plastic over its life cycle, including production, product manufacturing, waste collection, transport and incineration. Using recycling as analternative to incineration can reduce CO2 emissions by 50-70%. Source: Van Cauwenberghe L, Janssen C, “Microplastics in Bivalves Cultured for Human Consumption,
Environmental Pollution,” 2014, 193, 65-70; “Beyond Mechanical Recycling: Giving New Life to Plastic Waste”, Angew. Chem. Int. Ed.2020, 59, 15402-15423.
④ Research shows that a staggering 60 million tonnes of plastic waste enters the world’s rivers and oceans every year. If current trends continue, our oceans could contain more
plastic than fish by 2050. In addition to plastic waste, microplastic particles, which are too small to be easily seen with the naked eye, are ingested by both humans andanimals through food and drinking water. Researchers from the University of Ghent in Belgium believe that European shellfish eaters ingest an average of 6,400 tiny pieces ofplastic per year. But the impacts of microplastics on human health remain difficult to measure. As our planet is drowning in plastic pollution, there is an urgent need forsystematic solutions to change the way we produce, use, and dispose of plastics.
⑤ According to a research report of Martec Group, there are approximately 140 types of plastics commercially available, among which more than 30 are in daily use, but only 7
are widely produced and recycled, namely PET, HDPE, PVC, LDPE, PP, PS, and PC. For example, PET is short for polyethylene terephthalate, the chemical name for polyester.
It boasts good transparency, nontoxicity, high hardness and density, and strong wear resistance. At the same time, however, it is neither heat-resistant nor alkali-resistant, andcannot be used repeatedly for a long time. It is only safe for use at a temperature between 20–65°C, and may otherwise release hazardous substances. PET is used as a raw
material for making packaging materials such as bottles, containers, casings of electrical and electronic appliances, and accessories.
⑥ Figure provided by the company. Compared to virgin plastic, each tonne of recycled plastic produced reduces carbon emissions by 2.1 tonnes, which means that an annual
production of 50,000 tonnes of recycled plastic can reduce carbon emissions by 110,000 tonnes.

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2022 CEIBS ESG White Paper

In 2008, INCOM was designated as the official PET drinks bottle recycling partner for the Beijing Olympics. Later, in
2010, the company also received a visit from China’s then Vice Premier Li Keqiang. In 2012, the company developed
China’s first smart drinks bottle reverse vending machine⑦, which it launched in China and overseas the following year.
In 2017, INCOM received an investment from Sino-Ocean Group. Following that, in 2018, Liu Xuesong gave a presentation on INCOM’s eco-friendly ideas and technology at a high-level meeting of the 73rd session of the UN General Assembly, where she represented one of just three global companies attending. In March 2019, INCOM established its
sub-brand BOTTLOOP, enabling it to close the loop on its circular supply chain.

PET bottle

RVM

Customer buys
again

New recycled bottles

Recycling factory

Pulverizing/Cleaning

Product made fromrecycled material

Recycled
polyester chip

Recycled filament

Recycled fabric

INCOM’s closed-loop business model
In 2019, INCOM’s deposit-refund solution for the recycling of pesticide packaging was successfully piloted androlled out across various Chinese counties and cities. The solution helped local governments to recycle pesticide packaging waste and agricultural non-point source pollution. In 2020, INCOM’s recycling factory was moved to Baodi Districtin Tianjin and entered into operation. The factory’s production processes and products passed FDA, GRS, ISO9000, andISO14000 certification, and the recycled materials it produced met food contact material standards.
INCOM was also designated an “urban mineral⑧” demonstration base both in Beijing and at the national level, as well
as a national leader in recycling transformation.

In-House R&D and global sales
In 2010, Liu Xuesong waved goodbye to a successful fashion career in Japan to join INCOM, where she hoped to
become involved in environmental protection. Despite applying for a branding position, she was instead unexpectedly
asked to fill a vacant waste recycling management role. She soon found that the ugly underbelly of plastics recycling wasa far cry from the romantic image of environmental protection that she had originally envisaged.
A shortage of waste plastic bottles posed a major challenge for the company. In those early years, INCOM was only
able to collect 20,000 tonnes of used plastic bottles a year, far below its factory’s design capacity of 50,000 tonnes. Dueto this shortage of raw materials, the factory had to suspend production from time to time, which cost the company RMB
100,000 or more per shutdown. China’s topsy-turvy waste collection market was partly to blame. Beijing’s waste collection
market employed around 200,000 laborers, half of whom collected waste, and half of whom sorted it. However, much of
the work was done by small, informal workshops that were relatively inefficient. Moreover, poor waste sorting and clean⑦ A reverse vending machine (RVM) is a machine that allows a person to insert a used or empty glass bottle, plastic bottle or aluminum can in exchange for a reward.
⑧ Urban mining is the process of reclaiming raw materials from spent products, buildings, and waste.

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Hands-on Experience of CEIBS Alumni Companies in Carbon Neutrality

2005

2003

INCOM established what was then Asia’s largest PET
plastic bottle recycling factory.

INCOM was founded.

2010

2008
INCOM was designated as the official PET drinks
bottle recycling partner for the Beijing Olympics.

Then Chinese Vice Premier Li Keqiang visited INCOM.

2013

2012

INCOM’s RVMs were launched overseas, starting in
Ukraine. RVMs were installed in Beijing.

INCOM developed China’s first smart drinks bottle
RVM.

2017

2014
INCOM received RMB 300 million in Series A+ funding
from Sino-Ocean Group.

Domestic sales started in Chongqing.

2017

2017

INCOM launched an integrated solution forhousehold garbage sorting in central government
offices.

INCOM received state approval for four projects,
including the recycling transformation pilot and “urban
mineral” demonstration base.

2018

2017
An exhibition showcasing INCOM’s achievements overthe previous five years was covered by China’s state
television station and exhibits were kept by the National
Museum of China as long-term collections.

INCOM launched the BOTTLOOP sub-brand, which
made its debut at the 2018 FIFA World Cup in Russia,
together with INCOM’s RVMs.

2019

2018

The Baoqing-INCOM deposit-refund pilot scheme forpesticide packaging recycling proved successful andwas adopted in several Chinese cities and counties.

INCOM was invited to attend the 73rd United Nations
General Assembly.

2020

2019
The Tianjin INCOM factory was completed and enteredoperation.

INCOM was awarded first prize in the Science andTechnology category by the China Association of
Circular Economy.

Company milestones
ing practices often resulted in secondary pollution. The informal, dispersed, and rather chaotic nature of this businessmade it difficult for INCOM to source a reliable supply of raw materials for its production line.
Chang Tao (CEIBS EMBA2005 alumnus) joined INCOM as a general manager at a time when the company was
struggling. Drawing on his years of experience in the IT industry, Chang suggested borrowing the RVM concept used
overseas to address supply chain shortages and pollution issues. In 2012, shortly after joining the company, Chang andhis team independently developed China’s first RVM for drinks bottles. The machines automated the collection, sorting,092

2022 CEIBS ESG White Paper

and processing of used drinks bottles, and reduced bottle contamination and secondary pollution. By adopting Internetof Things (IoT) technology, it also became possible to trace bottles throughout the recycling process, helping to optimize
processes and boost efficiency.
At the time of writing, and following almost a decade of independent R&D, INCOM had registered more than 100
copyright claims and patents for its proprietary software. Moreover, the RVMs it developed were getting smarter. Its latest
generation of machines could read and identify drinks bottles by barcode and transmit data to a central monitoring
platform in real time. Consumers could enter their mobile phone number on the machine’s touch screen and choose toclaim their container refund, or donate it.
INCOM’s smart RVMs were mainly installed in busy public spaces such as subway stations, schools, and residential
areas. By the time of writing, these smart machines had safely collected over 60 million PET bottles from more than 2
million users nationwide, equivalent to a CO2 emissions reduction of 3,240 tonnes, an energy reduction of 5.31 million
kWh in electricity, or the planting of 648,000 trees.
In 2015, INCOM set up a joint venture with TOMRA Group, a Norwegian multinational corporation that manufactured
collection and sorting products, to expand into overseas markets. TOMRA exported its smart RVMs to more than 60 countries and regions worldwide, including the Netherlands, Brazil, South Africa, UAE, India, Thailand, and Ukraine. By theend of 2021, INCOM and TOMRA had jointly exported more than 75,000 smart RVMs, accounting for 85% of the global
market. Together, these machines collected over 35 billion drinks containers on average every year.

Getting young people on board
When INCOM first unveiled its RVMs to the public in Beijing in 2012, it was mainly focused on generating publicity
and promoting awareness, rather than monetization. The machines were still very expensive, and the gross profit generated from bottles collected each day were only enough to cover bottle transportation costs. Although consumers could earn
twice as much for selling a bottle to an RVM as they could from a human bottle collector, the machines were initially notvery popular, as most consumers were still used to doing things the old way.
However, this early cost hurdle only fuelled Chang and Liu’s desire to achieve success. They racked their brains tothink of every possible way they could make money from RVMs and identified two possible revenue streams: One wasadvertising, as the two side panels and screens of RVMs provided an ideal space for advertising, which could help tooffset manufacturing costs; the other revenue source was forming partnerships with beverage companies. RVMs werecapable of scanning the barcodes on bottles, which could provide beverage companies with valuable market data, suchas the popularity of brands by region or the time of day when drinks were bought or consumed. In addition, beveragecompanies could jointly hold environmental protection events with INCOM to promote a more socially responsible corporate image. Such events would also increase consumer exposure to and usage of INCOM’s RVMs, helping to foster
consumer recycling habits.
While holding these events, Liu noticed that it was primarily the older generation who deposited bottles in their RVMs.
This made her think, “How can we engage young people in waste recycling?” As a result, younger consumers became amajor focus for Liu and her team. In June 2017, INCOM hosted the Bottle Safe China Program, an event organized by the
China Association of Circular Economy (CACE) and supported by the China Environmental Protection Foundation (CEPF).
The two-month-long event aimed to leverage the influence of celebrities on fans to raise awareness about recycling andenvironmental protection. Pictures of different celebrities were scrolled across the screens of INCOM’s RVMs. Fans could“vote” for their favorite stars by collecting used drinks bottles and depositing them in the RVMs. The celebrity with themost votes (bottles) would receive an honorary award from the CEPF, in addition to free publicity from INCOM, which
would use RVM screens to promote them as the company’s environmental ambassador for one month. This event
enabled INCOM to collect a total of 380,000 plastic bottles free of charge.
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Hands-on Experience of CEIBS Alumni Companies in Carbon Neutrality

Liu still recalls the final day of the event: she was about to clock off work when she received a phone call asking her
to help process more than 40,000 drink bottles that a fan group had amassed during an event held in Nanjing.
Inspired by the success of the Bottle Safe China Program, Liu began to think, “Can we do recycling in the same way
as we do fashion or branding? Can we make it fashionable for young people to get involved? The passion of young people
can bring value and help our industry to develop!”Moving up the value chain
In March 2018, Liu and her team set about creating a sustainable lifestyle brand. The brand would use the high-quality recycled fibers produced by INCOM to develop fashionable packaging, clothing, backpacks, stationery, and peripheral products for events.
The brand’s name, “BOTTLOOP”, was a play on words in Chinese that conveyed two meanings: plain living andrecycling. The first drew inspiration from the ancient Chinese philosopher Laozi, who called for “simple views and plain
and true causes” in his work, the Tao Te Ching. This literary reference expressed the brand’s appreciation and respect
for nature and simple plastic products. The second meaning highlighted the brand’s mission to fuse traditional culture
with modern technology and fashion trends to give a second lease of life to waste products, and to follow the laws ofnature to achieve sustainable development.
During her exchanges with fans of celebrities, Liu found that young people liked products with quantifiable andshareable features, which was something that INCOM could deliver on. RVMs provided a safe, controllable, and traceable bottle recycling process. Meanwhile, every BOTTLOOP product bore a QR code that consumers could scan to learn
the number of plastic bottles used in its production, as well as its CO2 emission reductions relative to virgin plastic.
After months of preparations, BOTTLOOP finally landed its first contract with the Local Organizing Committee (LOC)of the 2018 FIFA World Cup in Russia. The LOC initially approached INCOM to purchase RVMs for the tournament, butfinished by concluding a joint promotion deal with the company: 450 Olympic volunteers would wear BOTTLOOP’s
inaugural Eight-Bottle t-shirts⑨ in a joint effort to promote a greener World Cup.

By 2021, less than three years after its establishment, BOTTLOOP was finally profitable and had become an influential eco-friendly fashion brand in China. Big names featured on its list of customers, including drinks brands such as
Starbucks, Pepsi, Nestlé, Nongfu Spring, and Genki Forest; cosmetics brands such as L’Oréal and Shiseido; car brands
such as BMW and Mercedes-Benz; internet platforms such as Meituan, Xianyu, and Airbnb; as well as sports brands such
as Adidas.
Reflecting on INCOM’s progress, Liu remarked, “We are glad to see so many business partners joining us and adding
value to the recycling industry.”
In the case of Starbucks, BOTTLOOP harnessed INCOM’s logistics system to recycle cold cups from Starbucks,
which were combined with drinks bottles collected from RVMs to produce high-quality recycled fibers. BOTTLOOP wovethese fibers into beautiful bags and silk scarves that Starbucks used to package gift products. Another example was
BOTTLOOP’s partnership with Meituan, a shopping platform. BOTTLOOP turned disposable takeout containers collectedfrom Meituan into business cards, which were used by all of the company’s senior executives.
In the summer of 2021, BOTTLOOP partnered with Adidas for a series of charity runs in Beijing, Shanghai, and Shenzhen. Through this partnership, it collected a total of 10 tonnes of waste plastic from 2,000 INCOM collection sites, as well

as via activities organized by JoyRun⑩. At INCOM’s factory, this waste was converted into recycled plastic pellets through12 separate processes, including sorting, pulverizing, cleaning, extending, and weaving. The pellets were then used to
manufacture co-branded crossbody bags, sports towels, and drawstring bags, which were presented to customers as⑨ Made from 100% recycled materials, each t-shirt used the plastic from eight used water bottles.
⑩ A sports app for runners that integrated services, social features, and content.

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2022 CEIBS ESG White Paper

gifts at Adidas stores.
In addition to producing products, BOTTLOOP also offered one-stop zero-waste solutions for customers by drawing
on INCOM’s logistics network and food-grade polyester chip factory. These solutions included event planning, event
construction, sorting guidance, public awareness, eco-friendly visual design, waste collection and recycling, andemissions reduction reporting for large-scale events, conferences, music festivals, and everyday workplace campaigns.
BOTTLOOP’s services enabled organizations to reduce the amount of waste generated at events and in workplaces andmake progress toward net-zero emissions. In the two years preceding the publication of this case, BOTTLOOP wasinvolved in the organization of major events such as Strawberry Music Festival, the National Sailing Championships, andCaixin’s annual summit in China.
Needs
assessment

01
BeforeEncourage
recycling

Flowchart for
Zero-waste
Services

Resource
management

Recycling
Production ofpromotional materials

Onlinepromotions
Audience
interaction

Internal training

Professional
collection andtransportation

02
DuringTrace emissions
reduction

Recycling

Green information
system03
After

BOTTLOOP’s operations provided Liu with new insights into “ecological aesthetics”, a subject that she had studied
during a graduate program in Japan.
As Liu described, “Using moral coercion to promote eco-friendly products cannot sustainably generate repeatpurchases. Instead, our products must be attractive, useful, and meet the real needs of consumers, while also providing
environmental benefits. For this reason, we’ve invited outstanding designers from Japan, Italy, and other countries to join
our product design team.”

Using innovation to address recycling challenges
According to Chang, RVMs could accurately recognize standard recyclables such as cans, glass bottles, andplastic bottles, but didn’t function so well with pesticide containers, which came in different shapes and sizes, including
plastic bags, plastic bottles, and glass bottles. As a result, pesticide containers were often improperly disposed of, causing soil contamination and environmental pollution.
In light of this problem, INCOM decided to design a deposit-refund scheme suited to the Chinese market that drewon common Extended Producer Responsibility (EPR)⑪ practices and similar schemes overseas. The scheme provided a⑪ EPR is a strategy that holds producers responsible for various parts of the life cycle of their products, including product take-back, recycling, and final disposal. An applicationof the EPR concept, deposit-refund schemes have been adopted in more than 50 countries and regions, including Canada, the US, Australia, and the European Union.

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Hands-on Experience of CEIBS Alumni Companies in Carbon Neutrality

Step1

Step2

Step3

Step4

Disposable PET containers

Safe collection

Packaging and transport

Picking and sorting

Step8

Step7

Step6

Step5

Extrusion into fiber

Transformation into polyester chips

Separation and deep clean

Pulverizing and cleaning

Step9

Step10

Step11

Step12

Weaving into fabricDyeing of fabricQuality inspection

Design and manufacturingof finished products

BOTTLOOP’s zero-waste solution
one-stop solution for pesticide container collection, transportation, storage, and safe disposal, and featured hardware
and software systems that delivered container traceability, verification, and account reconciliation, as well as a dedicatedcustomer service team.
As of January 2021, INCOM’s deposit-refund scheme had been piloted and demonstrated in more than 50 Chinesecounties and cities, including the counties of Qingshen and Lu in Sichuan province, and the city of Baoding in Hebei
province. By offering a full suite of services, from business consulting to program design, investment, construction, andoperations, INCOM provided local governments with a cost-effective solution to the perennial problem of pollution frompesticide containers. One year after the scheme was launched, the recycling rate of empty pesticide containers
increased from 5% to over 85%, leading to reduced agricultural non-point source pollution and an improved rural environment.
Deposit-refund schemes are nothing new in China. Back in the 80s and 90s, people would return empty glass beerbottles to convenience stores for deposits. However, this system was never widely adopted by China’s recycling industry
due to its lack of traceability, susceptibility to fraud, complicated procedures, and high transaction costs. However,following the turn of the century, the emergence of new technologies such as IoT and mobile payments made it possible
to revive such deposit-refund schemes, and Chang and his team seized upon this opportunity. INCOM’s deposit-refund
scheme provided a streamlined and efficient way for consumers to return empty pesticide containers: they could register
effortlessly with their phone numbers and use their mobile phones to scan barcodes on containers. The system would
then trace and verify the container and complete payment.
Chang believed that INCOM’s deposit-refund scheme could be extended to other waste categories that had low
recycling rates and were environmentally damaging, including glass bottles, coffee cups, and shampoo and body wash
containers. At the time of writing, he was expecting a boom in deposit-refund schemes in the coming decade.

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2022 CEIBS ESG White Paper

Deposit-refund model

Five-in-one integrated
service system

Information tracing system

Smart facilities

Customized marketing plan

Professional operations team

Users

Depositclearing house

Retailers

Manualcollection
stations
RVMs

Cloud platform
Centralized deposit management
Deposit business
Deposit data from producers
RVM maintenance
Drinks bottle sorting and processing
Reverse logistics

Producers

INCOM factory
Flow of materials

Flow of information

Flow of capital

INCOM’s integrated deposit-refund scheme for pesticide container recycling097

Hands-on Experience of CEIBS Alumni Companies in Carbon Neutrality

Overcoming challenges on the road ahead
In 2022, as Spring Festival approached, Liu couldn’t help recalling one Spring Festival 11 years earlier when the
INCOM factory was temporarily shut down due to a shortage of raw materials. As a result, the company had struggled to
pay bottle collectors on time. During that period, creditors came knocking every day. On one occasion, a waste collector
with three children rushed into Liu’s office and begged her for payment so that their family could travel home for Spring
Festival. The company ultimately made good on financial commitments and paid off its creditors, but Liu was forever
haunted by that experience.
Environmental entrepreneurs are often motivated by the goal of preserving a pristine environment for future generations. However, the road to success is not easy, and they must often make tradeoffs between short-term profits andlong-term benefits to society. As Chang highlighted, recycled materials may be more environmentally friendly, but theyoften cost more to produce than virgin materials. Moreover, companies and consumers are not always able to absorb
these costs. INCOM recognized that it wouldn’t have achieved so much without the support of government policies andinvestors. More generally, in the years before the publication of this case, China’s policy and social environment had
improved significantly: many cities had made garbage sorting mandatory; progress had been made on the circular economy and waste management legislation; the country had been piloting a “zero-waste city” project; and there were plans
to implement EPR systems. Companies needed to play an important role if China was to achieve its 30-60 goals, which
would provide motivation for them to adopt more recycled materials. Moreover, as low-carbon lifestyles entered the mainstream, it was likely that consumers would be more willing to pay a premium for recycled products.
“Some brands have long been making products from recycled polyester, but they never mentioned this because
consumers didn’t care. But now, things are different. Recycled materials have become a selling point”.
— Liu Xuesong“A favorable macro environment is undoubtedly a significant force that drives the development of an industry. Whenan opportunity presents itself, a company must have the wherewithal to seize and exploit it.”.
— Chang Shou
In 2021, driven by the Chinese government’s decarbonization goals, INCOM reported revenue growth of 250%,
despite the impact of Covid-19 on its export business. Chang said that over the following five to ten years, INCOM would
continue to expand and strengthen its three core businesses, namely smart recycling, food-grade recycled material
production, and BOTTLOOP branded products.
While acknowledging that the road ahead would be full of challenges, INCOM was determined to carve out a bright
future.

References
1 An Overview of the Plastic Industry and Plastic Waste Recycling, Martec China. 2020-09-18．https://www.martecchina.com/cn/article/5f8e81c8a6c30c1954fbfd90
2 Plastic-the Facts 2021-An Analysis of Europe Plastic Production, Demand and Waste Data．Plastic Europe，2021-12-28．http://env.people.com.cn/n1/2019/0920/c1010-31363445.html

098

PERSPECTIVESOF CEIBS FACULTY
ON ESG

Unethical Pro-organizational
Behavior
By Jiing-Lih Farh

A Double-edged Sword*

Jiing-Lih Farh
Honorary Professor and ABN AMRO Chair in Management,
China Europe International Business School
Unethical pro-organizational behavior (UPB) refers to the unethicalbehavior of members of an organization with a view to safeguarding theirorganization’s interests. As our research reveals, when executives/leaders engage in unethical behavior that benefits their organization, employees tend to imitate their behavior, and then engage not only in similar
UPB, but also in unethical behavior that may damage their organization.

* This paper is adapted from the Leader Unethical Pro-Organizational Behavior and Employee Unethical Conduct: Social Learning of Moral Disengagement as a Behavioral
Principle by Huiwen Lian, Mingyun Huai, Jiing-Lih Farh, Jia-Chi Huang, Cynthia Lee and Melody M. Chao in the September 2020 issue of the Journal of Management,
available at https://journals.sagepub.com/doi/abs/10.1177/0149206320959699.

Perspectives of CEIBS Faculty on ESG

In recent decades, there has been a series of scandals involving unethical behavior among company executives,
including the Facebook data breach, Volkswagen emissions scandal, and the delayed recall of the Ford Pinto. These
instances of unethical behavior are often perpetrated by executives with the intention of benefiting their organization. Our
research reveals that employees tend to imitate their executives’ unethical behavior, which, in addition to benefiting theirorganization, can also inflict damage.

Unethical pro-organizational behavior
Unethical pro-organizational behavior (UPB) refers to the unethical behavior of members of an organization with aview to safeguarding their organization’s interests. As the term implies, UPB is “unethical” and driven by “pro-organizational” intentions. For example, in order to boost sales, employees may deliberately conceal the defects of a product from
customers or exaggerate its functions. Existing research on UPB primarily focuses on non-executive members of organizations, but executives may also see reason or be pressured to engage in UPB in order to help their organizations reach
their goals.
Where UPB goes unnoticed, it may benefit the organization. For example, Volkswagen manipulated emissions tests
for many years before the scandal was exposed. In cases where executive-driven UPB goes unnoticed by the generalpublic, a key determinant of whether UPB might result in benefit or harm to the organization is the reactions of witnesses
within the organization.
Social learning theory suggests that people often learn how to behave by observing role models in their social
environment. For example, employees mimic supervisors who abuse their authority and engage in similar conduct toward
subordinates or coworkers. In addition, observers can abstract the principles exemplified in the behavior of role models
and use them to generate novel patterns of behavior. For example, by observing how a role model constructs sentenceswith a set of nouns, participants can abstract the principle used by the role model, and then use the same principle toconstruct new sentences with a different set of nouns.
One behavioral principle that governs UPB among executives is moral disengagement, which reflects a set of cognitive mechanisms through which people justify their unethical conduct. These mechanisms involve cognitively re-framing
unethical behavior to make it appear less harmful, minimizing responsibility for its consequences, and lowering awarenessof any perceived distress it has caused to victims. Employees may abstract the principle of moral disengagement fromexecutives who engage in UPB. Once they can justify their actions (e.g., for the benefit of the organization), they may
conclude that unethical behavior is permissible. They may then adopt this principle to engage in other types of unethicalbehavior, including not only UPB, but also unethical self-interested behavior that harms the organization.

Pro-organizational
Unethical

Principle
Learning
LeaderMoral
Disengagement

UPB

Subordinate
UPB

Behavioral Mimicking

How does UPB among executives influence employees?
We conducted two major studies on the real estate industry to explore how UPB among executives influences
employee behavior. In each study, we distributed questionnaires to real estate agents and their direct supervisors in
different real estate companies. The questionnaires focused on UPB among executives (“If it helps the organization, myboss bends the facts to make the organization look good”), moral disengagement (“It is okay to spread rumors to defend
those I care about”), employee UPB (“If it helps the organization, I bend the facts to make the organization look good”),

1022022 CEIBS ESG White Paperand unethical self-interested behavior (“I falsify receipts to claim fictitious expenses.”). The agents answered each question and accurately described the extent to which they or their direct supervisors engaged in unethical behavior, while
their direct supervisors assessed the agents’ unethical self-interested behavior on a 5-point scale (e.g., 1 = strongly
disagree, 5 = strongly agree).
Our research reveals that real estate agents not only imitate their leaders who engage in UPB, but also learn theprinciple of moral disengagement by finding justifications for unethical sales behavior, both for pro-organizational motives(helping the organization achieve its sales goals) and self-interested motives (earning a higher bonus).

The unintended consequences of UPB
Our research sheds light on the negative impact of UPB among executives on employee behavior, and provides
some useful suggestions on how companies can effectively combat UPB.
Firstly, media reports on business scandals tend to focus on malicious forms of unethical behavior. As a result,managers may overlook unethical behavior which aims to benefit the organization. Our research, which shows that executives who frequently engage in UPB out of a sense of responsibility to attain collective goals, can help raise managers’
awareness of this form of unethical behavior.
Secondly, executives should be aware that employees may learn to morally disengage by observing UPB among
their executives, and ultimately engage in unethical behavior that comes at a major cost to the organization. As a result,
executives should refrain from engaging in UPB (even for the benefit of the organization).
Finally, given the potential negative impact of UPB among executives on employees, companies should work toeliminate such behavior by formulating a zero-tolerance policy and reinforcing it with monitoring, training, or mentoring.
Moreover, by raising awareness among executives of how UPB can do more harm than good, companies can discourage
their executives from engaging in UPB.

103

Perspectives of CEIBS Faculty on ESG

104

Developing a New Approach to
Corporate Communications
By Guo Wei

in an Age of Uncertainty*

Guo Wei
Associate Professor of Strategy and Entrepreneurship, CEIBS
Under the new crown epidemic, enterprises face a communication
environment that is clearly different from the traditional one. Faced with a
new environment of high uncertainty, rampant falsehoods and misinformation, and a flood of information, companies must respond by dramatically improving the precision, clarity and repetition of their communications. Let's learn from Dr. Anthony Fauci how to use a new communication mindset to deal with this challenging new communication environment!

* This paper is adapted from the No Need to Know It All: Implications of COVID-19 for Corporate Communication Research published by Wei Guo and Albert Cannella in the July
2021 issue of the Journal of Management Studies, available at https: https://onlinelibrary.wiley.com/doi/10.1111/joms.12705.

Perspectives of CEIBS Faculty on ESG

Today’s media landscape is characterized by the rapid development of communication technologies and an everincreasing number of communication channels. As a result, an effective communications strategy is essential for companies that wish to grow successfully on the world stage. Businesses routinely use public relations to influence stakeholders.
However, the COVID-19 pandemic has brought about three major changes to the media landscape: a decrease in thereliability of information; an increase in disinformation and misinformation, affecting people’s ability to process informationand make decisions; and information overload. Our research focuses on these challenges and offers some insights into
how companies should change their approach to communications.

The need for a new approach to corporate communications
The COVID-19 pandemic has resulted in three major changes to the corporate communications landscape:Shared uncertainty
In traditional communication settings, companies often choose to withhold or obfuscate information to gain an edge
over their competitors. Information asymmetry is usually beneficial to communicators, and creates uncertainty for listeners
and readers. However, the pandemic has created a great deal of uncertainty for both communicators and theiraudiences—something that is believed to be accurate today may well be discredited tomorrow. Furthermore, when
information becomes discredited, people tend to question the reliability of its source.
In this challenging landscape, it may no longer make sense for companies to selectively share information in orderto take advantage of information asymmetry. A more viable approach would be to use communication as an opportunity
to openly and honestly share information with recipients, enabling both parties to make sense of an uncertain situation.
Misinformation
Messages with nearly identical content can have substantially different effects depending on the type of language
used to construct them. For this reason, companies tend to convey information in different ways depending on the stakeholder. Complex and ambiguous language has proven to be a valuable tool in corporate communications, as it can help
communicators to stay flexible in organizational settings. However, the COVID-19 pandemic has given rise to newchallenges for corporate communications in the form of misinformation and disinformation. Information which is proven tobe erroneous, misleading, or contradictory shatters confidence in established rules that govern the credibility of information and sources. At the same time, the pandemic has also caused people to demand access to round-the-clock information from a variety of sources in order to keep up-to-date with the latest news. This has inevitably resulted in confusion—in such a landscape, businesses should use a simple and clear message to communicate with their audiences.
Information overload
Conventional wisdom suggests that companies should refrain from repeating the same message, as repetition does
not provide any novel information and often leads to negative reactions. However, the pandemic has motivated people toseek information from a variety of sources in order to stay up to date with the latest developments. As a result, the flow of
information from a large number of different sources can easily exceed people’s capacity to process it. A key challenge
for communicators is therefore ensuring that their messages are heard and retained by their audience. As repetition leads
to familiarity and preference, delivering the same message repeatedly is perhaps the best way for communicators to
influence their audience in today’s chaotic media landscape.

Newcommunication
environment

Shared uncertainty

Precision

Misinformation

Clarity

Information overload

RepetitionNew
approach1062022 CEIBS ESG White Paper

Developing a new approach to corporate communications
Amidst the frenzied media landscape during the pandemic, Dr. Anthony Fauci has stood out for his exceptional
communication skills. He has become one of the most trusted and influential communicators on COVID-19, despite his
initial mistake of telling the public that facemasks were of marginal benefit in limiting the spread of the virus. We analyzed
338 speeches by Dr. Fauci between February 2020 and January 2021, and identified three distinguishing features of his
communications: precision, clarity, and repetition.
Firstly, Dr. Fauci communicates with precision, being transparent about what he knows and doesn’t know. When heknows the answer to a question, he gives a clear and accurate response. If he doesn’t know the answer, he admits hislack of related knowledge (“We don’t have enough information now”, “I can’t quantitate it accurately now”). We noted that
Dr. Fauci uses a relatively large number of negatives—equivalent to an average of 14 negative words per briefing. We
believe this is attributable to his ability to communicate frankly when he is not able to provide an answer.
Secondly, Dr. Fauci communicates clearly, using direct language and breaking complex topics down into understandable components. Our analysis revealed that Dr. Fauci uses language that requires only nine years of formal education to understand (equivalent to senior high school students). In contrast, other members of the White House Coronavirus
Task Force use language that requires 12 years of education to understand. For example, when talking about “aerosol
transmission”, he explained this technical term in a sentence of short and easy-to-understand words: “Aerosol means thatit can stay in the air for a period of time because it’s in a droplet that’s very small and doesn’t go down”.
Last but not least, Dr. Fauci frequently repeats his messages. Phrases such as “I’ve said many times, and I’ll repeatit” and “I think it’s worth reiterating”, occur repeatedly in his speeches. For instance, on March 16, 2020, he introduced atwo-pillar approach to containing the pandemic, and repeated his strategy on March 21, March 31, April 4, and numerous
other occasions. The word “repeat” occurred a total of 21 times in his speeches in the White House briefings alone.
The COVID-19 pandemic may represent a rare event, but executives also encounter situations characterized bywidespread uncertainty, misinformation and information overload, such as downturns in the global economy or specificsectors. The lessons from the COVID-19 pandemic can therefore provide a useful roadmap for the future of corporate
communications.

107Perspectives of CEIBS Faculty on ESG

108

Effectiveness of Emotive
Charity Appeals
By Hyun Young Park*in Soliciting Donations

Hyun Young Park
Associate Professor in Marketing, CEIBSWhen raising donations, are you communicating a rightmessage to potential donors? For instance, does your message
elicit sadness of those in need, happiness of those being helped, or
guilt of not giving? Know your donors and choose the right emotional message. Consider ethical issues related to your message
choice as well.

* Hyun Young Park is Assistant Professor of Marketing at the China Europe International Business School. This paper is adapted from How donor’s regulatory focus changes theeffectiveness of a sadness-evoking charity appeal published by Hyun Young Park and Jungsil Choi in the September 2021 issue of the International Journal of Research inMarketing, available at https://www.sciencedirect.com/science/article/pii/S016781162030063X.

Perspectives of CEIBS Faculty on ESG

Since the founding of the People’s Republic of China, and especially since the initiation of China’s reform and opening-up, common prosperity has been the nation’s shared goal. Given its potential to redistribute wealth, charity has animportant role to play in helping China achieve its goal of common prosperity. Our research into charitable organizations
has revealed that they and other NGOs often use emotive appeals in their fundraising campaigns in order to persuadepeople to make donations.

Regulatory focus theory
Charitable organizations routinely analyze the effectiveness of eliciting emotions (such as sadness, guilt, or happiness) in fundraising campaigns in order to determine an optimal combination that will appeal to their audience. Our recent
studies have explored how people react to emotive charity appeals from the perspective of regulatory focus theory, which
proposes that people perceive and attain their goals differently depending on their regulatory focus (“promotion” or“prevention” focus).
Prevention-focused individuals perceive their goals as duties and obligations, while promotion-focused individuals see
their goals as hopes and aspirations. For example, in an academic setting, both promotion-focused and prevention-focused students may strive for an “A” grade, but they perceive and attain this goal in different ways. Promotion-focused
students, who see an “A” grade as an achievement, have an appetite to learn more, and therefore do more than justcomplete the assignments from their teacher. On the other hand, prevention-focused students, who regard an “A” grade
as a duty or obligation, complete assignments assiduously in line with grading criteria.

Persuasion
Knowledge

Advertisement

Skepticism↑
Sympathy↓Prevention-focused
DonorsCharitable Giving↓Do emotive charity appeals persuade people to donate to charity?
We conducted six primary studies (each involving hundreds of participants) and two supplementary studies to
explore whether emotive charity appeals persuade people to donate to charity, and how an individual’s regulatory focus
can impact the effectiveness of such appeals. In each study, participants were tested to determine their regulatory focus,
and then randomly assigned to different groups to view a range of emotive charity appeals.
According to our findings, if a charity appeal elicits sadness, prevention-focused donors are more likely not todonate. On the other hand, if a charity appeal evokes feelings of guilt or happiness, an individual’s regulatory focus does
not affect the likelihood of them making a donation, nor does it affect the amount they are willing to donate.
In addition, we were able to determine why sadness-evoking charity appeals discourage prevention-focused donors
from donating—namely because these appeals activate their “persuasion knowledge” (i.e., awareness of and beliefs
about the tactics charities use to persuade them) and reinforce their skepticism, thereby dampening their sympathy
toward potential victims and/or beneficiaries. If “persuasion knowledge” is not activated, prevention-focused donors are
not discouraged from donating (or are at least not so reluctant to donate), even if a charity appeal elicits feelings ofsadness.
In light of our findings, we tested two ways to prevent the activation of persuasion knowledge. In the first test, we
asked participants to complete a memory task while viewing an advertisement in order to distract their attention and limit
their cognitive capacity; in the other test, participants were informed in advance that the charitable organization

1102022 CEIBS ESG White Paper

mentioned in the advertisement had an excellent reputation. The first test highlighted potential ethical issues related tothe use of emotive charity appeals—namely that busy lifestyles have the potential to limit people’s cognitive capacity; thesecond test underscored the importance of the reputation of charitable organizations in light of growing concerns among
the general public.

How do charitable organizations raise money?
Our findings provide charitable organizations with useful insights into how an individual’s regulatory focus affects theway they react to fundraising campaigns.
Firstly, if charitable organizations want to make emotive appeals more effective in their fundraising campaigns, theyshould deliver their message directly to promotion-focused individuals and avoid targeting prevention-oriented groups(through data analytics technologies, such as text mining). For example, they could emphasize promotion-focused goals
or benefits (e.g., helping victims realize their dreams) rather than prevention-focused goals or benefits (e.g., ensuring thesafety of victims) in their ad messages in order to improve the effectiveness of their message.
Secondly, sadness-evoking fundraising campaigns are less effective in Asian societies, where people are more
likely to be prevention-focused, and more effective in promotion-focused Western societies.
Finally, our findings can help policymakers and regulators assess whether it is ethical for charitable organizations totarget increasingly busy individuals (who therefore have limited cognitive capacity) using emotive appeals.

111Perspectives of CEIBS Faculty on ESG

112

STUDY ON THE CSRREPORTS OF A-SHARE
LISTED COMPANIES(CONDENSED)Study on the CSR Reports of
A-share Listed Companies (Condensed)*

Rui Meng
Professor of Finance and Accounting
Parkland Chair in FinanceDirector of CEIBS Centre for Wealth Management
Co-Director of CEIBS Centre for Family Heritage
Programme Director of Family Office Diploma Programme
Corporate social responsibility is not equal to the waste ofcorporate resources. On the contrary, in the process of solvingsocial problems with business logic, actively fulfilling social responsibility not only wins rich strategic resources for long-term, healthyand sustainable development of enterprises, but also helps alleviate social conflicts and build a harmonious society. In the context ofthe national promotion of "common prosperity", fulfilling social
responsibility has an important value at present.

* Many thanks to Sichuan Swellfun Co., Ltd. for its support in compiling this report.

Study on the CSR Reports of A-share Listed Companies (Condensed)

Introduction
VersionThis is a condensed version of the study that only includes highlights from 2020. To access the full study, see “About
the Authors”.

Research subject
2020 annual CSR reports published by A-share listed companies between January and June 2021.

Methodology
The “2021 Study on the CSR Reports of A-share Listed Companies” uses a distinctive corporate social responsibility(“CSR”) indicator system that combines Chinese and international methodologies, CSR reporting guidelines from authoritative bodies, key societal concerns in China, and big data technology.

Data sources
Most data used in the study was derived from digital CSR reports and annual reports of listed companies publishedon official websites. Other sources include the “CSR Database”, “Listed Company Governance Database”, “Violation andPunishment Database”, and “Litigation and Arbitration Database” of the Chinese Research Data Services Platform(CNRDS); the China Stock Market & Accounting Research (CSMAR) CSR database; the “Actual Controllers of Listed
Companies” and “Basic Information of Chinese Listed Companies” sections of the WIND database; and relevant news
from Baidu and the Genius Finance database.
The High Carbon Emissions Companies List (HCECL) was compiled from China’s 2021 Carbon Emission Ranking for
Listed Companies, the first ranking of its kind in China that is jointly published by the magazine Caijing, that magazine’s
leading business report platform Caijing Eleven, and SinoCarbon.

Data processing
A range of big data techniques was used to derive the indicators in this study, including data collection, data cleaning, data mining, and data cross comparison, and data was also manually corrected where necessary:
1. Data collection: Big data techniques were used to collect large amounts of raw data from the websites of companies and regulatory authorities, as well as popular search engines;
2. Data cleaning: Data was cleansed according to predefined rules to correct errors and eliminate duplicates andoutliers for consistency;
3. Data matching: The required information was precisely matched from a massive number of social responsibility
reports, news reports, and announcements;
4. Data mining and visualization: Manual processing and machine learning techniques were combined to extract andmine information from vast quantities of data (such as text) and visualize relevant findings.

About the authors
Center for Wealth Management, CEIBSThe CEIBS Center for Wealth Management (“The Center”) is committed to creating and sharing
financial knowledge and promoting exploration and innovative research in the fields of finance and

财富管理
研究中心

wealth management, while maintaining the highest academic and pedagogical standards. The Centerendeavors to promote the standardization and specialization of the industry and generate sustainablevalue for the world of finance. In addition, the Center prepares high-net-worth individuals and families,
financial advisors, and wealth management professionals to be well-intended and responsible stakeholders, enabling people, capital, and society to be forces for good.

Please scan the QR
code, follow our official
account on WeChat,and enter the keyword“CSR” in the dialogue
box to view the fullstudy.

116

2022 CEIBS ESG White Paper

We thank the following authors for their contributions to this study:
Rui Meng

Professor of Finance and Accounting
Parkland Chair in FinanceDirector of CEIBS Centre for Wealth Management
Co-Director of CEIBS Centre for Family Heritage
Programme Director of Family Office Diploma Programme

Yin Wenqiang Research Fellow at Center for Wealth Management, CEIBS

Abstract
In December 1990, China’s stock market was formally established. Initially, only eight stocks were available on the
Shanghai Stock Exchange (SSE) and five on the Shenzhen Stock Exchange (SZSE). However, following three decades ofreform and innovation, China has since evolved into a multi-tiered capital market that offers exchange-based andover-the-counter spot and futures markets in equities and bonds, public and private share offerings, and several boards,
including the Main Board, SME Board, ChiNext, STAR Board, and NEEQ.”1 Over this period, China’s market has maderemarkable progress: by the end of 2020, there were over 4,100 companies listed on the SSE and the SZSE, with a total
market capitalization of RMB 77 trillion, ranking second in the world. The average daily trading volume of the two
exchanges has increased from a few hundred thousand yuan in the early days to hundreds of billions of yuan today, also
placing China second globally. As manual trading gave way to automated order matching, the average number of dailytransactions surged from just a few dozen to more than 46 million. Today, China boasts the world’s second-largest bondmarket and the biggest turnover in commodity futures.2 In addition, in 2020, Chinese regulators imposed stricter compliance requirements on listed companies for the third year in a row, with increased emphasis on information disclosure andcorporate social responsibility. As a result of the above, China’s capital markets are now much bigger and more mature.
CSR reports are an important source of non-financial information disclosed by listed companies. The information thatthey provide can help investors to evaluate a company’s sustainability. In most developed Western capital markets, investors include CSR and ESG reporting in their valuation models. In addition, there is a broad body of empirical evidence toshow that socially responsible practices can enable companies to boost their corporate image and attract cheaper
financing, thereby improving their financial performance and social capital.
As with previous research, this study uses seven main indicators to analyze the CSR disclosures and performanceof A-share listed companies, and presents eight main findings:
1. In 2020, a total of 1,106 A-share listed companies published CSR reports (hereinafter “reporting companies”), 114
more than the previous year. The number of disclosures has been rising steadily over the past 15 years.
2. On the STAR board, a total of 21 companies disclosed their CSR reports in 2020, 2.6 times higher than the previous
year.
3. In 2020, more than 90% of reporting companies conducted in-house education and training on CSR, a significant
increase from the previous year.
4. 76.49% of reporting companies disclosed their business integrity practices in 2020, 6.03% more than the previous
year, while 59.86% of companies stepped up anti-bribery and anti-corruption efforts, up 8.25% from the previous year.
5. In terms of employee wellness, in 2020, 49.2% of reporting companies, or 544, disclosed their remuneration incentives, representing a slight increase from the previous year. Companies also attached greater importance to employee
benefits and qualities.
6. In terms of diversity and equal opportunities, in 2020, 64.9% of reporting companies, or 718, reported having at

117

Study on the CSR Reports of A-share Listed Companies (Condensed)

least one female executive; 18.3% disclosed inclusive policies for vulnerable groups, an increase of 12.4% or 143 companies from the previous year.
7. Environmental disclosures in all industries increased from the previous year. This was mainly driven by China’s
national commitments to peak carbon dioxide emissions by 2030 and achieve carbon neutrality by 2060 (referred to as
the “30-60” targets).
8. In terms of charitable activities, in 2020, 958 companies disclosed their engagement in social welfare programs,
up 103 from the previous year. Total donations stood at RMB 12.13701 billion. Performance improved across the board interms of contributions to education, charitable causes, volunteering activities, international aid, job creation, and economic growth.
In sum, in 2020, the weighted CSR score for the 1,106 reporting companies (excluding HCECL companies) was
49.69 (out of 100), an increase of 1.1 points or 2.2% from the previous year, but slightly lower than the weighted score of
56.29 for the 55 HCECL companies.
To measure the economic value of CSR disclosure, we built an investment portfolio composed of companies withcomposite and component CSR scores that were all above 60. We then bought this portfolio on January 1, 2021 and soldit on December 31, 2021 to measure excess returns relative to the SSE Composite Index. It was found that this portfolio(which comprises seven categories) generated an annualized return rate of 11.52%.

Overview of CSR disclosures by A-share listed companies
Total disclosures: The total number of annual disclosures has grown steadily, recording
triple-digit growth in 2020 and an average disclosure rate of 25.36% for the five years
from 2016–2020. However, there is still considerable room for future growth.
Michael E. Porter and Mark R. Kramer from Harvard University identified four prevailing justifications for CSR basedon their research findings: (i) Moral obligation: Companies have a duty to achieve commercial success in ways that honor
ethical values; (ii) Sustainability: Companies should meet the needs of the present without compromising the ability of
future generations to meet their own needs; (iii) License to operate: Companies need permission from governments to dobusiness; and (iv) Reputation: CSR initiatives will improve a company’s image, strengthen its brand, and enhance its
relationships with stakeholders such as customers, investors, and employees. They also argue that CSR runs through theentire value chain of a company and influences all value chain components. Therefore, companies can gain a uniquecompetitive advantage by incorporating CSR into their strategy.3
In 2006, the Shenzhen Stock Exchange issued the Social Responsibility Instructions to Listed Companies, which
encouraged companies to disclose their social responsibility reports. It remains one of the most influential andepoch-making documents on CSR. In 2008, the Shanghai Stock Exchange made CSR disclosure mandatory for (i)companies included in the SSE Corporate Governance Index, (ii) companies listed in both domestic and overseas
markets; and (iii) financial companies, while encouraging other types of listed companies to do so where possible. Today,
after over a decade of development, CSR practices are covered by a number of government acts and guidelines, even if
they are not emphasized by relevant regulatory bodies. A typical example is the Civil Code of the People’s Republic ofChina which took effect on January 1, 2021, Article 86 of which indicates that CSR is becoming an essential part ofcompanies’ daily operations: “A for-profit legal person shall, when engaging in operational activities, observe commercial
ethics, maintain the security of transactions, subject itself to the supervision of the government and the public, andassume social responsibilities.” Taking the above into account, it is clear that the application of China’s CSR policies isshifting from being optional to something that is actively encouraged or mandatory.

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2022 CEIBS ESG White Paper

Total number of CSR disclosures by A-share listed companies from 2006–2020
1400

350

327

1200
1000
800
600
369

400

459

19

42 23

2006

2007

2008

530

582

642

671

704

792

743

992

942

856

250
200
150

114

100
90

200
0

300

1106

2009

71

2010

52

60

2011

2012

64

29

33

39

49

2013

2014

2015

2016

Number of CSR disclosures

86

50

50

0
2017

2018

2019

2020

Year-on-year growth

During the 15 years from 2006 to 2020, the number of companies that made CSR disclosures rose steadily. In
2020, a total of 1,106 A-share listed companies made CSR disclosures, 11.5% or 114 more than the previous year,
representing the largest single-year increase in the past 12 years and the highest growth rate in the past five years.
Only 55 reporting companies were on the HCECL. Between 2016 and 2020, on average, 25.36% of A-share listedcompanies made CSR disclosures each year, while the median rate was 25.95%. This shows that there is still considerable room for improvement in overall disclosure rates.

Per-company disclosure count: There were 249 companies that disclosed 13 times
between 2006 and 2020, forming the largest group and accounting for 22.51% of total
disclosures in 2020. Meanwhile, 105 companies, or 9.5% of the total, only disclosed
once. The distribution of per-company disclosures was U-shaped.
Between 2006 and 2020, a total of 9,460 CSR reports were disclosed by A-share listed companies. By 2020,
22.5% and 9.8% of these companies had disclosed 13 and 12 times respectively, while 105 companies had disclosed
only once during this period, accounting for 9.5% of the total. Only five companies disclosed CSR reports every year.
The overall distribution of the chart was U-shaped. The number of disclosures in 2020 was higher than the previous
year, indicating that A-share listed companies were increasingly aware of and paying more attention to CSR. The
disclosure count for HCECL companies was less evenly distributed: only one company disclosed every year, while 27
companies disclosed 13 times, forming the largest group, followed by the nine companies that disclosed 12 times. The
number of companies for each other disclosure count was fewer than six.

Number of CSR disclosures by A-share listed companies from 2006–2020
300

27

250
200
150
100

0

1

3

9
0

50
0

105
1

78
2

90
3

81
4

4
57
5

1

0

3

49
6

47
7

44
8

A-share listed companies

119

1
59
9

5
0
44
10

68
11

108
12

249
13

1
22
14

A-share listed HCECL companies

0515

Study on the CSR Reports of A-share Listed Companies (Condensed)

Length of CSR reports: In 2020, 70% of the CSR reports surveyed from A-share listedcompanies were no more than 40 pages long, a much higher proportion than in previous
years. There was also a larger gap between the shortest and longest page counts.
In 2020, the shortest CSR report disclosed by reporting companies was one-page long, while the longest was 191
pages, a difference of 190 pages. The average report length was 32 pages and the median 27, a slight increase fromprevious years. 38.35% of the reports were between 0–20 pages, while 34.63% totaled 21–40 pages, together accounting for 72.88% of the total. 27.12% were over 61 pages long, of which 2.80% and 1.81% were over 80 and 100 pages,
respectively. There were 13 HCECL companies with CSR reports of 0–20 pages, 21–40 pages, and 41–60 in length
respectively, each accounting for 23.6% of the total. Six companies produced CSR reports with 61–80 pages, four
companies with 81–100 pages, and six companies with 101 pages or more. Their CSR reports generally highlighted
efforts to reduce carbon emissions and embrace new technologies.
After reading through the CSR reports, we discovered that those with fewer than 20 pages featured mainly descriptive language and were narrower in scope. By contrast, those ranging between 21–100 pages were more detailed,
better designed and formatted, and more appealing to the reader.

Length of CSR reports by A-sharelisted companies, 2020

Length of CSR reports by A-sharelisted HCECL companies, 2020

2.80%

1.81%

5.97%

38.25%

10.9%
23.6%
7.3%
10.9%

16.55%

23.6%

34.63%

23.6%

0-20 pages
61-80 pages

21-40 pages
81-100 pages

41-60 pages
101 pages or more

Based on statistics from 2016–2020, there were between 400 and 450 reports of 0–20 pages in length; the numberof reports with 21–40 or 41–60 pages increased every year, with a sharp jump in 2020; and the number of reports with
61–80, 81-100, or over 101 pages increased more moderately. Over the same period, the longest, shortest, andaverage page counts held relatively steady, while the median number of pages trended upward, suggesting that
A-share listed companies were attaching greater importance to CSR reports.

Analysis of CSR reporting companies in 2020
Sectoral distribution of reporting companies: In 2020, 90% of industries registered anincrease in CSR disclosures over the previous year. This increase was sharpest in the
manufacturing sector, while the financial sector saw the highest rate of disclosures.
In 2020, the manufacturing sector had the highest number of CSR disclosures at 575, up 79 from the previous year.
The financial sector placed second, with 98 reports in total, four more than the previous year. Other sectors recorded anaverage of 54 reports, up 20 from the previous year.

1202022 CEIBS ESG White Paper

Sectoral distribution of CSR disclosures by A-Share listed companies, 2020
600

77.80%

80%

575

70%

500

59.20%

400

0

40%
30%

17.40%

200
100

50%

46.30%

44.60%

41.30%

300

60%

98

Finance19.00%

76

Wholesaleand retail

Manufacturing

83

66

Culture,Communicasports, andtions,
software, and entertainment
IT services

25.60%

22.40%
61
Environmental protection
and public
utilities

Number50

50

Real EstateTransportation,
warehousing,and postal
services

20%

33

10%

14

Electricity,
heating, gas
and water
supply0%

Other

Percentage

The manufacturing sector made the most disclosures in absolute terms, but the disclosure rate was low, at just 19%.
The financial sector, which only produced 98 reports, boasted the highest disclosure rate at 77.8%, largely due to mandatory disclosure requirements from regulatory agencies. The environmental protection and public utilities sectors, and thetransportation, warehousing, and postal services sectors had the second and third-highest disclosure rates at 59.2% and46.3%, respectively.
For reporting HCECL companies in 2020, companies in the manufacturing sector made the most CSR disclosures,
totaling 29, followed by 15 companies from the environmental protection and public utilities industry. Transportation,
warehousing, and postal services; communications, software, and IT services; and electricity, heating, gas, and watersupply contributed no more than six CSR reports each.

Regional distribution of companies: There were slight regional differences in disclosure
rates among reporting companies, with central China taking the lead, followed by west
and then east China, while a slight decline was seen in northeast China.
Regional distribution of CSR disclosures in 2020
25%

781

800

24%

700

25%

23%

600
500
400
300

20%

19%

200
100
0

152
42

35

6

Northeast

East

131
11

Central

3
West

15%

Number of A-share listed companies
Number of A-share listed HCECL companies
Percentage of A-share listed companies

121

Study on the CSR Reports of A-share Listed Companies (Condensed)

East China recorded the highest total number of CSR disclosures in 2020, accounting for 70.6% of the total that year
and far more than in central, west, and northeast China. All regions saw positive year-on-year growth except for northeast
China, where disclosures decreased by one. Disclosure rates varied by region, with the highest rate in central China at
24.8%, followed by west (24%), east (23%), and then northeast China (18.5%). For reporting HCECL companies in 2020,
east China had the largest number of companies that made disclosures (35), followed by central China (11), northeastern
China (6), and west China (3, the fewest).

Distribution of companies by municipality/city: Guangdong, Beijing, and Shanghai had
the highest concentration of disclosing companies, while all other localities saw a slightincrease.
Distribution of CSR disclosures for HCECL
companies by municipality/province in 2020

Distribution of CSR disclosures bymunicipality/province in 2020
152

GuangdongShanghai

122

Zhejiang

118

Jiangsu

78

Fujian73
51

Shandong

15

Beijing137

BeijingShanghai

5

Guangdong5

Shandong

3

Hubei

3

Liaoning

3

Henan

38

Anhui

34

Hubei

30

Sichuan

29

Hunan

22

Tianjin21

Liaoning

20

Yunnan

18

Hebei

18

Jiangxi

17

Inner Mongolia

1

Jilin

1

Tianjin1

Guangxi

1

Jiangsu

1

Anhui

2

Shanxi2

Jiangxi

2

Hebei

2

Fujian2

Xinjiang

16

Chongqing

15

Shaanxi

15

Jilin

11

Shanxi11

Hainan11

Guizhou

10

Henan

1

Guangxi

9

Hainan1

Inner Mongolia

6

Gansu

6

Hunan

1

Ningxia

5

Gansu

1

Chongqing1

Heilongjiang

1

Qinghai5

Heilongjiang

5

Tibet

3
0

50

100

150

200

0

3

6

9

12

15

122

2022 CEIBS ESG White Paper

In 2020, about 76.5% of municipalities or provinces in China were home to companies that disclosed CSR reports,
an increase from the previous year. As in 2019, Guangdong, Beijing, and Shanghai continued to top the list in 2020, with152 reports recorded in Guangdong, 137 in Beijing, and 122 in Shanghai.
In terms of disclosures by HCECL companies, Beijing outperformed all other municipalities and provinces in 2020
with disclosures by 15 companies in total. Shanghai and Guangdong tied for second place, with five companies each. Allother municipalities or provinces each had fewer than four disclosing HCECL companies.

Distribution of companies by business type: SOEs still accounted for more than half ofreporting companies, but their proportion declined. In contrast, the share of reporting
private companies rose steadily.
Distribution of CSR disclosures by business type for 2016–2020
2016

60.10%

2017
SOEs

57.71%

201855.20%

2019

53.52%

2020

51.27%

2016

34.72%

2017
Privatecompanies

37.38%

2018

38.64%

2019

39.91%

2020

Joint
ventures44.39%

2016

4.29%

2017

4.44%

2018

5.73%

2019

6.14%

2020

Other

2.80%

2016

0.88%

2017

0.47%

2018

0.42%

2019

0.40%

2020

0.99%
0%

123

10%

20%

30%

40%

50%

60%

Study on the CSR Reports of A-share Listed Companies (Condensed)

Of the 1,106 CSR reports published in 2020, 567 reports, or 51.27%, were from SOEs, an increase of 36 from theprevious year; 491 reports, or 44.39%, were from private companies, an increase of 95 from the previous year; 31 reports,
or 2.8%, were filed by joint ventures. Statistics from 2016–2020 show that the share of reports from SOEs continued to
decline while that of private companies increased, although SOEs still had the largest share overall. By business type,
SOEs led disclosures among HCECL companies in 2020, with a total of 51 CSR reports, while private companies
disclosed 3 reports and joint ventures just 1.

Distribution of companies by board: In 2020, the number of CSR reports disclosed byMain Board listed companies rose significantly, while that of STAR Board listed companies was 2.6 times higher than the previous year.
Of the 1,106 CSR reports released by A-share listed companies in 2020, 983 or nearly 90% were from Main Board
listed companies. From 2016 to 2020, the share of reports by Main Board and ChiNext listed companies both trended
upward. Specifically, the number of CSR reports disclosed by Main Board listed companies increased by 247, or 33.6%
in 2020. A total of 102 CSR reports were disclosed by ChiNext listed companies, 26 or 34.21% more than the previous
year. It is also noticeable that the STAR board, which was launched in July 2019, disclosed 21 CSR reports in 2020. Thatis 2.6 times as many disclosures as the previous year, which shows considerable promise for the future. In 2020, all 55
reporting HCECL companies were listed on the Main Board.

Distribution of CSR disclosures by board for 2016–2020

2016

600

2017
Main
Board

651

2018

709

2019

736

2020

ChiNext

983

2016

44

2017

55

2018

65

2019

76
102

2020

STAR
Board

2016

0

2017

0

2018

0

2019

8

2020

21

0

200

400

600

800

1000

124

2022 CEIBS ESG White Paper

Analysis of indicators in 2020 CSR reports
This condensed version of the study examined CSR reports by A-share listed companies in 2021. The analysis
focused on seven indicators, namely (1) CSR management, (2) company operations and management, (3) product quality and innovation, (4) employee wellness, (5) diversity and equal opportunities, (6) environmental responsibility, and (7)social contributions and charity, each of which comprises five to nine sub-indicators.

CSR indicator system

A. CSR
management

B. Company
operations and(1) report assurance(2) use of international benchmarking(condensed)(3) report inclusiveness(4) website column (condensed)(5) education and training(6) leadership team(condensed)(1) strategic cooperation and sharing(2) anti-bribery and anti-corruption(condensed)(3) business integrity(4) accounting irregularities(condensed)(5) financing disputes(1) quality management(2) quality reputation(3) after-sale services(condensed)(4) customer satisfaction(condensed)(5) patents (condensed)(6) R&D expenditure(condensed)(7) share of R&D personnel(8) share of technical personnel(1) remuneration incentives(2) supplementary benefits (condensed)(3) on-the-job training (condensed)(4) communication with employees(condensed)(5) staff care(6) safety management system(7) training on production safety(8) occupational health and safety
certification(9) disputes over staff health and safety(1) female executives(condensed)(2) female directors (condensed)(3) all-male directors, supervisors, andexecutives(4) vulnerable groups(condensed)(5) equal opportunities(condensed)(1) environmental benefits(2) energy conservation(3) reduction of three types of waste(condensed)(4) circular economy (condensed)(5) green office(6) environmental protection and publicwelfare(7) environmental certification(condensed)(8) environmental commendations(9) environmental penalties(1) donations(2) social contribution value per share(3) contribution to education (condensed)(4) charitable activities(condensed)(5) volunteering (condensed)(6) international aid(7) job creation (condensed)(8) contribution to economic growth(condensed)(9) layoffs

management

C. Product quality
and innovation

D. Employee
wellness

E. Diversity
and equal
opportunities

F. Environmental
responsibility

G. Social
contributions
and charity

Note: Sub-indicators marked with “condensed” are presented in the condensed version of the study; for all other sub-indicators, please refer to the full study.
125

Study on the CSR Reports of A-share Listed Companies (Condensed)

CSR management
This part includes six sub-indicators, namely report assurance, reference to global benchmarks, report inclusiveness, website column, education and training, and leadership team. The most noteworthy aspects for this category in the2020 CSR reports are: use of international benchmarking, emphasis on internal management, and external publicity of
CSR practices.

CSR management disclosed from 2016–2020

800

0.71

700
600

0.57
0.42
0.28

200

0

0.46

0.50

0.50

0.42

0.40

300

100

0.70
0.60

500
400

0.80

0.31
0.18

0.23

0.23

0.23

179

194

218

278

339

139

2016

2017

2018

2019

2020

2016

international benchmarking

0.30

0.24

0.29

152

223

292

626

330

392

468

413

787

2017

2018

2019

2020

2016

2017

2018

2019

2020

0.18

0.20

CSR leadership teams

Number0.10

CSR columns on websites

Percentage

Use of international benchmarking
Use of international benchmarking means that more A-share listed companies willingly chose to refer to the Global
Reporting Initiative (GRI) standards when preparing their CSR reports.
Of the 1,106 reporting A-share listed companies in 2020, 339 companies, or 30.65%, drafted their disclosuresaccording to the Guide to Sustainable Reporting, up 2.63% from the previous year. From 2016 to 2020, the number of
GRI-compliant companies increased by an annual average of 17.31%. The largest single increase took place between
2019 and 2020, when 61 companies joined the GRI standard. By municipality/province, Guangdong (55 companies),
Beijing (52 companies), and Shanghai (48 companies) had the largest number of GRI-compliant companies. By sector,
manufacturing had the most GRI-compliant companies, at 146 or 29.38% of the total; the financial sector had the highest
GRI-compliant disclosure rate at 43.88%, followed by electricity, heating, gas, and water supply (42.42%), and transportation, warehousing, and postal services (42%).
Emphasis on internal management and external publicity of CSR practices
A company’s emphasis on CSR is reflected in the establishment of a dedicated CSR leadership team or responsible
department, as well as the publication of a CSR column on their website.
In 2020, a total of 626 companies established dedicated teams or responsible departments for CSR management,
accounting for 56.6% of all disclosing companies that year, an increase of 334 companies, or 27.13% from the previous
year. Figures from 2016 to 2020 show that the number of companies with dedicated in-house CSR departments was on
the rise, offering further evidence that A-share listed companies increasingly view CSR as an important part of their daily
operations. By sector, manufacturing had the largest number of companies with dedicated CSR teams or departments,
at 290; next were the financial and pharmaceutical sectors, at 60 and 51 respectively; only 18 companies were from theelectricity, heating, gas, and water supply sector. In terms of the disclosure rate, companies in the communications,software and IT services, pharmaceutical, and financial sectors had higher disclosure rates of 66.67%, 65.38%, and61.22% respectively, compared to a lower rate of 44.74% for wholesale and retailing companies.
In 2020, of all the reporting A-share listed companies, 787 (71.16%) had published a CSR column on their websites
where visitors could monitor their performance, an increase of 29.48% from the previous year. According to statistics from2016 to 2020, both the number and proportion of companies that published CSR columns on their websites were increas-1262022 CEIBS ESG White Papering, offering evidence of the growing importance of CSR among A-share listed companies. By business type, SOEs andprivate companies that published CSR columns on their websites were similar in number, accounting for 34.18% and 34%of the total respectively, up from 28% and 30.89% in 2019. By board, most of the companies with CSR columns were listedon the Main Board, accounting for 86.79% of CSR disclosures in 2020, while there were just 96 companies on ChiNext
and eight on the STAR Board, accounting for 12.2% and 1.02% respectively.

Summary and analysis of CSR management
In the 1970s, there was heated discussion in academia about whether or not businesses should be socially responsible. The US economist Milton Friedman, a prominent naysayer, argued in his book Capitalism and Freedom that “there is
one and only one social responsibility of business — to use its resources and engage in activities designed to increase
its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without
deception or fraud”.4 In contrast, scholars including Jean B. McGuire believed that an increase in perceived social
responsibility could improve a company’s internal and external image, thus reducing its implicit costs.5 There will be no
exhaustive list of arguments here about whether companies should fulfill their social responsibility, but as the theory
matures and is put to the test of practice, it is clear that CSR is now an emerging trend in the business world. McGuire
also noted that Friedman subsequently changed his standpoint in his later essay on “Social Responsibility of Business”,
in which he asserted that companies were obliged to protect the interests of shareholders while obeying the laws andethical customs of society.
After nearly 40 years of development, today CSR is not just part of a company’s business strategy, but also an
increasingly important factor that outside investors use to evaluate a company’s financial competitiveness. Empiricalstudies based on years of publicly available market data have concluded that corporate financial indicators, such as
return on assets and total assets, are significantly positively correlated with CSR performance. In addition, the absenceof CSR practices in companies’ everyday operations may put them at greater risk of legal disputes and administrative
penalties, thus impairing their strategic advantage and blurring their future development.
Despite the absence of a unified and sophisticated CSR system, Chinese companies have made full use of opportunities brought by China’s reform and opening-up since 1978 and its accession to the WTO in 2001 to learn from global
enterprises and strive to improve their CSR performance. Over the five years from 2016 to 2020, changes in the six sub-indicators for CSR management reflected the growing importance attached to CSR by A-share listed companies. More andmore listed companies began to pay attention to the quality and compiling standards of CSR reports, internal training,
external publicity, and leadership buy-in as they developed their businesses. We believe that CSR practices will become
the norm among Chinese companies over time, which will result in more socially responsible companies that give back tosociety.

Company operations and management
This indicator comprises five sub-indicators that measure the performance of A-share listed companies in terms ofdaily operations, business and social ethics compliance, and financial management, looking at both positive and negative aspects. These are namely strategic cooperation and sharing, anti-bribery and anti-corruption, business integrity,
accounting irregularities, and financing disputes. The most noteworthy aspects for this category in the 2020 CSR reports
are business integrity and accounting irregularities.

Company operations and management disclosed from 2017–2020
60%
50%
40%
30%
20%
10%
0%

48.71%

53.50%

9.11%

9.55%

9.08%

2017

2018

2019

59.86%

20%

15.46%

Anti-bribery and anti-corruption

127

51.61%

10%

2020

Accounting irregularities

0%Study on the CSR Reports of A-share Listed Companies (Condensed)

Business integrity
Anti-bribery and anti-corruption were among the keywords emphasized at China’s annual meetings of the National
People’s Congress (NPC) and the National Committee of the Chinese People’s Political Consultative Conference (CPPCC)
in 2020 (also known as “the two sessions”), and will continue to be an important future focus. In 2020, 59.86% of all reporting companies disclosed rules and disciplinary measures that they had adopted to combat commercial bribery andcorruption, up 8.25% from the previous year. From 2017 to 2020, the number and proportion of companies that madedisclosures in this respect generally increased. By sector, 73.47% of reporting financial companies made disclosures,compared to just 44.58% for cultural, sports, and entertainment companies, which was nonetheless 15% higher than in
the previous year.
Accounting irregularities
In 2020, possibly due to the impact of the Covid-19 pandemic, accounting irregularities by reporting companies
increased significantly to 15.46% from 9.08% in the previous year. A total of 171 violations were reported, 81 cases morethan the previous year. However, we see this as a short-term phenomenon that will reverse when the global economy
recovers from the pandemic.

Conclusion on corporate operations and management
The academic world believes that CSR practices enable companies to reduce intermediate internal and externalcosts, indirectly improve financial performance, increase the efficiency of strategic partnerships, enhance their corporate
image, and enhance their reputation and other intangible assets. Corporate reputation may not directly boost corporate
profitability, but it is considered to be one element of corporate wealth. Dr. Charles Fombrun believes that good reputations create wealth.6 Ethicist McCoy and others believe that good reputations are an external manifestation of CSR.7 GoodCSR performance leads to good reputations, while the opposite harms reputations. The collapse of Enron Corporation in2001 is a case in point. Enron once ranked among the top ten companies on the Fortune 500 list and was an influential
player in the US and global energy industry. However, from 1997, Enron’s management neglected its duties, paid andaccepted bribes, misrepresented financial statements, and defrauded investors, making over $600 million in illegal
earnings. The violation of laws and moral codes caused the company to lose its markets, corporate image, partners andcustomers forever. It follows that CSR violations, including but not limited to bribery, corruption, deception, and concealment, will seriously jeopardize a company’s future operations.
Based on data from 2016 to 2020, we can see that the reporting companies improved to varying degrees in thefollowing three areas: strategic cooperation, anti-bribery and anti-corruption, and business integrity. The steep increasein financing disputes and accounting irregularities in 2020 can possibly be explained by the sudden outbreak of theCovid-19 pandemic. We do not believe that this will be a long-term trend, although that could depend on how long the
pandemic lasts.

Product quality and innovation
This indicator comprises eight sub-indicators, namely quality management, quality accreditation, after-sale services,
customer satisfaction, patents, R&D expenditure, proportion of R&D personnel, and proportion of technical personnel,
which together measure the performance of A-share listed companies in terms of product R&D and services. The mostnoteworthy aspects for this category in the 2020 CSR reports are focus on the customer service experience, and R&D andinnovation.
Focus on the customer service experience
In 2020, reporting companies made significant progress in improving service quality and customer experience. Of
the 1,106 reporting companies in 2020, 497 (44.94%) disclosed steps they had taken to improve after-sale services, anincrease of 270 or 22% from the previous year. By sector, pharmaceuticals and wholesale and retail showed higher disclo-

1282022 CEIBS ESG White Paper

Percentage of disclosures about after-sales services andcustomer satisfaction surveys from 2016–2020
50%

40%

38.89%

41.71%

44.94%

41.93%

39.69%
33.08%

30%

35.99%

36.29%

20182019

26.52%
22.88%

20%

10%

0%

2016

2017

2018

2019

2020

2016

After-sales services

2017

2020

Customer satisfaction surveys

sure rates, at 57.69% and 51.32% respectively.
In terms of improving customer satisfaction, 439 companies, or 36.69%, conducted customer satisfaction surveys,
an increase of 79 companies or 3.4% over the previous year. By sector, the proportion of customer satisfaction surveys
was highest in pharmaceuticals, at 55.13%, while the transportation, warehousing, and postal services; real estate; andfinancial sectors tied for second place, with a proportion of 50% each.
R&D and innovation

R&D and innovation disclosed from 2016–2020
60%

50.78%

50%

38.46%

40%30%
18.78%

20%
10%

4.76%

23.53%
23.67%

19.28%

2.80%

0%
-10%

-2.06%
2016

2017

Growth rate of patents

2018

2019

2020

Growth rate of R&D

From 2016 to 2020, the number of patents disclosed by A-share listed companies kept increasing. A total of 172,391
patents were disclosed in CSR reports in 2020, 47,886 more than the previous year. The number of patents increased by
38.5% from 2019–2020, a record high during that five-year period, thanks to the Chinese government’s incentive policies
and enhanced protection for intellectual property rights.
A total of RMB 613.5 billion in R&D expenditure was disclosed by A-share listed companies in 2020, up 23.7% fromthe previous year. From 2016 to 2020, overall R&D expenditure was on the rise, with growth peaking between 2018 and2019 at 50.78%, compared to more moderate growth of 23.7% between 2019 and 2020. By industry, in 2020, companies
in the manufacturing; communications, software, and IT services; and pharmaceutical sectors spent more on R&D, to a129

Study on the CSR Reports of A-share Listed Companies (Condensed)

tune of RMB 461.9 billion, RMB 58.4 billion, and RMB 28.6 billion, respectively, while real estate and financial companies
spent less in this area.

Summary of product quality and innovation
William A. Foster, a recipient of the US Medal of Honor, once made the following famous quote about quality: “Quality
is never an accident; it is always the result of high intention, sincere effort, intelligent direction, and skillful execution; it
represents the wise choice of many alternatives”.8 Consumers look for two kinds of superior experience when they buy
goods: one is derived from high-quality products, and the other comes from a reliable and trustworthy corporate image.
Product quality can reflect a company’s CSR performance, as well as dedication and commitment to its mission. A
positive corporate image can bring more customers to the company. A market survey was once conducted that looked at
the willingness of US consumers to buy products from companies with a socially responsible image. The results foundthat 81% of respondents said they would consider buying products from socially responsible companies.9 As we can see,quality products, and a positive and responsible corporate image are the key factors that influence consumers’ buying
decisions.
Innovation also plays a big part. Good products can bring instant success to companies, while innovation fuels
high-quality corporate development in the long run. During a company inspection tour in 2020, China’s President Xi
Jinping, stressed the value and significance of innovation. He said, “Innovation is the most important ‘trait’ for companies.
We must ensure key and core technologies are in our own hands, and this also applies in the manufacturing sector”.10 In
2020, sub-indicators for product quality assurance and innovation, such as the proportion of technical staff, overall quality
management, and R&D expenditure rose across the board. This not only underscores the growing importance that
A-share listed companies attach to product quality, but also reflects the transformation of China’s manufacturing industry
from conventional processing and manufacturing to high-end, R&D-driven manufacturing.

Employee wellness
This category comprises nine sub-indicators, namely remuneration incentives, supplementary benefits, on-the-job
training, communication with employees, staff care, safety management systems, training on production safety, occupational health and safety certification, and disputes over staff health and safety. The most noteworthy aspects for thiscategory in the 2020 CSR reports are companies’ increased focus on employee benefits, employee voice, and professional qualities.

Disclosure of employee wellness from 2016–2020
1200
1003

1000
893

919

918
819

800

744

600

400

935

400

509

462

310

428

543
455

362

200

0

2016 2017 2018 2019 2020
employee benefits

2016 2017 2018 2019 2020
Listening to employee voice2016 2017 2018 2019 2020
on-the-job training

1302022 CEIBS ESG White Paper

Focus on employee benefits
Of all CSR reporting companies in 2020, a total of 918 companies disclosed their supplementary benefits for employees such as pensions, medical insurance, and birthday bonuses, an increase of 25 companies from the previous year.
From 2016 to 2020, companies’ focus on employee benefits kept increasing, almost doubling from 2018–2019, before
plateauing from 2019–2020.
By business type, SOEs and private companies accounted for the majority of companies that disclosed additional
employee benefits in their CSR reports, with a share of 50% and 45% respectively. By comparison, all other businesstypes had a disclosure rate of less than 5%. By sector, wholesalers and retailers headed the list with a 92.11% disclosure
rate, followed by 84.85% for the communications, software, and IT services sector, and 84.51% for manufacturing. The
disclosure rate in the real estate sector was relatively low at 68%.
Listening to employee voice
Of all CSR reporting companies in 2020, 543 disclosed communication channels between staff and top executives,
such as a chairman’s mailbox, staff suggestion box, or employee appointment system, an increase of 88 companies or
19.34% from the previous year. By municipality/province, A-share listed companies in Guangdong, Beijing, Shanghai,
and Zhejiang were more willing to listen to employee voice, with 81, 62, 59, and 55 companies disclosing that they did sorespectively.
Improving employees’ professional qualities
Of all reporting companies in 2020, 1,003 companies disclosed their provision of on-the-job training for employees,
68 more than the previous year. According to data from 2016 to 2020, the number of companies providing on-the-job
training was on the rise, with an average annual growth rate of 7.75%, indicating that companies had higher expectations
for employee skills. In 2020, the manufacturing sector had the largest number of companies that disclosed on-the-job
training for employees, at 452. The financial sector had the highest disclosure rate, at 98%, followed by the transportation,
warehousing, and postal services sector, and the environmental protection and public utilities sector, at 94% and 91.8%
respectively.

Summary of employee wellness
Human capital is an important input in companies’ everyday business activities. In the era of knowledge and innovation, it is increasingly believed that competition between companies is ultimately over knowledge and talent. Robert
Owen, who is regarded as the father of personnel management, ever urged fellow factory owners to pay attention to thehuman factor, stating that investments in improving the workforce would bring companies not a 5, 10, or 15% return, butwould instead offer gains of 50%, and in many cases even 100%.11 The management guru Peter F. Drucker also made it
clear that, “The enterprise cannot be a mechanical assemblage of resources. To make an enterprise out of resources it is
not enough to put them together in a logical order and then to throw the switch of capital. What is needed is a transmutation of the resources. And this cannot come from an inanimate resource such as capital. The resources capable ofenlargement can only be human resources. Man, alone of all the resources available to man, can grow and develop.”12
Therefore, personnel is an important factor of production and plays a decisive role in improving corporate performance.
If companies fail to handle this factor properly, they will have trouble differentiating themselves from other competitors at
the strategic level.
According to statistics, in 2020, reporting A-share listed companies significantly increased their investment in humanresources compared to the previous year. More people-centered companies stepped up efforts to motivate, train, anddevelop their employees while paying more attention to communication and information exchange. For companies,
improving employee wellness is a win-win strategy. By raising employees’ motivation, enhancing their professional qualities and skills, and improving their sense of loyalty and wellbeing, companies can increase their operating efficiency,

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Study on the CSR Reports of A-share Listed Companies (Condensed)

while creating a positive and harmonious workplace. An efficient workforce, in return, can help companies establish apositive corporate image, facilitate strategic partnerships, and boost business sustainability. For countries, when companies take responsibility for employee wellness, they not only enable workers to exercise their employment rights andrealize their potential, but can also help to reduce social conflict and improve people’s life satisfaction, which in turncontribute to social harmony and stability.

Diversity and equal opportunities
This indicator comprises five sub-indicators, namely female executives, female directors, all-male directors, supervisors & executives, vulnerable groups, and equal opportunities. The most noteworthy aspects for this category in the 2020
CSR reports were a focus on women’s status and enhanced inclusion of vulnerable groups.

Diversity and equal opportunities discloused from 2016-2020
800
700

0.80
0.64

600

0.64

0.63

0.60

0.70

0.65

0.60

500

0.50

400

0.40

300

0.30
0.18

200
100
0

0.08

0.10

0.10

0.10

0.06

505

510

591

635

718

66

89

93

59

202

2016

2017

2018

2019

2020

2016

2017

2018

2019

2020

female executives

0.20

0.00

vulnerable groups

Number

Percentage

Focus on women’s status
Statistics showed that the representation of women in corporate governance continued to improve. Of the 1,106 CSR
reports disclosed by A-share listed companies in 2020, 718 companies, or 64.9%, disclosed that they had at least one
female executive, a slight increase over the previous year. From 2016 to 2020, the proportion of female executives trended
upward. By sector, real estate, pharmaceuticals, and communications, software, and IT services recorded higher levelsof disclosure, at 80%, 78.21%, and 77.27% respectively.
In terms of board diversity, a total of 97 companies, or 8.8%, disclosed that they had four female directors or more,
1.6% or 26 more than the previous year. By business type, private companies had the highest disclosure rate, at 53.61%,
compared to 40.21% for SOEs.
Enhanced inclusion of vulnerable groups
Of all reporting companies in 2020, a total of 202 companies (18.3%) disclosed inclusive policies and a reputation
for protecting the rights and interests of vulnerable groups (people with disabilities or those released from labor re-education), representing an increase of 143 companies or 12% from the previous year. The financial and pharmaceuticalsectors were the most inclusive of vulnerable groups, with 35.71% and 26.92% of their respective companies disclosing
inclusive policies.
In 2020, 310 companies, or 28% of reporting companies, emphasized having internal policies and practices that
promote equal opportunities for people of different ethnic backgrounds, religion, and nationality, up 126 from the previous
year. By municipality/province, 58 Guangdong-based companies made disclosures about equal opportunities, followed1322022 CEIBS ESG White Paper

by Beijing and Shanghai with 45 and 34 companies respectively.

Summary of diversity and equal opportunities
Over several decades of reform and opening-up, China has made substantial progress on gender equality, andwomen are enjoying increasing representation in corporate management. While men and women may vary in personality,
risk appetite, and ethical awareness, in academia, it is widely agreed that women are able to bring a fresh perspective,
style, and mindset to strategy formulation and corporate governance. This can help to correct information biases resulting
from a lack of heterogeneity and improve governance efficiency.13
From an empirical standpoint, G.V. Krishnan and L. Parson concluded from a survey of Fortune 500 companies thatearnings quality is positively associated with the percentage of women in senior management.14 In his study, R.D. Adler
found that companies with more women in the top management had higher profitability and enterprise value than thosethat employed no or few female executives.15 In their research, R. A. Bernardi and D. F. Arnold found that female executives may place more value on workplace ethics than their male counterparts.16 Evidently, female executives play anactive role in their companies’ day-to-day operations and strategic decision-making.
The year 2020 was a year of milestone significance for China, as it marked the 100th anniversary of the founding of
the Communist Party of China. In that year, China realized its first centenary goal of building a moderately prosperous
society in all respects, brought the 13th Five-Year Plan to conclusion, and attained a decisive victory in the fight against
poverty. Statistics show that due to the influence of important government policies, in 2020, more A-share listed companies paid close attention to the fundamental interests of vulnerable groups. Such corporate behavior will help promotesocial harmony, reduce social conflicts, and facilitate common prosperity.

Environmental responsibility
This indicator comprises nine sub-indicators: environmental benefits, energy conservation, reduction of three types
of waste, circular economy, green office, environmental protection and public welfare, environmental certification,
environmental commendations, and environmental penalties. The most noteworthy aspects for this category in the 2020
CSR reports were reduction of three types of waste, environmental certification, and the circular economy.
Reporting companies in 2020 largely performed better on these nine environmental sub-indicators than in 2019,
further reducing three types of waste (waste gases, waste water, and industrial residue), and making progress on environmental certification and the circular economy.

Disclosures for environmental sub-indicators from 2019–2020
SectorReduction of
three types of waste

Circular economy

Transportation, warehousing,and postal services

12.0%

7.0%

9.0%

Communications, software, and IT services

3.2%

2.2%

6.8%

Manufacturing

12.1%

6.2%

14.5%

Pharmaceutical

3.9%

15.9%

13.3%

Real estate

14.0%

18.0%

16.0%

Wholesale and retail

8.4%

11.5%

15.9%

Culture, sports, and entertainment

6.6%

9.9%

9.1%

Environmental protection and public utilities

25.8%

29.0%

13.0%

Electricity, heat, gas, and water supply

0.8%

2.4%

8.2%

Finance

9.3%

3.2%

1.0%

Note: Figures in the table represent the percentage of growth in the highlighted sub-indicators from 2019 to 2020

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Environmental certification

Study on the CSR Reports of A-share Listed Companies (Condensed)

Reduction of three types of waste
In 2020, 695 companies, or 62.84%, reported that they had measures or policies in place to reduce the generationof three types of waste (waste gases, waste water, and industrial residue). By sector, manufacturing was home to the mostdisclosing companies (373); the pharmaceutical sector had the highest disclosure rate, at 85.9%, while the energy
production and supply sector placed second at 81.8%.
Circular economy
This sub-indicator assesses policies and measures taken by companies to use renewable energy or adopt circular
economy models in their business operations. In 2020, 341 or 30.83% of companies disclosed their efforts to develop acircular economy. By sector, the energy production and supply sector, and the environmental protection and public
utilities sector had relatively high disclosure rates, at 42.4% and 41% respectively.
Environmental certification
In 2020, a total of 423 companies disclosed that they had achieved the Environmental Management Systems (EMS)
standard, (ISO14001). Of these, the manufacturing sector had the largest number of disclosing companies and highest
disclosure rate, at 266 and 53.5% respectively, followed by the pharmaceutical sector at 51.3%.

Summary of environmental responsibility
Over the past 500 years, human society has undergone three industrial revolutions. These raised productivity,
increased the efficiency of natural resource usage, and generated economic value, but at the same time, they seriously
damaged the natural environment. As a result, our planet faces serious environmental challenges such as ozone depletion, nuclear pollution, water pollution, biodiversity loss, and global warming. The Union of Concerned Scientists, which
was founded by faculty at the Massachusetts Institute of Technology (MIT), warns that: “Human beings and the natural
world are on a collision course. Human activities inflict harsh and often irreversible damage on the environment and on
critical resources. If not checked, many of our current practices put at serious risk the future that we wish for humansociety and the plant and animal kingdoms, and may so alter the living world that it will be unable to sustain life in themanner that we know. Fundamental changes are urgent if we are to avoid the collision our present course will bringabout.17”
At the 75th session of the United Nations General Assembly held on September 22, 2020, China, a major contributor
to CO2 emissions, pledged to “scale up its Intended Nationally Determined Contributions by adopting more vigorous
policies and measures, and strive to have CO2 emissions peak before 2030 and achieve carbon neutrality before
2060.”18 Against this policy background, A-share listed companies showed greater environmental awareness andstepped up their investment in environmental protection in 2020. The market values environmental performance. In a
study, the researchers Shameek Konar and Mark A. Cohen found that poor environmental performance could cause afirm’s market capitalization to shrink while negatively impacting the firm’s tangible and intangible assets. They alsosuggested that companies pay attention to and take measures to protect the natural environment in which they operate.
The improvement in the natural environment could give them a “bonus.”19

Social contributions and charity
This indicator comprises nine sub-indicators: donations, social contribution value per share, contribution to education, charitable activities, volunteering, international aid, job creation, contribution to economic growth, and layoffs. CSR
reports for 2020 showed that reporting companies were extensively involved in social welfare activities in that year.
Extensive involvement in social welfare activities
In 2020, 958 companies disclosed their engagement in social welfare activities, 103 more than the previous year,
representing 86.6% of the total and a similar level to 2019. Overall, the number of companies that made charitable dona-134

2022 CEIBS ESG White Paper

Disclosures of contributions to education, charitable activities, and volunteering from 2016–2020
1000

919

800

703

702

625

600

521
441

509
425

387

400

616
458

452
364

280
200
0

201

2016

2017

Contribution to education

2018

Charity activities

2019

2020

Volunteering

tions rose from 2016–2020.
In 2020, 702 companies disclosed their efforts to support education, 77 more than the previous year. The proportionof A-share listed companies contributing to education grew at an average annual rate of 12.32% between 2016 and 2020.
By sector, 300 companies from the manufacturing sector and 86 from the financial sector made disclosures, outnumbering other industries. In terms of the disclosure rate, the financial sector, and the culture, sports, and entertainment sector
led the field with 87.8% and 73.5% respectively, in contrast to a lower rate of 49.2% in the environmental protection andpublic utilities sector.
Total donations in 2020 stood at RMB 12.13701 billion. 919 companies made charitable donations, a significant
increase of 216 from the previous year. The number of A-share listed companies contributing to charitable activities grewat an average annual rate of 46.22% between 2016 and 2020. By sector, 405 companies in the manufacturing sector and
94 in the financial sector made disclosures, outnumbering other industries. In terms of the disclosure rate, the financial
and pharmaceutical sectors took the lead with 95.9% and 94.9% respectively, while the rate in the electricity, heating, gas,
and water supply sector was lower at 72.7%.
In terms of volunteering, in 2020, 616 companies disclosed their participation in volunteering activities, 158 morethan the previous year. The number of A-share listed companies engaging in volunteering activities grew at an averageannual rate of 12.32% between 2016 and 2020. By sector, manufacturing made the largest number of disclosures with
273 companies, followed by 66 companies from the financial sector. Transportation, warehousing, and postal services
reported the highest disclosure rate at 78%, followed by electricity, heating, gas, and water supply at 69.7%, which was
far higher than the average of 35.7% for other sectors (including mining, agriculture, forestry, animal husbandry, andfishery).
Reporting companies’ charitable efforts have two main positive impacts on society: job creation and contribution toeconomic growth. In terms of job creation, in 2020, 690 (62.4%) companies disclosed their implementation of job creation
measures, up by 127 or 22.56% from 2019. The number of disclosing companies maintained an annual growth rate of
26.91% from 2016–2020. In terms of contributions to economic growth, 406 (36.7%) companies disclosed that theirbusiness operations facilitated local economic growth and community development, and that they had implemented
policies and measures to drive local economic development (e.g. localized sourcing and employment policies), 37 morethan the previous year. In 2020, 21 of the 55 HCECL companies, or 38.2%, disclosed that their operations positively
impacted local economic and social development.

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Study on the CSR Reports of A-share Listed Companies (Condensed)

Summary of social contributions and charity
The famous 18th-century English writer Samuel Johnson defined philanthropy as the unique love of humankind thatderived from human goodness. In the early 20th century, the United States began to develop its philanthropic system asa social science discipline with humanistic characteristics, while defining philanthropy as private initiatives for the public
good, focusing on quality of life. According to the Nobel Prize-winning US economist Gary Becker, philanthropy is about
giving your time and goods to a person or organization in which you have no personal interest.
Scholars have summarized the following reasons for corporate involvement in charitable donations. 1) A strategic
perspective: In 2002, Porter and Kramer coined the concept of “strategic philanthropy”, and they believed that companies could use their charitable efforts to improve their competitive context and strategic positioning, enhance their corporate image and reputation, and thus improve their long-term business prospects20. 2) An altruistic perspective: Companies fulfill their social responsibilities through a selfless contribution to society by making charitable donations21. 3)
Political and institutional perspectives: Through charitable donations, companies can seek material benefits from, or
establish and maintain political relationships with the government, thereby realizing corporate earnings22. 4) A management perspective: Corporate managers can enhance their visibility and status within their industry through charitable
donations.23
Philanthropy has positive significance for social development. If used wisely, it can increase overall happiness,
reduce social tensions, enhance social cohesion, narrow the gap between the rich and poor, improve the quality of life ofvulnerable groups, and promote social harmony. Statistics show that in 2020, reporting A-share listed companies deepened their participation in charitable activities. While continuing to support the domestic fight against the COVID-19
pandemic, Chinese companies are also providing support to other cities worldwide, demonstrating a spirit of mutual help
and assistance.

Overview of CSR disclosures by A-share listed HCECL companies
Carbon neutrality was a big buzzword in 2020. At the general debate of the 75th session of the United Nations General Assembly, China’s President Xi Jinping stated that “China will scale up its Intended Nationally Determined Contributions
by adopting more vigorous policies and measures, and strive to have CO2 emissions peak before 2030 and achievecarbon neutrality before 2060.” In December 2020, the Central Economic Work Conference listed “carrying out carbon
peaking and carbon neutrality work” as its key tasks for the coming decades.
Of the 1,106 companies that disclosed CSR reports in 2020, 55 were HCECL companies. These accounted for just
4.97% of the total, but their disclosure rates were higher than non-HCECL companies in the following areas.
External publicity of CSR practices
In 2020, 54 of the reporting HCECL companies, or 98%, published CSR columns on their websites, a higher disclosure rate than non-HCECL companies. By sector, manufacturing accounted for the highest share with 29 companies or
52.7%, followed by environmental protection and public utilities, at 14 companies or 25.5%. Of the remaining companies,
five were in transportation, warehousing, and postal services, another five in electricity, heating, gas, and water supply,and one in communications, software, and IT services.
CSR leadership teams
By 2020, a total of 35 HCECL companies had established dedicated departments or teams for CSR management,
accounting for 63.6% of all reporting HCECL companies. This was higher than the disclosure percentage for non-HCECL
companies. By region, 80% of these companies were from east China, 5.7% from the northeast, and 14.3% from central
China. By sector, 17 of the companies were in manufacturing, accounting for the largest share, followed by eight companies in environmental protection and public utilities, five in electricity, heating, gas, and water supply, four in transporta-

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2022 CEIBS ESG White Papertion, warehousing, and postal services, and one in communications, software, and IT services.
Valuing customer opinions
In 2020, a total of 408 non-HCECL companies disclosed that they conducted customer satisfaction surveys,
accounting for 36.9% of all CSR report disclosures. By contrast, 31 HCECL companies conducted customer satisfaction
surveys in 2020, accounting for 56.4% of all reporting HCECL companies. By sector, manufacturing topped the list with16 companies, accounting for 51.6% of the total, followed by 6 companies in environmental protection and public utilities(19.4%), 5 in transportation, warehousing, and postal services (16.1%), and a few in other industries.
Employee incentives
In 2020, a total of 32 HCECL companies disclosed their remuneration incentives, such as stock options to encourage
employees to share ownership, earnings, and financial information of their companies and participate in management
decision making. These 32 companies accounted for 58.2% of all reporting HCECL companies, which surpassed the
46.3% disclosure rate of non-HCECL companies. By sector, 20 companies (32.5%) were in manufacturing, 5 (15.6%) in
environmental protection and public utilities, 3 in electricity, heating, gas, and water supply (9.4%), 3 in transportation,
warehousing, and postal services (9.4%), and 1 in communications, software, and IT services.
Focus on employee benefits
In 2020, 48 of the 55 HCECL companies disclosed their supplementary benefits for employees, representing a
disclosure rate of 87.3%, higher than the 78.6% disclosure rate of non-HCECL companies. By sector, manufacturing andenvironmental protection and public utilities dominated these disclosures, with 26 and 12 companies respectively.
Improving professional qualities and employee care
In 2020, 50 HCECL companies disclosed on-the-job training for employees, accounting for 91% of the 55 reporting
HCECL companies. By region, east China had the most disclosing companies at 33, accounting for 66% of the total,
followed by 9 companies (18%) from central China, and 6 companies (12%) from the northeast, with only 2 (4%) from west
China.
With concern to employee care, 47 of the 55 reporting HCECL companies disclosed employee care policies ormeasures, including leadership visits, annual health inspections, childcare, and presentations on mental health in theworkplace, representing a disclosure rate of 85.5%, which is above the 73.6% rate for non-HCECL companies. By
business type, SOEs led the pack with a total of 44 disclosing companies, followed by 2 disclosing private companies
and 1 joint venture.
Environmental responsibility
Owing to China’s carbon neutrality policy, HCECL companies performed better and boasted higher disclosure rates
for the environmental responsibility indicator than their non-HCECL counterparts in 2020. With respect to environmental
benefits, 42 HCECL companies disclosed that they had developed or utilized environmentally beneficial products, equipment, or technologies, accounting for 76.4% of the 55 reporting HCECL companies. By region, east China had the largest
number of disclosing companies at 29, or 69% of the total, followed by central China at 9 (21%), the northeast at 3 (7%),
and west China with just one company (2%).
In terms of energy conservation, 43 HCECL companies disclosed that they had energy saving measures andtechnologies, accounting for 78.2% of the total. By sector, manufacturing contributed the most disclosing companies, at
23, or 53% of the total, while the environmental protection and public utilities sector placed second with 12 companies(28%). Companies from these two sectors collectively accounted for more than 80% of the total.
47 HCECL companies, or 85.5%, disclosed measures and technologies they used to reduce the generation of three
types of waste (waste gases, waste water, and industrial residue). By region, east China was the most active in controllingemissions with 31 companies or 66% of the total, followed by central China with 9 companies (19.1%), west China with 3137

Study on the CSR Reports of A-share Listed Companies (Condensed)

companies (<10%), and northeast China with 4 (<10%).
33 HCECL companies disclosed their measures to develop a circular economy, accounting for 60% of the total. Of
these, 31 were SOEs, accounting for 94% of the total, while there were only 2 private companies that disclosed suchmeasures, or 6% of the total.
40 HCECL companies, or 72.3% of the total, disclosed their participation in environmental protection and publicwelfare activities. By municipality/province, Beijing, Guangdong, and Shanghai topped the list, with 14 companies from
Beijing, 4 from Guangdong, and 4 from Shanghai, accounting for 35%, 10%, and 10% respectively. No other municipality
or province had a share of more than 10%.
Social contributions and charity
In 2020, 72.3% or 40 of the 55 reporting HCECL companies disclosed charitable donations, with a combined total of
RMB 874.0127 million. By sector, 29 manufacturing companies donated RMB 622.2 million in total, topping other industries; 15 environmental protection and public utilities companies donated a combined RMB 211.61 million; 5 transportation, warehousing, and postal services companies donated RMB 19.09 million; 5 electricity, heating, gas, and watersupply companies donated RMB 14.88 million; and 1 communications, software, and IT services company donated RMB
6.24 million. For three other sub-indicators, namely contribution to education, charitable activities, and volunteering,
reporting HCECL companies had disclosure rates of 63.6, 78.2, and 74.5% respectively.

Year-on-year comparison of CSR report indicators
Weighted average score for all indicators

Weighted average CSR indicator score for A-share listed companies from 2016–2020
47.4

Electricity, heat, gas, and water supply
Transportation, warehousing,and postal services

51.9
52.3

by sector

Real estate
Environmental protection
and public utilities

49.4
46.4

Culture, sports, and entertainment
Communications, software,and IT services

47.5
52.1

Pharmaceutical

48.6

by businesstype

by region

Wholesale and retail
Manufacturing

50.1

Finance50.4

Northeast

47

West

49

Central

51

East

50

Joint ventures

51

Private companies

50

SOEs

50
0

10

20

30

40

50

60

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2022 CEIBS ESG White Paper

In 2020, the 1,106 reporting A-share listed companies recorded a weighted average score of 49.69 (out of 100) andmedian of 49.11 for all CSR indicators, an increase of 1.1 points or 2.3% from the previous year. This score rose every year
from 2016 to 2020, but is still far from the “pass mark” of 60.
The scores for all sectors improved in 2020. The real estate sector scored the highest at 52.3, up 6.5 points from theprevious year; the pharmaceutical sector came in second at 52.1; then came transportation, warehousing, and postal
services at 51.9, up 6.7 points from the previous year. Between 2017 and 2020, the culture, sports, and entertainment
sector had the highest average annual growth at 13.39%, followed by communications, software, and IT services at
9.03%.
By business type, both SOEs and private companies scored 50 in 2020, up 2 points each from the previous year;
joint ventures scored 51, slightly lower than the previous year but higher than the scores of SOEs and private companies.
The CSR scores for these three types of companies all gained steadily from 2016 to 2020.
By region, excluding companies in west China, where scores were flat with the previous year, companies in otherregions reported rising scores in 2020, with central China up by 4 points, west China by 2 points, and northeast China
with the highest increase of 11.9%, up by 5 points.
Median score by indicator category: A-share listed companies vs. HCECL companies
In 2020, the medians of all seven indicator categories held steady or increased. Specifically, the medians of three
indicator categories, namely CSR management, product quality and innovation, and social contributions and charity
increased by 18.57, 1.25, and 2.55 points respectively from the previous year, indicating that they are receiving increasing
attention from A-share listed companies. The medians of the other four indicator categories remained the same as in2019.

Median score by indicator category: A-share listed companies vs. HCECL companies
HCECL companies

A-share listed companies (excluding HCECL companies)

50

61.42

Company operations and management

66.67

66.67

Product quality and innovation

50

38.75

Employee wellness

75

62.5

Diversity and equal opportunities

25

25

Environmental responsibility

62.5

37.5

Social contributions and charity

50

46.25

Indicator category
CSR management“Carbon neutrality” and “carbon peak” were big buzzwords in 2020. Spurred by government policies, Chinesecompanies began to engage in a series of energy-saving and emission reduction activities: pushing through reforms at
companies with high energy consumption, pollution, and emissions; improving the efficiency of renewables; and using
digital technology to drive innovation.
In 2020, the weighted score of the 55 reporting HCECL companies for the overall CSR indicator was 56.29 (out of100), slightly higher than the weighted score of 49.64 for A-share listed companies (excluding HCECL companies). When
comparing median scores for different indicators, HCECL companies outperformed A-share listed companies in four
categories, namely product quality and innovation, employee wellness, environmental responsibility, and social contributions and charity. Both categories of company had the same median scores for company operations and management,
and diversity and equal opportunity. It is worth noting that the median score of HCECL companies for environmental
responsibility was 25 points higher than that of A-share listed companies, which was the largest gap across all categories.

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Study on the CSR Reports of A-share Listed Companies (Condensed)

This divergence can be explained by the enhanced regulation and mandatory disclosure requirements imposed by
China’s 30-60 targets.

Analysis of the economic value of CSR reports
The economic value of CSR reports is a major concern for investors in the capital markets. This study explored theissue of economic value by constructing an investment portfolio based on information in the reports and measuring its
profitability. We chose companies with a CSR score of over 60 for both the weighted average of all indicators, and eachindividual indicator category. To measure the excess returns from this portfolio, we bought shares of these companies on
January 1, 2021, and sold them on December 31, 2021.① The result was an annualized return rate of 11.52% for thecomposite CSR indicator (comprising all seven categories, including CSR management, company operations andmanagement, product quality and innovation, employee wellness, diversity and equal opportunities, environmental
responsibility, and social contributions and charity). The following are the excess returns for each individual indicator
category:

Annualized excess returns for the composite CSR indicator (by category)Social contributions and charity

6.03%

Environmental responsibility

10.56%

Diversity and equal opportunities

5.68%

Employee wellness

12.53%

Product quality and innovation

6.45%

Company operations and management

9.67%

CSR management

9.34%

Composite CSR indicator
0.00%

11.52%
3.00%

6.00%

9.00%

12.00%

15.00%

Grouping by CSR management
This indicator measures how much a company values social responsibility by looking into its performance in areas
such as education and training, report assurance, and report inclusiveness. Sound CSR management is a prerequisite fora high quality CSR report. After grouping companies by their score for this indicator, the study found that the portfolio
yielded an annualized excess return of 9.34%.
Grouping by company operations and management
This indicator comprises six sub-indicators: strategic cooperation and sharing, anti-bribery and anti-corruption,① The excess return was defined as the stock’s return in excess of the corresponding market index. For instance, the excess return of an A-share stock in the Shanghai Stock
Exchange is its monthly return minus the Shanghai Composite Index.

1402022 CEIBS ESG White Paper

business integrity, recognition of governance efforts, accounting irregularities, and financing disputes. The comprehensive evaluation of corporate governance paves the way for a company’s future development. After grouping companies
by their score for this indicator, the study found that the portfolio yielded an annualized excess return of 9.67%.
Classification by product quality and innovation
This indicator includes, among others, sub-indicators for quality management, customer satisfaction, patents, andR&D expenditure. They have a significant bearing on the company’s economic value because of their critical role inhelping the company retain customers and acquire competitive advantages. After grouping companies by their score forthis indicator, the study found that the portfolio yielded an annualized excess return of 6.45%.
Classification by employee wellness
This indicator represents a company’s investment in its employees. Employees are the cornerstone of a company’s
development. Paying attention to the wellness of employees will contribute significantly to the company’s development in
the long run. After grouping companies by their score for this indicator, the study found the portfolio yielded an annualized
excess return of 12.53%.
Classification by diversity and equal opportunities
This indicator emphasizes paying attention to women, the disabled, people released from labor re-education, andother vulnerable groups. After grouping companies by their score for this indicator, the study found that the portfolio
yielded an annualized excess return of 5.68%.
Classification by environmental responsibility
This indicator includes, among others, sub-indicators for environmental benefits, energy conservation, reduction of
three types of waste, circular economy, and green office. After grouping companies by their score for this indicator, thestudy found that the portfolio yielded an annualized excess return of 10.56%.
Classification by social contributions and charity
This part includes donations, charitable activities, and contributions to education. After grouping companies by theirscore for this indicator, the study found that the portfolio yielded an annualized excess return of 6.03%.
Based on the actual excess returns recorded in this study, we believe that the CSR performance of companies canserve as a reference for investors. We will continue to follow up and conduct in-depth research on the medium tolong-term (three years and above) investment returns that these companies provide.

Conclusion
The available theoretical and empirical evidence demonstrates that CSR practices are of strategic importance tocompanies in a number of ways. On the theoretical side, Paul C. Godfrey proposes that engaging in CSR activities helps
companies to increase intangible capital and enhance their reputation, market value, and market recognition24; Daniel B.
Turban found that a company’s CSR reputation can motivate its employees to increase productivity, thus creating aharmonious working environment for the company25; Homer H. Johnson found that being socially responsible can provide
a unique way for companies to build their competitive advantage and improve financial performance26; R. C. Mayer et al.
argue that CSR practices can help a company deepen its relationship of trust with partners and further reduce the costof cooperation27; Shapiro Carl believes that good corporate social performance will positively influence consumer buying
behavior, increasing consumer loyalty, satisfaction, and repeat purchases28.
On the empirical side, a 2011–2015 study of 2,304 A-share listed companies made the following findings: (1) The
fulfillment of social responsibility and the sustainable development of companies are significantly correlated, i.e. companies’ socially responsible behavior will boost their sustainable development; (2) The fulfillment of social responsibility141

Study on the CSR Reports of A-share Listed Companies (Condensed)

helps extend a company’s socioemotional wealth (SEW), a long-term strategic wealth that enhances social impact andcorporate value, and ultimately contributes to healthy and sustainable corporate development.29 Therefore, both theoretical and empirical evidence suggest that fulfilling social responsibility contributes to companies’ future development.
The “2020 Study on the CSR Reports of A-share Listed Companies” gives a holistic account of the CSR performanceand disclosures of A-share listed companies in China. It may help regulatory authorities better understand CSR disclosurein capital markets and enable individual investors, intermediaries, and securities analysts to improve their investment
decisions. We will continue to follow up on the CSR performance of listed companies in China.

References
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2007,32(3), pp. 946-967.3.
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265-279.）
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University, 2017.

1422022 CEIBS ESG White Paper

Afterword

The economic consequences of the Covid-19 pandemic and pressing environmental issues such as
climate change, resource shortages, and biodiversity loss have underscored the urgent need for sound global
economic governance. In recent years, ESG has gained considerable traction around the world, and has
never been so closely intertwined with real business practices.
The ESG movement was spearheaded by companies, which today face not only formidable challenges,
but also rare historic opportunities. However, the business world still has a long way to go. Over the past 27
years, CEIBS has been committed to nurturing socially responsible, enterprising leaders that are versed in“China Depth, Global Breadth” and aligned with the School’s motto of “Conscientiousness, Innovation, andExcellence”. Throughout the years, CEIBS has consistently sought to sow the seeds of faith and virtue in thebusiness community to promote business prosperity and social progress.
With its focus on carbon neutrality, the China Europe International Business School ESG White Paper
2022 combines the forward-looking perspectives of CEIBS faculty and researchers on ESG and sustainability
with the hands-on experience of CEIBS alumni companies. The white paper offers a glimpse into how the
CEIBS community has explored the evolution of ESG and pursued social responsibility.
This year marks the fifth consecutive year that CEIBS, together with the Alumni Association, has released
a white paper on corporate social responsibility, and more notably, this year’s white paper has been officiallyrenamed an ESG White Paper. We are grateful to the leadership of the School for their staunch support andencouragement which made our work possible. Our thanks also go to the Case Center, Alumni Relations
Office, Marcom Department, and Translation Department for their indispensable help during the compilationof this paper.
We are especially indebted to the CEIBS Alumni Association for ardently advocating CSR concepts andpractices, and demonstrating the qualities of a responsible business leader. Our thanks also go to alumni
companies and organizations, such as SEE, 37 Interactive Entertainment, INCOM Recycle, Landsea, andSaint-Gobain (China), for pursuing performing social responsibility across a spectrum of industries and fields,
contributing a wealth of case materials, and showcasing best practices and results.
We would like to conclude this report with an old Chinese saying: “Long and difficult as the journey may
be, sustained actions will take us to our destination; as long as we press ahead with perseverance, a bright
future will beckon”. Guided and inspired by our “co-culture”, the CEIBS community will continue to work
together to break new ground in the field of ESG.
Editorial Board

May 10, 2022

143

ESG WhitePaper

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