China ICT transition: The good, bad & ugly of 5 HKEX ICT listco’s net zero pledges & climate action
By CWR 20 September, 2023
How can China's ICT giants accelerate their transition to net-zero emissions & seize green finance opportunities? CWR releases its groundbreaking report
Hong Kong, 7th September 2023 – CWR releases a new report, “China ICT transition: The good, bad & ugly of 5 HKEX ICT listco’s net zero pledges & climate action”, which highlights tremendous opportunities in carbon cuts and green finance.
CWR analyses 5 HKEX ICT listcos’ climate pledges, uncovering huge emissions reduction potential & green finance opportunities in China’s ICT sector
It revealed that emission cuts from just five companies listed on the Hong Kong Stock Exchange (HKEX) can be as much as 2.5x Hong Kong’s annual greenhouse gas emissions and green finance to be tapped for this transition can amount to billions of dollars.
The five ICT giants analysed by CWR – Alibaba, Baidu, China Mobile, Tencent and Xiaomi – are not just listed on the HKEX but are also an integral part of the Hang Seng Index, comprising over a fifth of the index.
In net zero efforts, the 5 China listcos lag behind their Silicon Valley counterparts; former emitting 3/4th of latter’s emissions despite making up only 1/7th of their market cap
However, the think tank said that these five ICT giants lag their Silicon Valley of Alphabet, Amazon, Apple, Meta and Netflix in the race to net zero.
To provide perspective, the report noted that the combined market cap of the five HKEX listco’s of US$880bn is only a 1/7th of their five NASDAQ counterparts, whereas the combined all-scope emissions of the five HKEX listco’s of 87 million tonnes of greenhouse gas emissions (MtCO2e) are 3/4th of their five NASDAQ counterparts (see infographic below).
ICT is dirty and must step up renewable sourcing
“China ICT can certainly step up renewable sourcing and deliver massive carbon cuts” said Dharisha Mirando, CWR’s Finance Lead and co-author of the report.
“For the five HKEX ICT listco’s, the highest renewable energy sourcing rate is around 7%, whereas Alphabet, Apple, Netflix and Meta have already achieved 100% through a combination of on-site and off-site renewable production, green power purchase agreements, and carbon credits” she added.
The ICT sector is an “enabler” for efficient and effective climate actions, but not many people realise the sector itself has grown into a sizeable contributor to global emissions. Hongqiao Liu, China carbon expert and co-author of the report explains, “data centres, the ‘brains’ and telco networks, the ‘veins’ of the ICT sector, are particularly power hungry. Together, their soaring energy demand can consume almost 60% of global ICT’s electricity by 2030 without adequate mitigation actions”.
Global ICT contributes 2-4% of global GHG emissions…
…the rise of AI, ChatGPT & launch of China chatbots will exacerbate this
“Global ICT accounts for 2-4% of global greenhouse gas emissions annually. This might not sound like a lot, but the magnitude is sobering – at 4%, it’s equivalent to the combined annual gas emissions of Japan & Germany” said Debra Tan, Director & Head of CWR.
The ICT sector is also water intensive and faces material water risks which are amplified and accelerated by the sector’s own significant carbon contributions.
Tan said that this was why CWR felt compelled to write a report to accelerate sizeable emissions cuts and green finance innovations to facilitate them.
Growth in AI and ChatGPT will only fuel emissions growth
CWR’s report is especially topical and timely with the rise of AI, , and the launch of China chatbots. Unless reined in, ICT sector emissions will only track global ICT sector growth, which is expected to be exponential. In China, where the ICT sector is already outpacing the country’s annual GDP growth as well as global ICT sector growth, it is even more important to fast track transition.
Already, the report noted that data centre emissions in China grew by 41% in just one year to 135MtCO2 in 2021. This y-o-y increase of 39MtCO2 is more than Hong Kong’s annual greenhouse gas emissions. “If left unchecked, carbon emissions from data centres in China are projected to balloon to 340MtCO2 by 2030 – this is comparable to the energy-related carbon emission of the UK today” warned Liu.
China ICT, now a “dual high” industry, starting to step up
The good news is that three of the companies analysed by CWR – Alibaba, Baidu, and Tencent – already have net zero pledges in place; whereas the other two – China Mobile and Xiaomi – have made various carbon pledges.
Only 12MTCO2e of the 87MtCO2e of the 5 companies’ emissions have net zero pledges…
…if all 5 tackle Scope 2 this would increase to 21MtCO2e
However, these ICT giants can do much. According to Mirando, “only 12MtCO2e of the total all-scope emissions of 87MtCO2e is actually under a net zero pledge, but this could almost double to 21MtCO2e if Baidu & Alibaba also included their Scope 3 emissions in their net zero commitments”.
CWR’s Mirando is confident that China ICT can deliver: “There’s no reason why the five HKEX ICT listco’s cannot catch up with their Silicon Valley counterparts, because if they tackled Scope 2 emissions from electricity use, this can negate up to 41MtCO2e – this is equivalent to the annual emissions of Switzerland.”
Ultimately, these companies may not have a choice as China is tightening climate regulations for the sector to bring it in line with national dual-carbon goals of peaking carbon before 2030 and carbon neutrality by 2060. According to Liu, “China now classifies data centres as a “dual high” industry due to its high energy use and high emissions. This means that ICT will be regulated alongside steel and cement. Shockingly, these hard-to-abate sectors have plans to peak emissions ahead of ICT!”
The report noted that to accelerate sector decarbonisation, the government has this year, launched a public sector pilot to procure from data centres powered by 100% renewables by 2032.
Big green finance opportunity: increase renewable investing from US$40mn to US$2bn at a minimum
China’s lead in green bonds + Alphabet/Apple spending US$2bn on RE compared to US$40mn by Alibaba, Baidu & Xiaomi = untapped green bond opportunity
However, the ICT sector cannot transition without finance. Although China topped the 2022 global green bond issuance with US$76bn raised, ahead of Germany and the US, CWR believes that China ICT can bring to the table. “There is a big upside for green finance – Alphabet & Apple raised US$8bn in green/sustainability bonds in the past few years and allocated over US$2bn of this to renewables; on the other hand, Alibaba, Baidu and Xiaomi only allocated US$40mn to renewables out of the US$2bn of green bonds raised.” enthused Mirando.
She added that “More green bonds and higher allocations to renewables will fast track Scope 2 emission cuts. Banks, especially those which have pledged net zero, should not miss out on supporting these large ICT players with their net zero journey.”
Analyzing listcos’ transition was challenging…
…but CWR feels deciphering their climate action was worthwhile if it facilitates action
Unpacking the good, bad and ugly of the HKEX ICT listco’s transition has not been without challenges.
Disclosure can certainly be improved: the think tank cited reporting discrepancies from multiple reporting, inconsistent definitions and Scope 3 accounting and even year-on-year definition changes within one company without clarifications.
However, CWR remains hopeful – as Tan said, “Deciphering the five HKEX ICT listco’s climate actions has certainly been challenging, but worth it if the report and company factsheets can help investors, bankers and other stakeholders not only get up to speed with China’s ICT sector transition but also see the massive green energy procurement, efficiency retrofitting, green financing and carbon market opportunities within the sector.”
Action by just 5 listco’s could decarb a fifth of Hang Seng Index
Urgency in emission cuts is clear after a summer of extreme weather events
Such actions are welcomed, and especially urgent after this summer of record-breaking heatwaves and deadly floods, typhoons and fires which forced hundreds of thousands of people to flee their homes. China alone, this summer’s floods have displaced over a million people.
If the 5 listcos speed up in their race to net zero, other heavyweights like Meituan & JD may follow suit
“This summer’s glimpse of ‘climate hell’ means that we need sizeable emissions cuts and we need them fast, way ahead of 2050” urged Tan. “Our report shows that the five HKEX listco’s have the size and means to deliver this by 2030” she added. Indeed, Alibaba and Tencent’s Hang Seng Index weighting is similar to that of HSBC and AIA.
If these five listco’s sped up their race to net zero, other ICT heavyweights like Meituan, JD, Bytedance and Huawei will follow. Already, ByteDance has recently committed to reduce at least 90% of operational emissions and achieve operational carbon neutrality by 2030.
Full commitment by the 5 listcos = decarbonize 1/5 of Hang Seng Index…
…a worthy endeavor for HKEX & HK’s finance industry
Let’s see if the rest will follow suit.
“If all of the five HKEX ICT listco’s fully commit to the race to net zero, we can decarbonise over a fifth of the Hang Seng . Now, that’s something the exchange and Hong Kong’s financial industry should throw their weight behind” said Mirando.
For more information on the China ICT sector’s transition and the net zero pledges of Alibaba, Baidu, China Mobile, Tencent and Xiaomi, please see the full report here.
Report Link:
This report was funded by the European Climate Foundation.
For more information, please contact: Dharisha Mirando
Email: dmi@cwrrr.org
For more stats and infographics please access the Media Pack.
Further readings
- IPCC AR6: High Hopes For Oil & The US + China & The Rest Of Us — What’s our best chance to stay within 1.5C? Check out CWR’s key takeaways from the latest IPCC AR6 WG3 report on climate mitigation
- 2023 Top 10 Trends in Responsible Investment in China — ESG becomes part of the Chinese path to modernisation. SynTao Green Finance & China Sustainable Investment Forum share their top 10 trends for responsible investment in 2023
- No River, No Power – are we energy secure when rivers run dry? — A new CWR report explores if 10 major climate-sensitive rivers still power 16 countries across Asia
- Engaging Investors: A Conversation With Founder Ben McCarron — McCarron, Founder of ARE, talks to us about his work on harmonizing Asia’s banks and the global climate agenda. Are Asia’s banks keeping pace with changing expectations?
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