ESG legislations and supervision in China
In December 2022, German Centre Beijing and AHK Greater China organized the sixth China 30.60 decarbonisation seminar Using green technologies and clean energy, restructuring industries, and achieving China’s 30.60 goals requires significant investments as companies shift to new technologies, services, and business models.
The seminar presented an overview of China’s ESG-related legislation and supervision. It also introduced support measures for the smooth transition towards low-carbon and resource-efficient operations, including China’s carbon emission trading system market, ESG investing, and the country’s green tax system and green incentive mechanisms.
Ms. Zhu Jingyu, Chief Representative Officer, Deutsche Börse Group Beijing Representative Office, spoke about ‘carbon emission trading in China and the role of financial markets in facilitating the green transformation’ and described green finance as a key pillar to achieve 30.60 decarbonization goals. She made clear that sustainable finance is playing an increasingly important role in the capital market – both for companies and investors. Green bonds enable targeted investment in environmental projects and support companies to receive capital for green transformation.
Sustainable investments: opportunities for foreign companies
ESG investing is gaining momentum in China: so-called ‘green panda bonds’ thrive amid further opening-up of China’s financial markets and allow foreign issuers to tap into its onshore bond market, based on China-EU common ground taxonomy.
Domestic investor appetite for green assets can help fund the investment needs of companies’ transition to low carbon and climate resilient operations. On the equities side, Chinese Depository Receipts (CDR) offer international companies listing opportunities in China. Different equities offer exposure to sustainable investment themes and the performance is linked to shares or indices from ecological, ethical and social sectors.
Furthermore, Zhu introduced the voluntary carbon market as an important element to generate private investment necessary for decarbonizing the global economy and mitigating climate change; and forecasted continuing significant market growth.
There are two main categories of voluntary carbon credits:
The voluntary carbon market is designed to support corporates who seek to offset their residual or unavoidable emissions and gives companies the opportunity to purchase carbon offsets from verified suppliers. The revenues collected are used to finance carbon reduction projects.
Green taxes and incentives: best practices for German companies
Ms. Iris Pang, Tax Partner and Ms. Stacie Cui, Tax Senior Manager, PwC China, introduced China’s Green Taxes and Green Incentives landscape. They not only provided an overview on a broad range of applicable regulations and categories, but also described challenges in implementation and sharing practical best-practice approaches for German companies in China.
Green taxes are imposed on environmentally harmful business activities, such as pollution, energy consumption, carbon emissions, fuel consumption, waste production and disposal, use of natural resources, motor vehicles and transport.
The case study on a battery producer showed diverse opportunities to leverage green tax incentives along entire value and supply chains, encouraging taxpayers to undertake eco-friendly adjustments of their business activities, leading to significant tax reduction in various tax categories.