China’s 2060 Carbon-Neutrality Target

China’s government in December 2020 announced the country aims to reach a peak in greenhouse-gas (GHG) emissions by 2030 and become carbon-neutral by 2060. How could this commitment affect the risk-return profiles of Chinese companies in various sectors? In this paper, we used MSCI ESG Research’s climate-related metrics and forward-looking estimations to analyze a hypothetical Chinese equity portfolio and check its level of alignment with China’s national target for GHG emissions. We found that, if the national targeted trajectory was maintained, there will be a substantial gap between the projected and targeted GHG emissions levels by 2030 for companies in the MSCI China Index.

Historical and Projected GHG Emission Trajectory: China Nationwide vs. MSCI China Index Constituents (2015-2030)

China national GHG emissions data is sourced from government reports and measured in million metric tons of CO2 equivalent (MtCO2e). GHG emissions for 2030 are estimated using the 2016-2019 three-year average GDP growth rate (6.5%) and the 30-60 Target (65% emission intensity reduction compared with the 2005 level). The trajectory is a best-case scenario calculation, assuming the 30-60 Target will be met on time. Historic GHG emissions of the MSCI China Index constituents are sourced from MSCI ESG Research LLC, and 2030 GHG emissions are estimated based on the 2016-2019 three-year average linear growth rate and 2019 emission intensity. NB: The drop in 2016 GHG emissions may be due to the suspension of industrial production, especially coal and steel, which were heavily regulated that year for overcapacity reasons. The dashed line was calculated using the annual average increase in GHG emissions from 2019 to 2030. The shaded area illustrates the difference between the two trajectories by 2030, not cumulative emissions.