Chinese tech gaining ground on western peers in ESG

Analysis of company ESG reports since 2017 finds encouraging progress

China’s technology sector is accelerating the uptake of ESG best practices and incorporating them into their core business strategies, particularly environmental and social considerations. While the governance challenges in this sector are well-documented and addressed by increased regulation, less focus has been given to the progress made in environmental and social domains.

Analysis of the sustainability reports published by major Chinese technology companies reveals a clear focus on industry partnerships, community engagement, social impact, and environmental protection. Though some may criticise the late adoption of ESG practices and reliance on state regulation in China, the sector has made significant progress in embracing sustainability, especially in materials and capital goods, followed by technology.

Integrating ESG

Analysis of Chinese mainland technology companies’ ESG reports since 2017 finds a general trend of significant evolution, greater transparency, and improved performance as their ESG journeys evolve. 

They also increasingly prioritise ESG implementation and have a greater understanding of ESG materiality in their business and wider sectors, including the need to work in partnership with external stakeholders.  

Covid-19 played a significant role in raising their understanding of, and responsibility to address, overall sustainability goals. During the outbreak, Chinese e-commerce/consumer-tech players, such as digital payment and food delivery platforms, played an important role in supporting the economy and overall productivity.  

Chinese technology businesses pursue ESG initiatives to drive internal efficiency, reduce risk, and support talent acquisition and retention. Ant Group, a fintech company, published its first ESG report in 2017, and has since become increasingly ambitious in placing its ESG performance in a more global context. Its latest 2021 sustainability report emphasises financial inclusion, with a series of strategic pillars to guide its ESG trajectory and objectives to 2030, including digital inclusion, green and low-carbon development, technological innovation, and an open business ecosystem. Its ambitious strategy and clear goals have been noted by external rating agencies, including MSCI, which rated the business on a par with its western peers, Visa and Mastercard, on their access to finance metric.

Decarbonisation remains a priority

Unsurprisingly, our analysis finds significant focus on the importance of addressing climate change. Four out of seven companies on our research list have disclosed their carbon neutrality roadmap (see table below), with clear goals and a pathway for achieving carbon neutrality for Scopes 1, 2 and 3 GHG emissions respectively.

Chinese technology companies are investing in green computing to reduce their carbon footprint, including more energy-efficient CPUs and servers, responsible disposal of electronic waste, and new technologies to reduce data center energy consumption.

Technology firms are also adhering to more rigorous ESG standards and placing stringent demands on their suppliers worldwide. Some companies, Alibaba for example, have taken a leading role in achieving a shared goal of addressing climate change and have set Scope 3 GHG targets.

Progress of carbon neutrality among Chinese technology firms

CompanyCarbon neutriality roadmapSpecification of Scope 1,2 and 3 emissionsThird-party certification
Alibaba2021Inventory and methodologyDetails of categories and emission source under each scopeExtended to definition of Scope 3+CECBureau Veritas
Ant Group2021Details of categories and emission source under each scopeCEC
Baidu2022MethodologyEmissions source and emission factor under each scopeBureau Veritas
JD.comDefinition and related business activities (emission source) under each scopeSGS
NeteaseScope of statisticsEmission factorCEC
Tencent2022Inventory and methodology Definition and major emissions activities (emission source) under each scopePWC

Room for improvement

Despite progress, challenges remain in the Chinese technology sector regarding ESG practices. Greater transparency is needed in companies to effectively communicate how ESG creates value and supports business strategies, and to integrate ESG aspects within the business itself. Stakeholder engagement and outreach also require more focus. Key players’ carbon reduction plans lack detail and rigour in achieving carbon neutrality, with exceptions being Baidu, Ant, Alibaba, and Tencent.

Separately, Chinese mainland technology companies have made progress in corporate governance, with independent non-executive directors becoming a feature of leading technology company boards.

However, board diversity remains an issue in general, with gender diversity weak and women in China having low representation on corporate boards. Greater focus is required on diversity of background and expertise in specific areas such as climate change and data security. The Hong Kong Stock Exchange can provide inspiration for ESG factors becoming core for listed businesses.

Board diversity among Chinese technology firms

CompanyNo. of board directorsNo. of women directorsNo. of independent directors
Alibaba123 (25%)7 (58.3%)
Ant Group83 (37.5%)4 (50%)
Baidu504 (80%)
JD.com72 (28.5%)5 (71.4%)
Meituan703 (42.9%)
Netease62 (33.3%)5 (83.3%)
Tencent92 (22.2%)5 (55.6%)
*Based on information disclosure on companies’ investor relations website

Despite the challenges, we see significant long-term growth opportunities and continued investment in technology, which is critical for achieving carbon neutrality targets. As a leading- edge innovator, the sector can become a beacon for ESG in the Chinese mainland, though there is still a long way to go.