Deluge to Drought: China’s 2035 Climate Action Plan Takes on New Urgency

August 26, 2022

China’s lurch from major flooding in Guangdong to a nationwide drought warning in under three months underscores the urgency and importance of China’s expansive national climate action plan, released in June. 

In addition to pointing to substantial sustainable financing needs, China’s 2035 plan calls for a mandatory climate and environment risk disclosure system that would change how banks and asset managers assess individual assets and portfolios. 

This is because China’s mandatory climate risk reporting regime would encourage businesses and financial institutions to pursue transformation strategies, pathways, and goals that align with China’s national carbon peaking and carbon neutrality goals. 

In September 2020, China said that it would reach peak greenhouse gas (GHG) emissions by 2030 and carbon neutrality by 2060. All companies operating in China will have to comply with the domestic laws and regulations that are ushered in to support China’s climate goals. 

By comparison, the US Securities and Exchange Commission’s proposed mandatory climate reporting rule is narrower. It would require US public companies to report their climate change-related physical and transition risks and their GHG emissions when they file registration statements and in annual filings, and only companies that have made public net-zero commitments have to report on their net-zero plans. 

China’s 2035 climate action plan doesn’t say if China’s climate risk disclosure framework will be Task Force on Climate-Related Financial Disclosures-aligned. But China’s existing requirement that domestic public companies report using IFRS Standards and the People’s Bank of China’s Guidelines for Financial Institutions Environmental Information Disclosure, released in July 2021, suggest that China will tend towards alignment with international sustainability reporting standards.  

In addition to mandatory disclosure, China said that it would build a fiscal policy system conducive to combating climate change and that it would guide financial institutions to scale up green financing through carbon reduction support tools, while also encouraging financial market participants to invest in climate adaptation projects. 

To ensure that financial market participants are incentivized to play a positive role in providing funds for adaptation to climate change, China’s plan calls for encouraging the development of bonds linked to sustainable development, catastrophe insurance, and climate risk insurance in key areas. 

Drilling Down 

Substantial portions of China’s 2035 roadmap cover developing and enhancing weather and climate forecasting and monitoring systems and building advanced water management systems and water resource distribution projects that can enhance China’s ability to deal with water-related disasters of different levels and intensities. 

In the agricultural space, the 2035 plan is focused on ensuring national food security and the supply of important agricultural products. China said that its crop variety layout will be adjusted and expanded to the north in a modest way and that efforts to prevent the spread of pests and disease northward will be taken. With the goal of developing climate smart agriculture, China also said that it plans to moderately expand the double cropping of rice in the eastern China. 

On the infrastructure side, by 2035, China said that it will design standards for coping with climate disaster in coastal dams, highways, power plants, airports, ports, and wharves. 

To improve the climate resiliency of the energy industry, China’s 2035 strategic plan calls for promoting the application of energy storage, smart grids, digitization, and other technologies, as well as strengthening the country’s power infrastructure’s emergency planning system. 

The Big Picture 

The overarching aim of the new national climate action plan is to strengthen China’s response to climate-related risks by bolstering and supporting national mitigation and adaptation efforts. 

According to the 2035 roadmap, achieving China’s climate resilience goals will require the creation of new national laws, regulations, and systems related to mitigation, adaptation, and ecosystem protection. 

On mitigation and adaptation, China’s plan said that actions and measures with synergistic benefits will be prioritized. In practice, this could mean that a company that is undertaking a resilience initiative does so in a way that simultaneously reduces emissions.   

In its climate action plan, which was developed by China’s Ministry of Ecology and Environment and 16 other state agencies, China said that priority will be given to nature-based solutions that advance climate change adaptation and ecosystem protection. It also announced plans to establish a national monitoring and protection system for biodiversity conservation and to conduct surveys and assessments of biodiversity conservation in priority areas. 

Earlier this year, the International Panel on Climate Change listed China as one of the countries that will be hardest hit by climate change. Also, in a February report urging action on adaptation, the IPCC fleshed out the concept of Climate Resilient Development, which as a concept links the corporate language of ESG to the UN’s broader Sustainable Development Goals. At its core, Climate Resilient Development implements GHG mitigation strategies and adaptation options to support sustainable development.