Asia Insight: Air Pollution in China: A Hazy Future? SUN Xi & GU Bowen

August 2014

About Sustainalytics

Copyright ©2014 Sustainalytics. All rights reserved. No part of this publication may be reproduced in any manner without the expressed written consent of Sustainalytics.

Nothing contained in this publication shall be construed as to make a representation or warranty, express or implied, regarding the advisability to invest in or include companies in investable universes and/or portfolios.

The information on which this publication is based on reflects the situation as on the date of its elaboration. Such information has – fully or partially – been derived from third parties and is therefore subject to continuous modification. Sustainalytics observes the greatest possible care in using information and drafting publications but cannot guarantee that the publication is accurate and/or complete and, therefore, assumes no responsibility for errors or omissions.

Sustainalytics will not accept any liability for damage arising from the use of this publication. Sustainalytics will not accept any form of liability for the substance of the publications, notifications or communications drafted by Sustainalytics vis-à-vis any legal entities and/or natural persons who have taken cognisance of such publications, notifications or communications in any way.

Sustainalyticswww.sustainalytics.com

For general enquiries:sun.xi@sustainalytics.com

Sustainalytics supports investors around the world with the development and implementation of responsible investment strategies. The firm partners with institutional investors that integrate environmental, social and governance information and assessments into their investment decisions.

Headquartered in Amsterdam, Sustainalytics has offices in Boston, Bucharest, Frankfurt, London, New York City, Paris, Singapore, Timisoara and Toronto, and representatives in Bogotá, Brussels, and Copenhagen. The firm has 160 staff members, including more than 100 analysts with varied multidisciplinary expertise and thorough understanding of more than 40 industries. In 2012 and 2013, Sustainalytics was voted best independent sustainable and responsible investment research firm in the Thomson Reuters Extel’s IRRI survey.

Table of ContentsKey Takeaways. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

How Fouled is the Air?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

What Stirred up the Haze?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7Energy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7Utilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7Materials. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7Automobiles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8Capital Goods. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8Real Estate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8Transportation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Regulatory Risks: A Hazy Future for Air Polluters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8Energy, Utilities and Materials. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9Automobiles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11Real Estate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11Transport. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Summary of Findings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Solution Providers: (A Clean) Sky is the Limit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19A. Environmental Protection Sectors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19B. Natural Gas Suppliers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19C. Nuclear and Renewable Energy Sectors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20D. New Energy Vehicle Producers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Appendix: Analysis Framework. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Endnotes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

4

Key Takeaways

Air pollution has become one of the most pressing challenges in China. The Chinese central government has vowed to “declare war on air pollution” with targets set at industry and national levels.

The main sources of air pollution in China are industrial and household coal; emissions from heavy industries such as steel; auto emissions; and dust from construction sites and land transportation.

The Beijing-Tianjin-Hebei (Jingjinji) Area, the Yangtze River Delta and the Pearl River Delta are the three most polluted regions in China. The cities and provinces within these regions have tightened regulations and set ambitious air quality improvement targets to tackle air pollution.

To assess company’s investment risk with regard to air pollution, we have developed a research framework which consists of a regulatory exposure component and a management preparedness component. We jointly assess these two components to evaluate the company’s overall investment risk level.

Based on our Exposure/Preparedness framework, among the 52 Chinese companies assessed in this report, 16 have been identified as high risk, 22 as medium risk, and 14 as low risk.

Power producers, cement and petrochemical manufacturers, as well as coal producers face relatively higher risks, while transportation and real estate companies face more limited risks.

Companies we deem most at risk are: • China Shenhua Energy Co. Ltd. (SEHK: 1088)• China Petroleum & Chemical Corp. (Sinopec) (SEHK: 386)• China Resources Power Holdings Co. Ltd. (SEHK: 836)• Huadian Energy Company Limited (SHSE: 900937)• Anhui Conch Cement Co. Ltd. (SEHK: 914)• China National Building Material Company Limited (CNBM) (SEHK: 3323)• Sinopec Yizheng Chemical Fibre Co. Ltd. (SEHK: 1033)• Metallurgical Corporation of China Ltd. (SEHK: 1618)

Solution providers from sectors such as environmental protection (air pollution control and air pollution abatement), natural gas, nuclear and renewable energy (hydropower, wind and solar power), and new energy vehicles will likely benefit from China’s tightened air pollution regulations.

Solution providers likely to benefit include:• Create Technology & Science Co., Ltd. (SZSE: 000551)• Kelin Environmental Protection Equipment, Inc. (SZSE: 002499)• Beijing SDL Technology Co., Ltd. (SZSE: 002658)• Kunlun Energy Company Limited (SEHK: 135)

1

2

3

4

5

6

7

8

9

5

• SINOHYDRO Group Ltd (SHSE: 601669)• Xinjiang Goldwind Science & Tech Co Ltd (SZSE: 002202)• China National Nuclear Power Co.• Yingli Green Energy Holding Co Ltd (NYSE: YGE)• BYD Co Ltd (SEHK: 1211, SZSE: 002594)• VolkswagenAG (ETR:VOW)

 

IntroductionIn March 2014, Sustainalytics published its Yearly ESG Review & Outlook of the Xi-Li Administration in China where we reviewed the administration’s activities in 2013 and outlined developments most relevant to investors. The increasing attention paid by the Chinese government toon environmental issues, including air pollution, was deemed a particularly important development.

Since the release of our report in March, we have witnessed additional progress in environmental regulations in China. At the opening of this year’s National People’s Congress (NPC), Premier Li Keqiang said that the government “will resolutely declare war against pollution”,1 demonstrating the Chinese government’s willingness to adopt a top-down approach to tackle air pollution. In this context, Sustainalytics has undertaken a detailed analysis of relevant Chinese companies’ exposure to and management of related regulatory risks. We have also identified selected companies that may benefit from the stricter air pollution regulations.

In this report, we first assess the extent of air pollution in China and identify the most polluted regions in the country. We then identify which industries are the main sources of air pollution.

For the seven priority industries identified, we highlight the latest air pollution-related government initiatives and regulations at the central and local government levels.

We then evaluate the regulatory risks faced by the 52 largest Chinese companies in these priority industries including energy (9); utilities (7); materials (16); automobiles and components (4); capital goods (5); real estate (8); and transportation (3).

Air pollution also represents business opportunities for solution providers. We have identified more than 50 solution providers from relevant sectors such as environmental protection (air pollution control and air pollution abatement), clean and renewable energy, natural gas, and electric vehicles.

How Fouled is the Air?Air pollution is the introduction into the atmosphere of chemicals, particulates, or biological materials that have detrimental impacts on the environment and public health. Common pollutants include particle pollution/particulate matter (PM) 2.5, PM10, nitrogen dioxide (NO2), sulphur dioxide (SO2), ozone (O3) and carbon monoxide (CO) concentration, as well as carbon dioxide (CO2). PM2.5 is of particular concern. These are particles that have an aerodynamic diameter of less than 2.5 μm, approximately 1/30 of the average width of a human hair. Sulphate-nitrate-ammonium (SNA) aerosols that are transformed from SO2, nitrous oxides (NOx) and ammonia (NH3) are the major constituents of PM2.5, representing

6

up to 70% of the total mass concentration. Due to their small size, these fine particles can penetrate deeply into the lungs and pose serious health risks.

In October 2013, the International Agency for Research on Cancer under the World Health Organisation (WHO) revealed that air pollution causes lung and bladder cancer. In early 2014, the WHO reported2 that seven million premature deaths, one-eighth of total global deaths annually, were linked to air pollution around the world in 2012. The findings also suggest that the low- and middle-income countries in the Western Pacific region, including China and Southeast Asia suffer the most, accounting for more than 70% of the seven million deaths.

According to a study by Greenpeace and Peking University’s School of Public Health, exposure to PM2.5 pollution contributed to an estimated 8,500 premature deaths – equivalent to three times the number of deaths from traffic accidents in Beijing, Shanghai, Guangzhou and Xi’an in 2012 – and led to economic losses of CNY 6.8 billion (USD 1.08 billion).3

Given the criticism at home and abroad about the lack of transparency about its air quality, China has recently enhanced air quality information disclosure. By the end of 2014, 177 Chinese cities are expected to disclose their PM2.5 data publicly, up from 74 in 2013.

In March 2014, the Ministry of Environmental Protection (MEP) announced that the average concentration of PM2.5 was 72 μg/m3 (the national standard is 35 μg/m3) for the 74 major cities it monitored in 2013. As shown in Figure 1, these 74 cities experienced on average 32 days of heavy or severe air pollution, equivalent to 9% of the year. In the Beijing-Tianjin-Hebei (Jingjinji) area, the pollution was much worse than the national average, with only 37.5% of the days of the year meeting the minimum air quality standard.

Figure 1: Percentage of Days at Different Pollution Levels in 74 Major Cities in China (2013)

9.0% Heavy/Severe

8.0% Medium

23.0% Slight

60.0% Up-to-standard

Figure 2 below shows some air pollution hot spots in China based on population-weighted PM2.5 concentration levels. The highlighted Jingjinji Area, Yangtze River Delta and Pearl River Delta are considered the three most polluted regions in the country.

While the PM2.5 pollution in northern China is highly attributable to the coal industry, the increasing energy consumption combined with certain meteorological conditions that prevent pollutants from dispersing explain the worsening air quality in the Yangtze River Delta and Pearl River Delta.

7

Figure 2: PM2.5 Levels around China in 2012 and Domestic Coal Transportation Routes

What Stirred up the Haze?Industrial and household coal burning-related activities, emissions from heavy industries, auto emissions, and dust from construction sites and land transportation have been identified as the main sources of air pollution in China.

Energy• Coal mining and production activities generate large amounts of dust and

methane, which is a potent greenhouse gas (GHG).• Oil extraction, crude oil refining, and petrochemical products production

activities generate large amounts of air emissions including SO2, NOx, CO, methane, dioxins, hydrogen fluoride, chlorine, and benzene.

Utilities• Fossil fuel power stations burn coal, natural gas or petroleum to produce

electricity. The flue gas from the combustion of such fossil fuels contains large amount of CO2 and water vapour, NOx, SOx, mercury, and traces of other metals. Coal-fired power plants also generate large amount of fly ash and are the major sources of air pollution in China.

Materials• Cement production causes airborne emissions such as dust from quarry activities.

Cement also releases CO2 directly when calcium carbonate is heated.

Data Sources: The Economist, “Browner, but greener,” 1 February 2014 (Data developed by Columbia University, Dalhousie University and Yale University); CEIC Deutsche Bank

8

• Iron, steel, aluminium, copper, gold, and other metal production activities generate large amounts of air emissions such as CO, NOx NOx, PM10 particulates and SOx, due to their huge consumption of energy and chemical substance.4

• Petrochemicals’ emissions include NOx, SOx, CO, particulates, and additional pollutants such as hydrogen sulfide, volatile organic compounds (VOCs), methane and ethane, benzene, toluene and xylenes.5

• Pulp production causes air emissions of hydrogen sulphide, methyl mercaptan, dimethyl sulphide, dimethyl disulphide, and other volatile sulphur compounds. Other chemicals that are released into the air and water include CO, ammonia, NOx, mercury, nitrates, methanol, benzene, VOCs, and chloroform.6

Automobiles• Combustion engines emit air pollutants including hydrocarbons, CO, NOx, SOx,

and VOCs.7

• Car manufacturing is also involved in certain air emissions (e.g., VOCs) due to the use of energy and chemical substances during the production process.

Capital Goods• Machinery equipment manufacturing activities are involved in certain air

emissions (e.g., VOCs) due to the high consumption of energy and chemical substances during the production process.

Real Estate• Construction generates high levels of dust (typically from concrete, cement,

wood, stone, and silica), which is classified as a component of PM10.8

Transportation• Land transportation (trucks, train) generates large amounts of dust and is one of

the major contributors to PM10 pollution in China.

 Regulatory Risks: A Hazy Future for Air PollutersWhile many countries across the globe experience significant air pollution, the extent of this issue in China has raised public awareness about air quality and health-related risk. Consequently, air pollution in China has recently become a source of social unrest (see Case Study 1).

Case Study 1 : Public Concerns and Complaints over Air Pollution in ChinaThe Chinese public is calling for more responsibility and transparency from both the government and companies when it comes to addressing air pollution.

In February 2014, Li Guixin, a resident of Shijiazhuang, the capital of Hebei province, submitted a complaint to a district court requesting that the city’s municipal environmental protection bureau “perform its duty to control air pollution according to the law” and seeking compensation for residents that are suffering as a result of air pollution. Li explained that air pollution had harmed residents’ health and caused economic losses, as they’ve had to spend money on face masks and air purifiers. He asked the government to compensate residents for these expenses, as the government is the recipient of corporate taxes

9

To manage peoples’ expectations and prevent further unrest, Premier Li declared a “war against pollution” at the opening of the National People’s Congress (NPC) in March 2014. Like the rhetoric, the regulation is now beefed up to tackle polluters. Below, we identify the latest governmental initiatives, at both central and local levels, that will increasingly have an impact on the major polluting industries.11

Energy, Utilities and MaterialsAs the world’s largest coal consumer and producer, China accounted for approximately half of global coal consumption (49%) and production (46%) in 2012. Although the proportion of coal used in China’s primary energy consumption has been decreasing over the years, it still accounted for 65.7% of China’s total energy consumption in 2013 (see Figure 3). It is no surprise that the Chinese government put the reduction of coal-dependence at the top of its air pollution control plan. Facing a worsening of the air pollution situation, the government put forward its target to reduce coal’s proportion in the energy mix to below 65% by end of 2014, a goal it had originally set for 2017.12 Local governments have also set targets accordingly. For example, the Beijing municipal government plans to remove all coal-fired power plants from the city and increase the share of natural gas by up to 35% by 2017.13

from polluting companies. The case received nationwide media and public attention. The Shijiazhuang environment bureau reported that it had increased its spending on air pollution control and would continue its efforts to improve air quality.

In May 2014, thousands of residents near Hangzhou in Zhejiang province, participated in a demonstration against a planned waste incineration plant. Police vehicles were set on fire and some protesters were injured in the process. While the local authorities spoke in favour of the waste incinerator project, explaining that the project had been planned based on an environmental impact assessment and would adopt the optimal technology to minimise the potential pollution, local residents were not convinced. Residents near existing incinerators in Hangzhou reportedly complained of smells late at night, and were worried that the new waste incinerator would pollute the air.9

In June 2014, in response to the public’s concerns and pressure, China’s Ministry of Environmental Protection (MEP) urged local governments and companies to take environmental impact into consideration and make reasonable plans and communicate them transparently to the public.10 The MEP also emphasised that the public has the right to participate in the decision making process and to access reliable information from companies.

Figure 3: Energy Consumption Structure in China (% of Total (2004-2013)

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Coal Crude Oil Natural Gas Hydro, Nuclear, Wind Power and Other Renewables

Data source: The National Bureau of Statistics of China

10

At the industrial level, the government has set specific targets for shutting down small-scale coal-fired furnaces, upgrading coal-fired power plants to increase the efficiency of desulphurisation and denitrification, and relocating highly polluting companies.14 The six most polluting industries identified by the MEP include thermal power generation, steel, petrochemical, cement, nonferrous metals and chemicals.15

As shown in Figure 4, the amounts of coal used as a primary energy source in the major industries in China far exceed those of other countries and regions such as Europe and North America. The government’s air pollution control plan is expected to have significant impacts on these coal-intensive industries. While facility and technology upgrading can bring in opportunities for companies to control emissions, improve efficiency and reduce operational costs in the long term, those that fail to comply with the new standards or are not able to afford the upgrading costs would face the risk of being relocated or shut down.

Figure 4: Share of Coal in Primary Energy Consumption in Key Industries in Different Regions

Australia China Europe North America India Japan

Iron & Steel Chemical & Petrochemical Non-ferrous Metals

Non-metalic Minerals Food and Tobacco Paper, Pulp and Printing

Source: The World Coal Association, 2012; IEA Clean Coal Centre, 2008

% s

hare

of c

oal

11

In January 2014, the MEP signed the “Air Pollution Control Target and Responsibility Contract” with all 31 provinces, municipalities, and autonomous regions, which includes specified targets regarding particulate matters (PM2.5 and PM10) reduction.16 Among those regions, Beijing, Tianjin, Hebei; Shanxi, Shandong, Shanghai, Jiangsu, Zhejiang; Guangdong, Chongqing; and Inner Mongolia face the most challenging targets by the end of 2014, as shown in the table below. Companies located in these highly regulated provinces are expected to face more compliance pressure, as the central and local governments have set up teams to conduct on-site visits without prior notice.17

Table 1: PM2.5 Control Target of Major Regions in China (2014)

Provinces (municipalities and autonomous regions)

-25% Beijing, Tianjin, Hebei

-20% Shanxi, Shandong, Shanghai, Jiangsu, Zhejiang

-15% Guangdong, Chingqing

-10% Inner Mongolia

-15% Henan, Shaanxi, Qinghai, Xinjiang

-12% Gansu, Hebei

-10% Sichuan, Liaoning, Jilin, Hunan, Anhui, Ningxia

-5% Guangxi, Fujian, Jiangxi, Guizhou, HeilongjiangContinuous improvement Hainan, Tibet, Yunnan

Air Quality Improvement Targets

Annual decrease in average PM10 concentration

Annual decrease in average PM2.5 concentration

Source: MEP, “Air Pollution Control Target and Responsibility Contracts,” January 2014

Automobiles In addition to industrial activities, auto emissions are considered another major contributor to China’s air pollution, as a result of both the increasing number of vehicles on the road and the ageing vehicles that do not meet emission standards. Seven cities, Beijing, Guangzhou, Guiyang, Hangzhou, Tianjin, Shanghai and Shijiazhuang, have implemented policies to limit new vehicle purchases. In the Government Work Report, Premier Li Keqiang set the nationwide target to reduce the number of “yellow label vehicles” by six million by the end of 2014, referring to cars that fail to meet the Euro I emission standard, which China adopted in 1992.18

Real EstateIn April 2014, the environmental protection authorities in Beijing and Guangzhou piloted new rules to closely monitor construction site pollution and punish construction companies that create excessive dust. In Beijing, the municipal Commission of Housing and Urban-Rural Development has required contractors to contribute to a special fund, accounting for 1.25-2.4% of total project costs, whose proceeds will be invested in dust control equipment. The Commission also requested all construction companies to use qualified, fully enclosed vehicles to carry earth as of 1 July.19 In addition, urban construction sites in Beijing have also been told to install cameras by the end of June to allow for real-time monitoring. The companies that use unqualified trucks or continue outdoor construction activities

12

on heavily polluted days will face fines and be required to invest more in installing dust-cleaning equipment at construction sites. According to existing regulations in Guangzhou, construction companies may be fined only up to CNY 8,500 (USD 1,359) for dust pollution at construction sites. However, a stricter tolling system is expected to be implemented around August 2014, after a hearing is held to solicit public opinions.

TransportLand transportation, including coal transportation by train or by truck, also generates high levels of dust pollution. It is estimated that half of China’s railway lines are involved in coal transportation,20 while approximately 1.2% of the coal is lost during the rail transportation process in China,21 mainly due to the lack of effective coal dust control management. Not only does coal dust have a negative impact on the health of local residents, but it also increases cleaning costs for transportation providers, with the accumulated dust occasionally covering up the rails. In addition, coal transportation service providers that fail to implement dust control measures may face fines from local authorities and will be required to increase investments in dust-cleaning equipment such as water spray systems on their fleets.

Case Study 2: Air pollution in BeijingWith an annual average PM2.5 level of 89.5 μg/m3, far exceeding the national standard of 35 μg/m3, Beijing has been under significant scrutiny due to its poor air quality. In early 2014, Beijing’s PM2.5 levels were off the charts, hitting a record high of 900 μg/m3. Multinational corporations have been complaining that the “airpocalypse” makes it difficult to retain international talent.

In October 2013, the Beijing municipal government launched its Air Pollution Emergency Response Plan. The plan asks enterprises and individuals to take measures when pollution levels peak. Those measures include production limitation or suspension for certain high pollution industries (e.g., iron and steel) and emergency traffic control in addition to the existing odd-even licence plate number control system. Beijing also launched new Air Pollution Prevention and Control Regulations in March 2014.22 The regulations raise the fines on industrial violators up to CNY 500,000 (USD 80,000) and include a “naming and shaming” approach by sharing lists of violators with the media.

In early 2014, the Chinese government announced that it would invest CNY 10 billion (USD 1.65 billion) in air pollution control in the Jingjinji area, supporting the Beijing municipal government and its two neighbouring provinces Hebei and Tianjin in their efforts to control air pollution, including technology upgrades and facility relocation for highly polluting industries.

In 2013, Beijing relocated 288 enterprises out of the city, allegedly reducing SO2 emissions by 7,000 tons. Beijing’s Pollution Control Plan for 2014 has set further targets to shut down or relocate 300 more factories by the end of 2014.23 The plan sets further desulphurisation and denitrification efficiency targets for high pollution enterprises such as Huaneng Power International Inc. (SEHK: 384) and BBMG Corporation (SEHK: 2009).

Auto emissions is another major source of air pollution, reportedly accounting for one-quarter of Beijing’s PM2.5 levels. Between 2000 and 2010, private car ownership in Beijing more than tripled, reaching 4.8 million vehicles and outpacing the growth of the permanent resident population, which increased by 44% over the same period (see Figure 5).

13

Summary of FindingsAir pollution related risks in this report are assessed through two components: Regulatory Exposure (low, medium or high) and Management Preparedness (weak, medium or strong). Then, the two components are evaluated jointly to produce a single framework, assessing investment risk as low, medium or high.

The evaluation of exposure and preparedness is based on eight indicators (see Appendix: Analysis Framework). Relevant information has been extracted from Sustainalytics’ Global Platform and complemented with selected exposure related information from company annual reports, corporate responsibility reports, company websites and other third-party sources.

In this report, we reviewed 52 of the largest relevant Chinese companies from the following industries:

• Energy (Coal & Consumable Fuels, Integrated Oil & Gas, Oil & Gas Drilling, Oil & Gas Exploration & Production, Gas Utilities), nine companies;

• Utilities (Independent Power Producers & Energy Traders), seven companies; • Materials (Aluminium, Commodity Chemicals, Construction Materials, Diversified

Metals & Mining, Gold, Paper Products, Steel), 16 companies; • Automobiles & Components (Automobile Manufacturers), four companies; • Capital Goods (Construction & Engineering, Construction & Farm Machinery &

Heavy Trucks), five companies;

The Beijing municipal government has taken measures to control both the number of vehicles on the road and remove the “yellow label” vehicles, which are vehicles that do not meet current emission standards. In January 2011, Beijing introduced a licence-plate lottery scheme with a monthly quota of 20,000 non-transferable, new vehicle licenses. The scheme led to an effective slowdown of the growth in private car ownership in Beijing. As shown in Figure 5, private car ownership increased by only 8% from 2010 to 2012, a significant slowdown compared to the 37% of growth over the 2008-2010 period.

In the future, more clean fuel vehicles such as those powered by natural gas and electricity will be introduced, and additional natural gas stations and charging posts will be set up around the city. In the long term, Beijing plans to extend its metro lines to 1,000 kilometres by 2020, more than double its current 467 kilometres length (as of February 2014).24

Figure 5: Private Car Ownership in Beijing (Unit: Ten Thousand)

Data source: Beijing Traffic Management Bureau

2000 2002 2004 2006 2008 2010 2012

158 170 190 212 230258

288313

350402

481 498 520

14

Energy100

90

80

70

60

50

40

30

20

10

0 10 20 30 40 50 60 70 80 90 100

Man

agem

ent P

repa

redn

ess

Risk Exposure

WEA

KM

EDIU

MST

RON

G

LOW MEDIUM HIGH

Low Medium High

• Real Estate (Diversified Real Estate Activities, Real Estate Development), eight companies;

• Transportation (Railroads, Marine Ports & Services), three companies.

These companies are listed in Mainland China or Hong Kong, and are all under Sustainalytics’ platform research coverage.

Generally, power producers, cement and chemical manufacturers, and coal producers face comparatively higher risks, while transportation and real estate companies face limited risks.

China Oilfield ServicesCNOOC

Kunlun Energy

Yanzhou Coal Mining

Inner Mongoloa Yitai Coal

PetroChina

China Coal Energy

China ShenhuaEnergy

Sinopec

• Integrated oil & gas companies and coal producers generally face high risks;• Oil & gas exploration and production companies and oil drilling services providers

face low risks;• China Shenhua Energy Co. Ltd. (SEHK: 1088) and China Petroleum & Chemical

Corp. (Sinopec) (SEHK: 386) face the highest risk;• Kunlun Energy Company Limited (SEHK: 135), a natural gas distributor faces the

lowest risk;• Among the energy companies assessed, CNOOC Limited (SEHK: 883) is the only

one that has responded to the latest CDP questionnaire.

Overall Risk Exposure

15

• Power generators, especially coal-fired power producers, face high risks;• Natural gas suppliers generally face low risks;• China Resources Power Holdings Co. Ltd. (SEHK: 836) faces the highest risks and

several of its power plants were recently fined due to air emission breaches; • China Resources Gas Group Limited (SEHK: 1193) faces the lowest risk;• Among the utilities companies assessed, none of them has a strong

environmental policy or environmental management system (EMS).

Utilities100

90

80

70

60

50

40

30

20

10

0 10 20 30 40 50 60 70 80 90 100

Man

agem

ent P

repa

redn

ess

Risk Exposure

WEA

KM

EDIU

MST

RON

G

LOW MEDIUM HIGH

Low Medium High

China ResourcesGas Group

China Gas

Huaneng PowerInternational

Datang International

Huadian Power International

Huadian Energy

China Resources

Power

Materials100

90

80

70

60

50

40

30

20

10

050 60 70 80 90 100

Man

agem

ent P

repa

redn

ess

Risk Exposure

WEA

KM

EDIU

MST

RON

G

LOW MEDIUM HIGH

Low Medium High

China Zhongwang

40

Fosun International

Zijin Mining

Baoshan Iron & Steel

Bengang Steel Plates

Angang Steel

Jiangxi Copper

Aluminum Corporation

of ChinaSinopec ShanghaiPetrochemical

China National Building Material

Anhui Conch Cement

Sinopec YizhengChemical Fibre

China Shanshui CementBBMG

China Resources CementShandong Chenming Paper

Overall Risk Exposure

Overall Risk Exposure

16

• Cement producers comparatively face the highest risks;• Iron, steel, aluminium, copper, gold, petrochemical, and paper producers also

face generally high risks;• Anhui Conch Cement Co. Ltd. (SEHK: 914) and China National Building Material

Company Limited (CNBM) (SEHK: 3323) face the highest risk;• China Zhongwang Holdings Limited (SEHK: 1333) faces the lowest risk;• Among the materials companies assessed, none of them has responded to the

latest CDP questionnaire.

Automobiles & Components100

90

80

70

60

50

40

30

20

10

0 10 20 30 40 50 60 70 80 90 100

Man

agem

ent P

repa

redn

ess

Risk Exposure

WEA

KM

EDIU

MST

RON

G

LOW MEDIUM HIGH

Low Medium High

Guangzhou Automobile Group

Great Wall MotorChongqing Changan Automobile

Dongfeng Motor Group

• Auto producers generally face medium risks;• Dongfeng Motor Group Co. Ltd. (SEHK: 489) faces high risk, because two of its

self-operated coal-fired power plants are on the state air emission monitoring list;

• Guangzhou Automobile Group Co. Ltd. (GAC Group) (SEHK:2238) faces comparatively the lowest risk, as it is involved in some activities related to reducing GHG and air emissions;

• Among the auto companies assessed, none of them has disclosed a formal environmental policy.

Overall Risk Exposure

17

• Machinery equipment manufacturers face comparatively higher risks;• Construction and engineering companies generally face medium to low risks;• Metallurgical Corporation of China Ltd. (SEHK: 1618) faces the highest risk, as it

has four subsidiaries on the state air emission monitoring list;• China State Construction International Holdings Ltd (SEHK: 3311) faces the lowest

risk, as it has a strong and detailed EMS;• Among the capital goods companies assessed, China Communications

Construction Company Limited (CCCC) (SEHK: 1800) is the only one that has responded to the latest CDP questionnaire.

Capital Goods100

90

80

70

60

50

40

30

20

10

0 10 20 30 40 50 60 70 80 90 100

Man

agem

ent P

repa

redn

ess

Risk Exposure

WEA

KM

EDIU

MST

RON

G

LOW MEDIUM HIGH

Low Medium High

China State Construction

Zoomlion Heavy Industry Science & Technology

China Communications Construction

Weichai Power Metallurgical Corporation of China

Overall Risk Exposure

18

• Real Estate companies generally face low to medium risks;• Longfor Properties Co., Ltd. (SEHK: 960) and Evergrande Real Estate Group Ltd. (SEHK:

3333) face medium risks, as their properties are mainly located in highly polluted cities and their environmental management is weak;

• Sun Hung Kai Properties Limited (SEHK: 16) faces lowest risk, as its main projects are outside of mainland China and its environmental management is comparatively good;

• Among the real estate companies assessed, China Vanke Co. Ltd. (SZSE: 200002) and Country Garden Holdings (SEHK: 2007) are leading green building developers in China.

Real Estate100

90

80

70

60

50

40

30

20

10

0 10 20 30 40 50 60 70 80 90 100

Man

agem

ent P

repa

redn

ess

Risk Exposure

WEA

KM

EDIU

MST

RON

G

LOW MEDIUM HIGH

Low Medium High

New WorldDevelopment

Sun Hung Kai Properties

China Vanke Agile Property

Country Garden

Soho China

Evergrande Real Estate Longfor Properties

Transportation100

90

80

70

60

50

40

30

20

10

0 10 20 30 40 50 60 70 80 90 100

Man

agem

ent P

repa

redn

ess

Risk Exposure

WEA

KM

EDIU

MST

RON

G

LOW MEDIUM HIGH

Low Medium High

Jinzhou Port

Dalian PortDaqin Railway

Overall Risk Exposure

Overall Risk Exposure

19

• Railroads operators face comparatively higher risks;• Marine ports and services providers generally face low risks;• Daqin Railway Co., Ltd. (SHSE: 601006) faces medium risks, as it is the main coal

transportation provider in China; • Jinzhou Port Co. Ltd. (SHSE: 900952) faces the lowest risk, as it has a strong and

detailed EMS;• Among the transportation companies assessed, none of them has disclosed a

formal environmental policy.

 Solution Providers: (A Clean) Sky is the LimitSolution providers from relevant sectors such as environmental protection (air pollution control and air pollution abatement), natural gas, nuclear and renewable energy (hydropower, wind and solar power), and new energy vehicle will likely benefit from China’s tightened air pollution regulations.

A. Environmental Protection SectorsCompanies providing air pollution control and air pollution abatement equipment or services will face increasing market demand and huge business opportunities.

• Air Purifiers and Monitoring Equipment: The widespread concern over frequent haze has resulted in an increasing demand for air purifiers and air quality monitoring equipment. It is estimated that governmental procurement of PM2.5 monitoring equipment will be over CNY 2 billion (USD 320 million) within the next five years.25 Create Technology & Science Co., Ltd. (SZSE: 000551) as a leading air purification and PM2.5 monitoring equipment manufacturer, and Selen Science & Technology Co., Ltd. (SZSE: 002341) as a leading air purifier and anti-PM2.5 mask producer, are expected to benefit. Other players in this sector include Gree Group Corp. (SZSE: 000651) and Midea Group Co., Ltd. (SZSE: 000333).

• Filter Bags26 and Filtration Materials: With the establishment of stricter air emission standards, cement, electricity, iron and steel industries are expected to increase the demand for industrial filter bags and heat-resistant filter materials (an estimated 30% annual growth).27 Kelin Environmental Protection Equipment, Inc. (SZSE: 002499), Zhejiang Feida Environmental Science & Technology Co., Ltd. (SHSE: 600526) and Xiamen Savings Environmental Co. Ltd. (SZSE: 300056) are leading providers in China.

• Desulphurisation and Denitrification: As highlighted in the previous section of this report, thermal power plants face stricter regulations on desulphurisation and denitrification, creating an estimated market demand of CNY 250 billion (USD 40 billion) between 2011 and 2015.28 Producers of this equipment, such as Beijing SDL Technology Co., Ltd. (SZSE: 002658), Beijing SPC Environment Protection Tech Co., Ltd. (SZSE: 002450) and Fujian Longking Co., Ltd. (SHSE: 600388), will benefit from the increasing market demand.

B. Natural Gas SuppliersThrough strict purification, natural gas and liquefied natural gas (LNG) produces less GHG and air pollutants than conventional fuels such as coal, gasoline and diesel. According to the National Energy Administration of China (NEA), natural gas demand may increase by 15% to

20

193 billion cubic meters in 2014. The NEA also plans to raise prices for non-residential users to boost supplies so as to ease air pollution.29 China’s imports of natural gas are expected to surge by almost 19% in 2014.30

As the main natural gas suppliers in China, Kunlun Energy Company Limited (SEHK: 135), China Gas Holdings Ltd. (SEHK: 384) and China Resources Gas Group Limited (SEHK: 1193) will benefit from the opportunities arising from energy saving and emission reduction needs in China. Also set to benefit are major foreign suppliers such as: Royal Dutch Shell (LSE: RDSA, Euronext: RDSA, NYSE: RDSA), Qatargas from Qatar, Türkmengaz from Turkmenistan and Gazprom OAO (MCX: GAZP, LSE: OGZD, FWB: GAZ, OTC Pink: OGZPY) from Russia.

C. Nuclear and Renewable Energy SectorsIn April 2014, at the first meeting of the incumbent National Energy Commission, Premier Li Keqiang pointed out that China needs to strengthen the reform in energy structure and “make energy use greener”31 with an emphasis on the development of new nuclear power plants in addition to hydropower stations and wind and solar power stations (see Figure 6). These industries are briefly reviewed below.

Figure 6: China’s Electricity Structure by Fuel and Prediction (2011-2020)

Source: CCID Consulting Co., Ltd. (赛迪顾问), April 2013

• Hydropower: Hydropower projects have been a key focus of China’s energy development over the past few decades. Giant hydropower projects are considered the most effective option to ease China’s heavy dependence on coal. In the 12th Five-Year Plan, China plans to construct new large-sized hydropower stations with a total installed capacity of 120 GW (million kW) in key watersheds, including Jinsha, Yalong and Dadu Rivers. China also has a long-term target to raise hydropower capacity to 420 GW by 2020, from 280 GW as of the end of 2013.32 However, obtaining approval for large hydropower projects has been more difficult due to stricter requirements on feasibility studies and environmental impact assessments.33

21

GD Power Development Co Ltd (SHSE: 600795), SINOHYDRO Group Ltd (SHSE: 601669), Chongqing Three Gorges Water Conservancy and Electric Power Co., Ltd. (SHSE: 600116), SDIC Power Holdings Co Ltd (SHSE: 600886) and China Yangtze Power Co Ltd (SHSE: 600900) are the leading domestic players. Foreign companies such as Alstom SA (EN Paris: ALO), which has accumulated 20% of China’s hydro power market share,34 may continue to be a competitive player.

• Wind power: Wind power, which represented 2.6% of total electricity generated in China in 2013, has become China’s third-largest energy source, after coal and hydropower, but remains marginal in the energy mix.35 China has become the largest wind energy provider in the world, accounting for 27% (75.4 GW) of the 282 GW of global installed capacity in 2012.36 In the 12th Five-Year Plan, China plans to construct six onshore and two coastal and offshore large-scale wind power bases, with an additional installed capacity of over 70 GW. However, the lack of connection to main power grids remains a constraint for the development of China’s wind power sector.37

Xinjiang Goldwind Science & Tech Co Ltd (SZSE: 002202), Sinovel Wind Group Company Limited (SHSE: 601558), Titan Wind Energy (Suzhou) Co Ltd (SZSE: 002531) and Shanghai Zhenhua Heavy Industries Co Ltd (SHSE: 600320) are leading players in this sector in China.

• Nuclear Power: As of March 2014, China has 20 nuclear power reactors, with a combined capacity of 17.13 GW. In addition, there are currently 28 units under construction.38 According to its Five-Year Plan for Energy Development (2011-2015), China plans to construct nuclear power plants with a total installed capacity of 40 GW by 2015. The Chinese government has also committed to adopt state-of-the-art safety measures in response to the increasing safety concerns.39

One of China’s biggest state-owned nuclear power operators, China National Nuclear Power Co., recently announced its plan to raise up to CNY 16.25 billion (USD 2.6 billion) in an initial public offering.40 Other leading nuclear power players in China include: Dongfang Electric Corp Ltd (SHSE: 600875), Shanghai Electric Group Co Ltd (SHSE: 601727), Sufa Technology Industry Co Ltd CNNC (SZSE: 000777) and Zhejiang Southeast Electric Power Co Ltd (SHSE: 900949), as well as Alstom SA (EN Paris: ALO), Électricité de France SA (EN Paris: EDF), British Nuclear Fuels (BNFL), Westinghouse Electric Company LLC, General Electric Co (NYSE: GE) and Candu Energy Inc.

• Solar Power: In 2012, China’s National Energy Administration published the 12th Solar Power Development Plan of China, announcing its aim to push Chinese solar power generation capacity to 21 GW by 2015.41 In 2013, China installed a record high 12 GW of solar power, more than any other country in the world. Similar to wind power, the connection to the grid remains a problem for the solar industry in China. An estimated 30% of the solar power installed in 2013 is still waiting to be connected.42

Key domestic players in the solar power sector include Yingli Green Energy Holding Co Ltd (NYSE: YGE), JinkoSolar Holding Co Ltd (NYSE: JKS), LDK Solar Co Ltd (NYSE:

22

LDK) and China Singyes Solar Technologies Holdings Limited (SEHK: 00750). Foreign solar power companies are also moving into China for opportunities, such as REC Silicon ASA (REC: Oslo), which set up a joint venture with a Chinese partner, Shaanxi Non-Ferrous Tian Hong New Energy Co., earlier in 2014.43

D. New Energy Vehicle ProducersAs more cities join Beijing in restricting automobile purchases to control traffic congestion and air pollution, automobile sales in China are expected slowdown in 2014. However, in certain cities such as Hangzhou, new energy vehicles (NEVs), defined as all-electric battery vehicles and heavily electrified plug-in hybrids, are exempted from the limited purchase quota, which has shed light on opportunities for automakers that offer such products.44

While China has long been promoting NEV with subsidies, only 20,000 electric vehicles were sold in 2013, accounting for no more than 0.01% of the auto sales nationwide. In late 2013, the Chinese government quickened its pace, establishing a list of 40 pioneer cities45

with specific targets for the promotion of NEV ownership (see the table below for a few examples) and associated infrastructure preparation (e.g., building natural gas station and charging posts) by the end of 2015.46 As part of the promotion plan, customers purchasing NEVs can receive subsidies of up to CNY 120,000 (USD 19,200) per vehicle.

CityNEV Ownership

Promotion Target (2013-2015)

Local Auto Manufacturer

Beijing 35,000 Beijing Automotive Group CO., Ltd. (BAIC)Shanghai 10,000 SAIC Motor Corporation Limited (SHSE: 600104)Tianjin 12,000 Tianjin Faw Xiali Automobile Co., Ltd. (SZSE: 000927)Chongqing 10,000 Changan Automobile Co., Ltd. (SZSE: 000625)Guangzhou 10,000 GAC Group (SEHK: 2238, SHSE: 601238)Shenzhen 35,000 BYD Co Ltd (SEHK: 1211, SZSE: 002594)

Table 2: NEV Ownership Promotion Target and Local Auto Manufacturers47

Local automakers mentioned in Table 2 are expected to benefit from the NEV promotion plan. Some foreign automakers have also exhibited strong interest in China’s NEV market. Tesla Motors Inc. (NASDAQ: TSLA), which entered the Chinese market in 2013, plans to sell 8,000 vehicles in China in 2014, accounting for one-third of its global sales growth in 2014.48 Volkswagen AG (VOW: Xetra) is another ambitious player, with plans to start selling its electric car “e-up!” in China by the end of 2014 and to launch more than 15 NEV models by 2018, many of which are expected to be produced locally.49 Japanese auto makers Toyota Motor Corporation (TYO: 7203, NYSE: TM, LSE: TYT) and Honda Motor Co Ltd (TYO: 7267, NYSE: HMC) have also set their NEV localisation strategy and established partnerships with Chinese automakers.  

23

Appendix: Analysis FrameworkExposure

1. Nature of Company Business and Industry 2. Geographic Exposure to Highly Polluted Areas

Preparedness3. (E.1.1) Formal Environmental Policy4. (E.1.2) Environmental Management System5. (E.1.3.3) Programmes & Targets to Reduce Air Emissions6. (E.1.7) Programmes and Targets to Reduce GHG Emissions from own operations7. (E.1.5) CDP Participation8. (E.1.12) Operations (Air Emissions) Related Controversies or Incidents

* All information about the six Preparedness indicators above are directly drawn from Sustainalytics’ company profile database.

** Detailed risk analysis for specific companies covered in this report can be obtained from Sustainalytics upon written request.

24

Endnotes1”China to ‘declare war’ on pollution, premier says,” Reuters, 4 March 2014, http://www.reuters.com/.2 World Health Organisation, “7 million premature deaths annually linked to air pollution,” (press release) 25 March 2014,

http://www.who.int/mediacentre/news/releases/2014/air-pollution/en/.3 Greenpeace, “PM2.5: Measuring the human health and economic impacts on China’s largest cities,” December 2012,

http://www.greenpeace.org/eastasia/publications/reports/climate-energy/2012/air-pollution-health-economic/. 4 Resource Planning and Development Commission, State of the Environment Tasmania: Heavy Industrial Emissions to Air, last

modified 14 December, 2006, http://soer.justice.tas.gov.au/2003/atm/1/issue/56/ataglance.php.5 Pollution Issues, http://www.pollutionissues.com/Na-Ph/Petroleum.html, accessed in May 2014.6 Bahar K. Ince, Zeynep Cetecioglu and Orhan Ince, Pollution prevention in the pulp and paper industries, 2011, http://cdn.

intechopen.com/pdfs-wm/16290.pdf7 Air-quality.org, accessed in May 2014. http://www.air-quality.org.uk/08.php.8 Jennifer Gray, “Pollution From Construction,” SustainableBuild, 16 June, 2014, http://www.sustainablebuild.co.uk/

pollutionfromconstruction.html.9 Lucy Hornby, “China waste incinerator protest turns violent,” Financial Times, 11 May 2014, http://www.ft.com/intl/cms/

s/0/7035866e-d8ca-11e3-a1aa-00144feabdc0.html?siteedition=uk#axzz36DRuxu3F.10 Chinese Central Government Website, “环保部回应垃圾焚烧厂建设引发群体性环境事件(The MEP responded to the

public concerns and affairs caused by waste incinerator construction),” 4 June 2014.11 The regulations impacting companies belonging to the Capital Goods sector classification are reviewed under the section

Energy, Utilities and Materials as well as under the section Real Estate.12 National Energy Administration, “2014年能源工作指导意见 (2014 Energy Plan Review)”, 20 January 2014.13 National Energy Administration, “北京公布能源工作燃煤压减是重点 (Beijing announced energy plan emphasizing coal

reduction)”, 15 May 2014. 14 People.cn, “2014 政府工作报告(2014 Chinese Government Work Report)”, 5 March 2014, http://lianghui.people.com.

cn/2014npc/n/2014/0305/c376646-24535026-4.html.15 CCTV Environmental Protection Channel, “环保部排查六大高污染行业 (The Ministry of Environmental Protection checks

the six most polluting industries)”, 5 November 2013, http://www.hb-cctv.com/Article/Show.asp?ID=11481.16 “环保部与３１个省份签署大气污染防治目标责任书 (MESP signed Air Pollution Control and Target Responsibility

Contracts with 31 provinces),” China News, 6 January 2014, http://www.chinanews.com/gn/2014/01-07/5708436.shtml.17 “北京47 督察组治污减霾 (47 supervising teams set out to check air pollution control)”, 25 February 2014, China News,

http://www.chinanews.com/gn/2014/02-25/5876806.shtml.18 NRDC China Program, “Beijing’s ‘Yellow Label’ Car Policy Aims to Reduce Vehicle Pollution,” Green Law, 28 April 2012,

http://www.nrdc.cn/eblog/greenlawchina/2012/04/28/beijing%E2%80%99s-yellow-label-car-policy-aims-to-reduce-vehicle-pollution/.

19 “Cities pilot new rules for construction site pollution”, China.org.cn, 30 April 2014, http://www.china.org.cn/environment/2014-04/30/content_32248128.htm.

20 “十二五煤炭铁路运输瓶颈犹存(The bottleneck of coal transportation during 12th Five Year Plan period),” People.com.cn, 10 February 2014, http://paper.people.com.cn/zgnyb/html/2014-02/10/content_1389186.htm.

21 “防城港火车站铁路煤炭运输抑尘覆盖率达75% （Fangchenggang rail terminal increases coal dust loss prevention measures),” China News, 6 September 2012, http://www.gx.chinanews.com/2012/1606_0906/62411.html.

22 “北京公布空气重污染应急预案(Beijing launched Air Pollution Emergency Response Plan)”, 22 October 2013, Xinhua News, http://news.xinhuanet.com/local/2013-10/22/c_117822644.htm.

23 Beijing Environmental Protection Bureau, “2014清洁空气行动计划 (Beijing’s Pollution Control Plan for 2014)”, 14 February 2014.24 “China to build $5.78 billion subway line in Beijing,” 17 February 2013, The Economic Times, http://articles.

economictimes.indiatimes.com/2013-02-17/news/37144649_1_subway-line-new-subway-subway-system.25 “空气治理相关上市公司一览(An overview of companies related to air pollution control),” Finance.ifeng.com, 28 February

2013, http://finance.ifeng.com/stock/bk/20130228/7714626.shtml.

25

26 These bags are used to enhance the quality of air released from industrial and commercial processes by collecting dust and other impurities from air or gas.

27 “大气污染新标将出，大气和水污染治理公司最受益 (Air and water pollution companies to benefit from new air quality standards),” Volstock, 1 August 2013, http://www.volstock.com/newtech/energy_saving_6764_5.html.

28 “工业除尘及脱硫脱硝公司业绩将迎高增长 (Industrial dust removal and desulfurization and denitrification companies will face high growth),” China Security News, 13 September 2013, http://finance.sina.com.cn/stock/hyyj/20130913/011016748337.shtml.

29 “China Plans Gas Price Increase to Bolster Supply Amid Pollution,” Bloomberg News, 5 March 2014, http://www.bloomberg.com/news/2014-03-05/china-plans-gas-price-increase-to-bolster-supply-amid-pollution.html.

30 Du Juan, “Gas imports to rise by 19%,” China Daily, 16 January 2014, http://www.chinadailyasia.com/business/2014-01/16/content_15112682.html.

31 “China eyes new energy projects for greener development,” Xinhua, 21 April 2014, http://www.globaltimes.cn/content/855792.shtml.

32 “2013年：我国有史以来水电装机容量增长最快的一年 (2013 witnessed the fastest growth of China’s hydropower installed capacity”, CSHE, 13 Feb 2014, http://www.hydropower.org.cn/showNewsDetail.asp?nsId=12001.

33 David Stanway, “China falling behind on 2020 hydro goals as premier urges new dam building,” Reuters, 10 March 2014, http://www.reuters.com/article/2014/03/10/china-parliament-hydropower-idUSL3N0M70VN20140310.

34 Alstom company website, www.alstom.com; accessed in June 2014.35 “未来五年我国弃风限电将有所缓解 (China’s restriction on wind power development is expected to be alleviated

in the upcoming five years)”, CSEI, 04 May 2014, http://www.chinasei.com.cn/a/zhongguozhanluexinxingchanye/xinnenyuan/2014/0504/622.html.

36 Ibid.37 Michael Davidson, “Spilled Wind: An Update on China’s Wind Integration Challenges,” TheEnergyCollective.com, 4 March

2014, http://theenergycollective.com/michael-davidson/346951/spilled-wind-update-china-s-wind-integration-challenges.38 “Start-up nearing for Chinese units,” World Nuclear News, 25 March 2014, http://www.world-nuclear-news.org/NN-Start-

up-nearing-for-Chinese-units-2503144.html.39 “China National Nuclear to Raise $2.6 Billion in IPO,” Wall Street Journal, 5 May 2014, http://online.wsj.com/news/

articles/SB10001424052702303417104579542661246563596.40 Ibid.41 NEA, “国家能源局关于印发太阳能发电发展十二五规划的通知 (NEA announcement on the development of solar power

during 12th Five Year Plan),” 7 July 2012, http://zfxxgk.nea.gov.cn/auto87/201209/t20120912_1510.htm.42 Jennifer Duggan, “China sets new world record for solar installations,” Guardian, 30 January 2014, http://www.

theguardian.com/environment/chinas-choice/2014/jan/30/china-record-solar-energy.43 Stephen Treloar, “REC Silicon enters biggest solar market with Chinese venture,” Bloomberg, 26 February 2014, http://

www.bloomberg.com/news/2014-02-26/rec-silicon-enters-biggest-solar-market-with-china-joint-venture.html.44 “无须竞价摇号首架新能源车拿到私牌 (The first NEV plate number achieved without lottery)”, People.cn, 4 Jun 2014,

http://zj.people.com.cn/n/2014/0604/c186806-21341657.html.45 “28个城市或区域首批推广新能源汽车(28 Cities promoting NEVs as pioneers),” Caixin.com, 28 November 2013, http://

economy.caixin.com/2013-11-26/100610133.html.46 “第二批新能源汽车推广城市名单公布 (The second batch of NEV promotion cities announced),” People.cn, 10 February

2014, http://auto.people.com.cn/n/2014/0210/c1005-24309467.html.47 www.bjutek.com, “首批28个新能源汽车推广城市及城市群推广计划全览 (Plans of the pioneer cities promoting NEV

ownership)”, 21 February 2014.48 “国外电动车能否冲出中国雾霾 (Can foreign electric vehicle maker compete Chinese automakers),” Finance.qq.com, 26

February 2014, http://finance.qq.com/original/caijingguancha/f1072.html.49 Samuel Shen and Norihiko Shirouzu, “Electric vs hydrogen: China is battleground for auto giants,” Reuters, 21 November

2013, http://www.reuters.com/article/2013/11/22/us-autoshow-china-idUSBRE9AL03M20131122.

26

About the Author

SUN XiSun is responsible for corporate environmental, social and governance research focused on companies in mainland China. Since joining Sustainalytics he has authored a report on the issue of food safety in China and a client brief highlighting the potential ESG implications of China’s 2013 regime change. He also conducts research on companies within the energy sector, focusing on the coal industry. In 2013, Sun Xi was named one of the top sustainable and responsible research analysts and corporate governance analysts in the Thomson Reuters Extel’s Independent Research in Responsible Investment (IRRI) Survey.

Sun joined Sustainalytics as a responsible investment analyst with Responsible Research. His previous work experience includes three years in investment information research and public relations for China’s Investment Promotion Agency within the Ministry of Commerce. Sun also participated in an internship program at the United Nation Economic and Social Commission for Asia and the Pacific (UNESCAP). His research focused on responsible investment related to ESG and corporate social responsibility issues as well as international finance, trade, foreign direct investments and regional integration and development in Asia and Pacific.

Sun holds a master’s degree in Public Policy specializing in Economic Policy and Analysis from the Lee Kuan Yew School of Public Policy at the National University of Singapore. He also has two bachelor’s degrees in Management Information System and International Economic Law from the University of International Business and Economics in Beijing, China.

SUN XiAssociate Analystsun.xi@sustainalytics.com(+65) 3158 3795

27

About the Author

GU BowenBowen conducts environmental, social and governance (ESG) research of companies in the information technology sector. She also provides ESG research and analysis of Chinese companies across various sectors.

Prior to joining Sustainalytics, Bowen worked with the Regional Environmental Centre and the International Fund for China’s Environment. She has also held volunteer positions with education organizations in India and Kenya. Bowen holds a master’s degree in Environmental Sciences, Policy and Management. Her master’s thesis focused on China’s energy investment in Africa.

GU BowenJunior Analystbowen.gu@sustainalytics.com(+65) 3158 3794