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06 Jan Climate Disclosures: A Quick Look at Ping An’s Climate Risk Management Report
Ping An Insurance (Group) Company of China, Ltd. [2318:HK] has published its 2020 Climate Risk Management Report in December 2021. Compared to the Group’s first climate risk report, which was published two years ago, Ping An’s second Climate Risk Management Report discussed more deeply how climate change influences the financial sector and illustrated the Group’s pathway towards net-zero. In addition, the report covered the Group’s green finance strategies according to the recommended framework of Task Force on Climate-related Financial Disclosures (TCFD). The report followed NDRC’s Guidelines for Accounting and Reporting Greenhouse Gas Emissions (trial implement) in preparation for its information on carbon dioxide (CO2).
Highlights of the 2020 Report:
- Set a target of carbon neutrality in operation by 2030
- Estimated financed CO2 emissions for the first time
- Developed 439 sustainable insurance products as of 1H21
- Achieved green investment of RMB208.89bn, green credit of RMB53.28bn, and green insurance of RMB25.11bn as of 3Q21
In terms of emissions, the Group announced its climate-related goals and benchmarks for operation and investment under the TCFD framework, with an overall target to achieve operational carbon neutrality by 2030. The operational carbon neutrality goal covers all office energy consumption, data center power consumption, and travel-related carbon emissions. Notably, Ping An was the first financial institution in China to disclose the carbon emissions of overall assets through their data of financed emissions. However, such data do not cover a wide range of greenhouse gas (GHG) emissions, only CO2.
As an insurance provider, Ping An also intends to address sustainable development through its business model and product offering. The Group states its ambition to promote the implementation of green finance in China. In terms of a five-year green finance plan, the Group promised to increase both its green investments and green loan balance at a rate of no less than 20% per year. In addition, Ping An also set a target of no less than 70% for annual growth rates of green insurance premium. When it comes to net-zero transition, Ping An will achieve its strategy mainly by increasing investment in green and zero-carbon assets, while reducing and withdrawing investment from carbon-intensive activities, such as coal mining.
Climate change brings risks and uncertainties, which have enlarged effects on the insurance and reinsurance sector, the main function of which is to transfer or avoid risks. Hence, for a major player in the insurance sector such as Ping An, risk identification and management are essential to tackle not only problems brought on by climate change but also operational resilience. According to the report, Ping An has standardized its climate risk governance model and integrated it into the Group’s sustainable development strategy. The Group also requires subsidiaries to upload green finance data onto its AI-ESG platform on a monthly basis for better internal ESG monitoring and ESG performance tracking at each working process. In addition, the Group established its risk identification matrix by leveraging its own business operation features while considering the dimensions of physical and transition risks. The matrix identified two physical risks and five transition risks and assessed each risk’s extent of influence based on different time horizons. The Group integrated the matrix into its “251” risk management system to refine the company’s risk governance capabilities. The “251” Risk System refers to: “2″- dual control of the Group and subsidiaries in terms of ESG governance; “5”- integration of ESG risks and the five financial risk categories, and; “1”- establishment of a unified ESG management system.
Climate-related Disclosures in Other Parts of the World
The world is reaching a consensus on the importance of climate-related information and demanding more climate-relevant disclosures from market participants. This global consensus enables the climate disclosure issue to be firmly put on the agenda of global sustainable development and makes way for the application of TCFD in different countries and regions.
In June 2021, the financial governors from G7 countries agreed to mandate climate-related financial reporting in line with the recommendations of the TCFD. The seven nations account for more than 32% of global GDP and emit over a quarter of global GHG emissions. Soon after the G7 agreement on adopting the TCFD, other countries in the G20 also showed their support for TCFD-aligned disclosures. More than 2,200 organizations officially stated that they will report their climate information in line with the recommendations of TCFD. Currently, the UK, New Zealand, and Singapore have mandated TCFD-aligned requirements for both financial and non-financial companies.
The UK government and regulators place heavy emphasis on the TCFD framework in its approach to the transition to a decarbonized economy. Given the urgency and threats of climate change, the UK considers voluntary climate disclosures insufficient to meaningfully tackle the climate crisis. Hence, in October 2021, the country established legislation to put mandatory TCDF-aligned disclosures in force, hence becoming the first G7 country to enshrine climate-related disclosures in law. The legislation will take effect in April 2022 and cover UK’s largest corporations and financial institutions with over 500 employees and/or revenue over GBP500m, including listed companies, banks, insurance companies, and big private firms. With mandatory climate disclosures as law, the UK can accelerate its green transition and deliver its green finance ambition nationwide. The new requirement also forces investors and companies in the UK to develop a better understanding of how climate change financially impacts their businesses.
The Singapore Stock Exchange (SGX) is the first Asian stock exchange to promote mandatory disclosures on climate change. It requires all listed companies to include climate-related performance in their sustainability reports on a “comply or explain” basis. According to the SGX’s announcement, issuers must prepare their content strictly following the guidance of TCFD. The new requirement will take effect in 2022. Preparation for climate-related disclosures will become mandatory for issuers in the financial, energy, agriculture, food and forest products sectors in FY23 and will be extended to the materials, buildings, and transportation industries in FY24. The exchange also provides listed companies with a platform to report more information on ESG performance.
Although China is still in the progress towards mandatory climate-related financial reporting, the Governor of the nation’s central bank People’s Bank of China (PBoC) Yi Gang has promoted the implementation plan at a conference hosted by the Bank for International Settlements (BIS) in June 2021. The plan mentioned mandatory disclosures of climate and carbon emissions information, as well as further development of a green bond classification system with the EU and the US. The central bank will first push major commercial banks in the country to disclose climate-related information, followed by listed companies in Chinese mainland. In the meantime, PBoC continued to encourage domestic banks and institutions to join the TCFD. Some Chinese financial institutions have already taken the initiative. For example, the Bank of China [3988:HK] stated in its 2020 annual report that it would carry out climate and environmental risk stress tests for several carbon-intensive industries and sensitive factors, and its London branch has already finished assessment and management of climate risks of financial services last year. On the other hand, the Industrial and Commercial Bank of China [1398:HK] also pledged to promote environmental information disclosures and formulate the environmental risk stress testing standards under the guidance of PBoC.