Chinese companies have made significant progress in environmental, social and governance (ESG) reporting, but more needs to be done to boost green investment and meet climate targets, leading industry figures told an Asia House audience on Tuesday (17 May).
China, a major player in green finance, issued new rules in February requiring certain domestic companies to publish reports on their environmental impact – the latest in a trend of new regulations in the country.
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Speakers at the Asia House discussion – which focused on China’s ESG landscape – welcomed the increased disclosure, but said the quality and quantity of data needs to improve.
“The ESG reporting rate and trajectory in China and globally is absolutely trending in the right direction, but are still some way off being complete,” said Michelle Cameron, Head of Sustainable Investment and Finance Sales, Asia, at global financial data provider Refinitiv.
Cameron said Chinese companies were reporting on ESG more than ever, with interest being increased by the government’s peak emissions and carbon neutrality targets. In the latest cycle, 85 per cent of companies on the blue-chip CSI 300 index reported fully on their ESG performance, Cameron said, but this now needs to be extended to firms of all sizes.
ESG represents value
For Wang Xitong, Head of ESG affairs at China’s Everbright Green Fund, ESG represents additional value for investors.
“There is a misunderstanding that ESG means sacrificing returns for corporate responsibility or the public good. On the contrary, ESG can help companies have financial benefits and achieve sustainable development at the same time,” he said.
Studies have shown a positive correlation between ESG performance and share prices, Wang said, with returns on a CSI 500 ESG index 8.1 per cent higher than on the parent index.
In the primary market, investors are more willing to pay an ESG premium. “Big companies are beginning to care more about whether their target companies are performing well in ESG or whether they have a green supply chain,” Wang added.
“Whenever a company wants to become listed, it is better to incorporate ESG into its governance as early as possible to save these compliance costs.”
The value of ESG was also highlighted by Zhu Rui, Professor of Marketing, Director of the Social Innovation and Business for Good Center, Cheung Kong Graduate School of Business, who positioned ESG as a way for companies to make money that would in turn allow them to tackle social problems. There has been more public support for this approach since the pandemic, the professor added.
However, it is important that ESG aligns with markets, with some models not suited China’s stage of development, Professor Zhu said. “There are a lot of these guidelines and standards around the world but some of them don’t quite fit into the Chinese context.”
Push for sustainability offers economic opportunities
Indeed, broader economic trends are also shaping China’s ESG landscape, with Phyllis Papadavid, Director of Research at Asia House, warning that economies like China and other large emerging markets might focus more on energy security than sustainability, given the current economic downturn.
There are already signs of this happening, Papadavid said, with China’s performance in the Asia House Economic Readiness Indices for Green Finance slipping in Q1. However, the international economist said dealing with a downturn and focusing on sustainability are not mutually exclusive.
“The push for sustainability is a driving factor behind growth in certain economies and certain sectors,” Papadavid said.
Moderated by Charlie Humphreys, Director of Corporate Affairs at Asia House, the digital dialogue provided an opportunity for businesses with interests in China and broader ESG issues to share ideas and discuss a key trend which is set to become a mainstay of doing business in China and beyond.
Asia House helps organisations navigate the ESG environment in Asia – an issue we will continue to explore in our future programming. For more information about our services, and to share thoughts and ideas on future ESG events, please contact Jonathan Smith, Corporate Affairs Manager: email@example.com
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