Report Launch | White Paper on ESG Development and Innovation in China 2021


CASVI and China AMC jointly released:

White Paper on ESG Development and Innovation in China 2021

On December 23rd, 2021, China Alliance of Social Value Investment (CASVI) and China Asset Management Co. (China AMC) jointly released the White Paper on ESG Development and Innovation in China 2021. The White Paper provides insight into the development context and latest trends of China's ESG practice from a global perspective.

CASVI and China AMC jointly released

the White Paper on ESG Development and Innovation in China 2021

Weihua Ma, Executive Chairman of CASVI pointed out that the White Paper explores the current situation and characteristics of China's ESG development from policy to market, from concept to practice, from practical cases to evaluation standards, and it also outlines a clear picture of China's ESG practice for all stakeholders. The White Paper provides representative references for promoting China's sustainable development.

Weihua Ma stressed in the White Paper, "China, as the world's largest growth market and the most promising major investment destination, is facing more severe challenges and assumes greater responsibilities in promoting a fair global governance system." Since China's sustainable finance policy becomes increasingly clear, Chinese financial insitutions and enterprises have to constrain its unsustainable business behavior.

Yimei Li, General manager of China AMC pointed out in the White Paper that China, as the second-largest economy and the largest contributor to global economic growth, shoulders a big nation responsibility. Since Chinese asset management institutions already have an in-depth understanding of the Chinese market and Chinese enterprises, they should have a sense of mission to provide Chinese wisdom and Chinese solutions to global problems. To achieve this, China AMC needs a lot of solid and forward-looking research. Institutions should keep up with the forefront concepts of international ESG investment while maintaining awareness of domestic problems by thinking about the fundamental cause of these issues.

She added, to find out the answers to these problems, stakeholders need to trace back to the roots. They should carefully sort out the origin and development context of foreign ESG investment ideas, understand the different concepts, and put them into the Chinese context. This is also the starting point of the White Paper.

The White Paper is divided into four chapters: the ESG Focus on Worldwise Sustainable Development, the Governance Practice of China's Sustainable Financial Policies, the ESG Innovation Practice of China's Financial Institutions, and the Integration of ESG Management of Chinese Listed Companies. The first and second chapters focus on the origin background of global ESG development and the green financial policy framework built by China in the recent decades. The third and fourth chapters explore the current situation of China's ESG market by taking the well-performed financial institutions and A-share listed companies as the object.

ESG Focus on Worldwise Sustainable Development

The White Paper points out that the proposal of ESG is consistent with the demands of all stakeholders in global sustainable development. The newly emerged development methods and tools have gradually formed a new ESG investment ecosystem, such as changes in corporate values, non-financial information disclosure, investment strategies and methods, performance evaluation standards, and financial product innovation.

The White Paper shows that UN and other international organizations have provided a platform for global financial institutions and entities to carry out ESG practice. Some countries have successively issued ESG related policies and regulations to support the realization of their sustainable development goals and enhance the stability of their financial systems. With the joint promotion of international organizations, government authorities, regulatory authorities, and local stock exchanges, the non-financial information disclosure standards have been continuously improved, and the disclosure requirements have been increasingly strict, strengthening the basic policy support for the sustainable financial system. Moreover, the international ESG rating industry has also formed a competition pattern led by large professional service institutions. ESG evaluation standards began to have diverse types, and rating data and supporting solutions are constantly coming out. The global ESG practice has gradually become standard, systematic, and localized.

ESG ecosystem map

(Source from the White Paper on ESG Development and Innovation in China 2021)

How China's Sustainable Financial Policy accelerates Governance Practice

According to the research in the White Paper, China's green finance policy system shows a "top-down" problem-oriented, goal-oriented, and result-oriented characteristic. Although many relevant domestic policy documents are not labeled as "ESG," they all contain ESG value during systematic planning.

In 2020, as the "dual carbon" goal been written into the "14th five-year plan," China's green finance development has entered the fast lane. The "three functions and five pillars" policy idea is also accelerating the construction of the "1 + N" policy system, and has formed a multi-level policy framework.

Different Levels of China's Sustainable Financial Policy

(Source from the White Paper on ESG Development and Innovation in China 2021)

China's green finance policy plays a vital role in optimizing resource allocation, reducing financial risks, creating investment opportunities, and strengthening opening to the outside world. In the future, China will further improve the green finance standard system, establish an environmental information disclosure system, increase financial and technical support for green industries, and guide financial institutions and enterprises to strengthen their climate resilience.

Carrying out Innovative ESG Practice - the Chinese Way

According to the White Paper, China's sustainable financial market is booming. At present, the main investment and financing product types include green credit, green bonds, ESG financial products, and ESG themed investment funds, etc. According to the statistics from China AMC, by the end of the third quarter of 2021, the balance of domestic and foreign green loans was 14.78 trillion yuan, a 27.9% increase from 2020; the balance of green bonds exceeded 1.1 trillion yuan, a 35% increase from 2020; the scale of domestic ESG financial products is about 10 billion. Compared with the 27.95 trillion yuan market estimation, China's green finance products still has a huge space for development.

Over the past two years, ESG themed public securities investment funds have shown a blowout growth. By the end of October 2021, 160 products have been issued in China with a total scale of 354.27 billion yuan.

Issuance of ESG Theme Funds in Mainland China from 2004 to 2021

(Source from the White Paper on ESG Development and Innovation in China 2021)

In terms of fund types, there is a large gap in the number of different types of funds. Passive index funds account for nearly half (46%) of the market size, followed by partial stock hybrid funds (26%) and general stock funds (17%). However, according to the scale, partial stock hybrid funds account for the largest share (32.02%), followed by passive index funds (29.45%), and stock general funds (25.80%).

Distribution of ESG Themed Funds in Mainland China

(Source from the White Paper on ESG Development and Innovation in China 2021)

The White Paper also points out that responding to national policies, meeting the needs of investors, and pursuing stable investment returns are the main driving forces for financial institutions to carry out ESG investment. At present, many excellent financial institutions, including China AMC, Industrial Bank, and China Ping An, give full play to their professional advantages, seize the opportunities to innovate and practice. They integrate ESG into the company's development strategy, establish their ESG management structure, develop new financial businesses and products, cooperate with all parties to promote social progress and contribute to the construction of China's sustainable financial ecosystem.

Panorama of ESG Innovation Practice

(Source from the White Paper on ESG Development and Innovation in China 2021)

ESG Management of Top A-share Listed Companies

The White Paper shows that under the guidance of the national sustainable development policy, the market pays more and more attention to enterprise ESG performance and information disclosure, and ESG has become an important factor affecting the high-quality development of enterprises.

According to research done by CASVI, from the perspective of stakeholder identification and participation, most listed companies in CSI 300 have taken actions to identify key stakeholders, but the level of stakeholder participation still needs to be improved on the whole.

Identification and Participation of Stakeholders of CSI 300 Listed Companies
(Source from the White Paper on ESG Development and Innovation in China 2021)

From the perspective of ESG / CSR / Sustainable development report release, the number of ESG reports released by Chinese listed companies has increased steadily, driven by factors such as policy guidance, social promotion, and peer pressure,. Although those reports are becoming more and more standardized and international, there is still room for them to be more practical.

Number of Non-Financial Information Reports

Disclosed by A-share Listed Companies from 2011 to 2020

(Source from the White Paper on ESG Development and Innovation in China 2021)

From the perspective of environmental protection and climate action, about half of the CSI 300 listed companies have incorporated the concept of environmental protection into the operating system in 2020, with a total investment in environmental protection of nearly 30 billion yuan. At the same time, the environmental protection investment of CSI 300 companies presents an imbalanced situation where the major investment concentrated at leading companies.

From the perspective of resource utilization and pollution prevention, the scoring rate of resource utilization of CSI 300 listed companies in 2020 was 49.71%, which still has great room for improvement. Although the dual carbon goal has just been put forward for less than a year, 120 companies have already incorporated low-carbon development into their strategies, 40% companies are supportive of carbon reduction measures.

As Yimei Li said: "Sustainable finance and ESG investment have changed from an 'important' topic to an 'important and urgent' task. Therefore, to create a truly positive impact, we should really turn ESG and carbon neutralization from a heated topic into a belief rooted in the hearts of every investor.

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