Ladies and gentlemen,
As the founder of the YouChange Foundation, I am honored to be invited to participate in this conference.
Today, we are discussing social finance and social initiatives, which are very important topics. But in reality, its development has not made the expected progress. The main reason is the outdated cognition, as well as the resulting backwardness of tools and systems.
Now, I will briefly analyze these three main obstacles and our own observations and initiatives.
Firstly, traditional cognitive pattern is the key obstacle. For a long time, people have regarded society and economy as two independent and incompatible elements. More specifically, financial value is regarded as the core value of the enterprise, while other values created or costs incurred for society are considered externalities. That is to say, whether it is the positive or negative externalities generated by the enterprise to society, they will not enter the valuation and accounting system in terms of value or cost.
Therefore, we believe it is necessary to reinterpret and redefine society and social values.
Social value is not a concept that corresponds to economic value, but includes economic value and all externalities expressed in traditional economics. The object of the value is the entire society, including the creation of all material and spiritual wealth. Social value is social welfare, manifested as the sum of economic, social, and environmental benefits. In this way, when we talk about society, we will not exclude the"economy" or "individuals" from it, nor limited it to the 17 categories of the United Nations Sustainable Development Goals. So-called SDGs. Instead, it is composed of all people of society. It can be as small as a local community or as large as a community with a shared future for all humanity.
As for enterprises I am discussing in this context are not just those working in the fields of education, elderly care, or the environment.
For every enterprise, their social value is not only presented through social responsibility, but more importantly, the benefits they bring to society through their main business, including the use value of their products, employment opportunities provided, and tax contributions to the country. It also covers the positive value proposition of enterprises, which helps to change consumer attitudes and behaviors, leading to constructive changes in society; helps establish social capital or improve the environment.
The second obstacle is the insufficient evaluation criteria for the economy. Due to the separation of society and economy, traditional enterprise evaluation standards cannot truly and completely reflect the creation of social value by enterprises. The positive externalities created by enterprises cannot be reflected, and the social costs generated by negative externalities cannot be fairly compensated. We need new evaluation criteria.
In practice, YouChange has developed a set of evaluation standards and methods, known as the "3A" system, which assesses the social value of enterprises from three dimensions: Aim, Approach and Actions. It is an evaluation of the entire process of value creation-the intention to create value (Aim), the methods to create value (Approach), and the result of creating value (Action) are all included in this evaluation. It also integrates the economic, social, and environmental benefits achieved by enterprises into a unified framework.
Today, I am proud to inform you that since 2017, this set of standards has been used for the evaluation of some Chinese listed companies, and financial products have been developed based on this.
We call this social value investment, which is a broader and higher-level form of social finance. Due to time constraints, I am unable to provide a detailed introduction here.
The third challenge is the outdated financial reporting system based on financial accounting standards, which is a common standard and language of industrial civilization. However, it does not consider or reflect any external costs or values. Therefore, it is necessary to improve the existing reporting system to better reflect the company's value to the market and society.
For example, establish a fourth report that will include many previous off balance sheet assets. Which means integrating both positive and negative externalities into the balance sheet. Simultaneously convert the balance sheet into a social value balance sheet. This enables commercial companies to participate more spontaneously in social financing and social initiatives.
We are currently conducting research on this in order to obtain wider applications.
Once the above three transformations are completed, through social value assessment, investors can see the complete ability and contribution of a company's value creation, thereby changing their investment behavior. We hope this will transform all investments into social financing, and all behaviors of the company into actively creating social value.
In addition, the government or social development banks can use the fourth balance sheet to identify and support innovative enterprises that create social public value based on policy priorities, and support or encourage them to provide public services and products through preferential policies and government investment. This may be an exploration of Chinese path to modernization.
Ladies and gentlemen, we live in an era of great change. In order to overcome the social problems accumulated in the era of industrial civilization, we need to go beyond conventional thinking. The three points discussed here-cognitive pattern, company evaluation, and financial reporting systems-demonstrate how our understanding and institutional innovation are gradually interconnected. They are based on our thinking and our limited but promising experiment.
I hope these sharing will trigger more thinking and discussion, and deepen our understanding of the theme of today's meeting.