The new story of ESG in China: Proactive normalcy and change

Visual China.

Text |Industrialist, author |Dou Dou , edPi Ye

One of the motivations for the characters in the play to introduce the three-body aliens to Earth is the despair of humans. This desperation includes the ...... human beings can harm each other for their own benefit, indiscriminate use of pesticides, and wanton destruction of natureAs a result, some people believe that only by introducing a high-level alien civilization such as the Trisolaran can the earth be saved.

And these desperate human social problems in the play are all related to ESG issues. In other words, under the indifference of ESG management by enterprises, mankind will face the future. It's just that the performance in TV series and ** is dramatic and exaggerated, but it also makes the audience feel more profoundly.

In the past many years, due to the lack of domestic regulatory system, low corporate enthusiasm, and the lack of a good strategy and initiative, even if some companies want to deploy ESG, they can often only be discouraged. In recent years, with the continuous deepening of the ESG concept in China, the corporate side and the capital side have gradually paid attention to it, but for most enterprises, it is importantESG information disclosure is more about public welfare.

In 2023,This kind of "squeezing toothpaste" type of information disclosure is changing.

The most obvious is that many companies have linked ESG to executive salaries, incorporated them into their business systems, and regarded them as compulsory courses for going overseas. For example, Alibaba has made ESG goals an assessment indicator, JD.com has set up a committee, and Xiaomi has won international ESG awards, ......

In addition, from a macro perspective, the establishment of the International Sustainability Standards Board (ISSB) has brought hope for the harmonization of global ESG standards and improved the current situation of confusion in ESG standards and rules. In addition, global regulators have gradually incorporated ESG investment, ESG rating, ESG information disclosure, low-carbon, circular economy, labor, ** chain, governance and other contents into the regulatory system, and strengthened ESG supervision.

After a turning point in 2021, the "ebb tide" in 2022. ESG has undergone a new transformation in 2023. Under this change,Domestic enterprises are gradually changing from passive to active;From the abnormal to the normal;From the exploratory period with information disclosure as the starting point, to the mature period of in-depth integration of ESG and business, it is close to the deep water area.

This year, companies have begun to do a "real thing" in ESG management. This conclusion comes from the ESG changes of large factories this year.

Specifically, Alibaba Group released the Environmental, Social and Governance Report (2023), in which Daniel Zhang said that ESG goals should be made the same as business goals and compliance goals, and become an assessment indicator for business groups and business company CEOsLinked to performance and compensation.

In Alibaba's 2022 report, more content is about the transformation of the energy structure, public welfare and social responsibility.

In March this year, JD.com established an ESG committee, chaired by Liu Qiangdong. In its first all-staff letter, JD.com also reflects its emphasis on ESG - in the next 20 years, JD.com will invest more than 3 trillion yuan in the salary and benefits of millions of front-line employeesJingdong's rural revitalization "Penfold Plan" has driven more than 100 million farmers to increase their incomesA total of 60 million small, medium and micro enterprises have been digitally upgraded, and by 2043, JD will fully achieve carbon neutrality, etc.

Different from previous years, JD.com's ESG management in the past was relatively scattered and ambiguous. The establishment of the ESG committee will drive JD.com to a large extentEstablish a standardized and complete ESG system. It is also convenient to link to business and executive compensation.

There are not a few companies that have the same pace as Ali and JD.com.

According to MioTech AMI data,At present, nearly 100 Chinese companies have or are considering incorporating ESG factors into their executive compensation mechanisms to stimulate internal ESG value creation capabilities.

It can be seen that some domestic enterprises have entered this stage, and have established ESG medium and long-term goals by formulating ESG strategies and action plans, establishing ESG committees of the board of directors, setting up ESG working groups and ESG departments at the executive level, and establishing in-depth links between ESG and the company's business value and competitive advantage.

In addition to the changes in the integration of ESG and business, there are also changes in the real management ability of ESG from enterprises.

For example, at Xiaomi's new product launch event in November, Lei Jun reaffirmed the group's commitment to achieve carbon neutrality by 2040 and use 100% renewable energy, and showcased a series of national and international ESG-related awards won by Xiaomi.

In previous years, few companies received such awards, more so in the energy sector.

Xiaomi is just a microcosm of how many companies are advancing into the depths of ESG.

In terms of representing the world's leading ratings, Chinese companies broke the history of the highest AAA rating of zero in 2021. This year, the company that obtained the AAA rating was Yadea Holdings;The company that received the AAA rating in 2022 is Lenovo Group;And in 2023, there are three companies that have achieved AAA ratings, namely Livzon Group, Li Auto, and Xpeng Motors.

Although two of the companies that have obtained the AAA level this year belong to the field of new energy vehicles, they have natural advantages and genes. However, it is difficult to hide that Chinese companies have entered a new stage in terms of ESG.

In addition, a more noteworthy change is that some companies have begun to replicate their capabilities in the ESG field and empower other industries and enterprises.

According to MSCI ESG ratings, public dataMore than one-third of Chinese companies have improved in the past five years, with about 15% achieving cross-level (two or more) improvements.

Lenovo is one of them. Accelerate the precipitation of ESG practical experience into ESG services and solutions, and "copy" them in the fields of intelligent manufacturing, smart buildings, smart cities, and green chains.

In general, due to the late entry of ESG management of domestic enterprises in the past, many enterprises have not formed a complete management system, and ESG reports are more of "toothpaste" information disclosure. Now, with the pressure of policy dividends and their own growth needs, they are gradually standardized, linked to salaries, and set up independent management departments within the enterprise to gradually integrate and develop with the business.

In addition, some companies with strong ESG capabilities have begun to replicate their ESG management capabilities to other industries and enterprises. This change has also enabled Chinese companies to continue to advance in the ESG field.

In the Gartner Top 25 Global Chains (2023) list with ESG indicators as an important selection criterion, Lenovo Group ranked 8th19th and Alibaba ranked 23rd. It also shows the prominence of ESG and sustainable brand power of Chinese enterprises in the world.

The deep-seated reasons behind this change are worth exploring.

From a macro point of view,The changes of companies in the ESG field are inseparable from the influence of policies, international trends, investor pressure and other factors.

Together, these reasons are driving investment and commitment in the ESG space. As the importance of ESG continues to grow globally, more companies continue to incorporate ESG into their core strategies.

But in addition to these macro factors,More reasons come from the needs and growth pressures of the company's own development.

With the intensification of competition in the domestic market and the upgrading of consumption, more and more enterprises have begun to seek overseas markets to expand sales channels and market share. At the same time, there are also huge business opportunities and development space in overseas markets. In addition, the release of policy dividends such as the Belt and Road Initiative and the Free Trade Zone has provided policy support and guarantee for enterprises to go overseas.

In 2023,Going overseas has become the only way for enterprises to seek growth. However, for domestic companies, it is not easy to carve out a path overseas. ESG capabilities have become an important part.

Specifically, the regulatory requirements for corporate ethics, user privacy and data security, and carbon emission reduction in overseas markets are more stringent than those in China. Companies need to meet not only these regulatory requirements, but also the ESG expectations of consumers, merchants, employees, etc.

Take, for example, the automotive sector. Since November 2022, the European Council has adopted the Corporate Sustainability Reporting Directive. Since then, any non-EU company with a ** relationship with the EU will have to make ESG reporting disclosures in the future, otherwise their exported goods will be denied access to the EU market.

In a way,If domestic car companies want to truly go overseas, the first hurdle they have to pass is to build an ESG governance system that is in line with international standards.

BYD is a model for Chinese car companies to go overseas, and although BYD is the only car company to get an A rating in the MSCI rating, its rating reports on chemical safety, community relations, and labor management lag behind the average, which is more controversial. Among them, BYD's battery processing plant in Vietnam, there was a strike among workers, which reduced a lot of points for it.

In addition, under the latest CSRD regulations of the European Union, importers need to judge whether the exporter's product chain (including the ** chain) is a fair competition and environmental protection enterprise, rather than a sweatshop.

From this point of view, JD.com strengthens the supervision of environmental protection and social responsibility in the first chain link to ensure the sustainability and compliance of products. and increased investment in new energy and green logistics to promote the reduction of carbon emissions and waste generation. The "green chain" initiatives, such as the introduction of more environmentally friendly packaging materials and transportation methods to reduce the impact on the environment, have also become visible.

Overall,ESG can not only help companies improve their brand image and customer experience, but also integrate with existing businesses and become a starting point for improving internal governance. By improving ESG performance, companies can improve operating profits, shareholder returns, and profit growth.

This can be seen from the fact that listed companies with higher ESG ratings usually perform better, which shows the importance of ESG.

For now, thoughCompared with overseas, there is still a gap in the depth and breadth of ESG in China.

The fact is that the endgame of ESG is more than just a combination with businessInstead, it is necessary to integrate ESG into the core of corporate value, and realize the deep integration of social value and business value, that is, to make meaningful profits.

ESG has not been popularized in China for a long time, and China's ESG ecosystem is still in the early stages of construction. Therefore, for many Chinese companies, how to effectively integrate ESG into their operations and extract business and social value from it is a difficult problem in front of them.

Taking major Internet companies as an example, since 2021, leading Internet companies such as Tencent, Alibaba, JD.com, Pinduoduo, NetEase, and others have disclosed independent ESG reports, but unfortunately, Chinese Internet companies have not received higher ratings in MSCI ESG ratings.

The reason behind itNot only is China's ESG relatively "young", but also the pressure from localized development.

It is important to know that each country is at a different stage of development, and the issues it attaches importance to are also different. Therefore, when companies practice ESG, they need to consider both the global market and localization.

For example, Mengniu has carried out large-scale ecological management and sand industry construction in Ulan Bu and the desert, and developed a circular economy model of windbreak and sand fixation, grass planting and cattle raising, and returning cow dung to the field, turning the thousand-year-old desert into an organic soil and milk source production area. At present, China Shengmu covers more than 200 square kilometers.

On the one hand, it has improved the local desert management problem and achieved economic benefitsOn the one hand, the ESG management plan has been implemented.

Secondly,It is a fact that many domestic companies have low transparency of ESG data and informationAnd there are many dilemmas in energy efficiency, carbon emission management and other issues.

One case comes from Lenovo. It has established a new IT architecture based on "device-edge-cloud-network-intelligence", integrating sustainable development into product design, and closed-loop recycled plastics have been applied to 298 products.

What's more noteworthy is that it has refined a set of solutions** and solutions based on its own practical experience, and created an integrated data platform to achieve digitally-assisted intelligent decision-making and support corporate goals such as sustainable products, net-zero emissions and sustainable value chains. For example, LeGreen is a phased achievement of its ESG externalization empowerment.

can be found,Digitalization underpins ESG development.

Specifically, digital transformation provides the possibility for enterprises to achieve higher ESG data and information transparency, reduces the asymmetry of ESG information at all levels within the company, and is conducive to objective and accurate ESG decision-making, tracking and supervision at all levels.

Digital transformation can also improve quality and efficiency, optimize the allocation of internal and external resources, and is a means to improve the ESG performance of enterprises.

According to the China Academy of Information and Communications Technology's "Digital Carbon Neutrality***By 2030, digital technologies will enable different sectors to reduce emissions by about 10% to 40%.

Under the empowerment of digitalization, a step that can be integrated with ESG is to first help enterprises establish an internal ESG digital management system, then extend ESG digital capabilities to the first chain, and finally externalize ESG digitalization for enterprises.

Overall, the development of ESG in China,On the one hand, it is necessary to follow the principle of localization, but also to focus on globalization;On the other hand, there is a need to accelerate further integration with digitalization.

With the improvement and maturity of the ESG ecosystem, Chinese enterprises are gradually moving from "passive" to "active".From "trying" to "normal".