Why is ESG growing rapidly in China?Why should companies and investment institutions pay attention to, value and invest in ESG?
Deng Yan, executive editor-in-chief of Investment Times.
In 2023, the world will usher in important changes in technology, society, politics and economy. Generative AI technology quickly broke through the circle and successfully opened the road to commercialization, kicking off the next round of technology-led productivity revolution. The economic recovery has shown endogenous momentum and resilience, and every market individual is diligently working to restore certainty and build new hope.
In the face of these changes, challenges and hopes, all sectors of society have actively paid attention to and practiced the concepts of ESG and sustainable development, and sought the next development opportunities by grasping the endogenous power of social value.
Since the concept was first proposed by the United Nations Global Compact in 2004, ESG has evolved from the initial awareness of corporate social responsibility to an important reference system for measuring the sustainable and high-quality development of enterprises. Under the guidance of the national strategy, Chinese enterprises and investment institutions have started a new stage of actively responding to ESG concepts and comprehensively improving their own ESG standards, and ESG practice has gradually developed from following international trends to nurturing innovation in the local market, with an increasing number of issues in line with and with Chinese characteristics, and increasing influence and voice in the construction of the global ESG system, thereby feeding back the global ESG development.
ESG is a systematic project, involving multiple entities such as **, regulators, enterprises, investors, rating agencies, and self-regulatory organizations, which is related to the interests of multiple parties. To improve China's ESG management and practice capabilities, it is necessary to build an ESG ecosystem with Chinese characteristics and make ESG an important engine for the sustainable development of Chinese enterprises and investment institutions.
Why is China's ESG growing explosively?
In the past year, China's ESG development has ushered in unprecedented explosive growth, and the importance of ESG practice has gradually been widely recognized, becoming a new concept that cannot be ignored by the business community, investment community, policy departments, and academic institutions.
The three major exchanges in Shanghai, Shenzhen and Hong Kong iteratively optimize the ESG disclosure rules, based on themselves and benchmarking against the world.
The State-owned Assets Supervision and Administration Commission (SASAC) has established a "Social Responsibility Bureau" to supervise and guide central enterprises to fulfill their social responsibilities, and guide listed companies of central enterprises to strengthen the quality of ESG information disclosure, and strive to achieve "full coverage" of ESG special reports of central enterprises in 2023.
Listed companies have gradually increased their awareness of ESG disclosure, competing to release ESG reports, and the disclosure rate has increased year by year.
The scope of ESG investment is gradually expanding, financial institutions are gradually incorporating ESG factors into investment and financing decisions, banks and bank wealth management companies are actively deploying ESG-themed wealth management products, and the development of ESG investment products in public offerings has also pressed the acceleration button, and the spectrum of ESG investment products is becoming increasingly rich.
In corporate management, a large number of ESG jobs have emerged ......
Why is ESG growing rapidly in China?Why should companies and investment institutions pay attention to, value and invest in ESG?
The reasons for this are, first of all, although ESG is a foreign product, the core values of economic prosperity, environmental sustainability, and social fairness advocated by it are highly consistent with the oriental wisdom of balanced trade-offs, harmonious coexistence, and harmony and non-equality, and are highly consistent with important strategic goals such as promoting high-quality development, improving people's livelihood and well-being, accelerating green development, and building a community with a shared future for mankind, and are in line with the development requirements of the new era. These important strategic goals provide a grand stage for the development of ESG in China.
Secondly, more and more enterprises and investment institutions are realizing that ESG is not only a responsibility and responsibility, but also an opportunity and competitiveness. After years of development, ESG has provided another set of evaluation systems with higher requirements above business for enterprise development, and has become an important reference system for measuring the sustainable and high-quality development of enterprises, representing a greener development mode, a more responsible corporate image and a more effective corporate governance mechanism.
With the tightening of the regulatory environment and the intensification of climate risks, many outstanding companies continue to improve the identification and management mechanism of ESG risks, and these ESG practices can continuously improve the competitiveness of enterprises and even become profits, rather than costs. Once a systematic ESG system is formed, it can become an internal driving force to feed back the business, improve organizational resilience and long-term value, and help enterprises achieve longer-term profitability.
Finally, based on the ESG evaluation results, enterprises and investment institutions can prospectively discover the existing sustainable development risks, so as to avoid the related risks indirectly affecting the financial performance and investment returns of the enterprises, and make more reasonable investment decisions.
ESG is essentially a risk assessment system. In the analysis and investment decision-making of enterprises, different from traditional elements based on macroeconomic, meso-industry, and micro-financial data, ESG has extraordinary performance in the fields of negative elimination, "risk avoidance and mine clearance", positive screening, promoting the improvement of listed company governance, and supporting high-quality development.
Substantial progress has been made in the local characteristics of ESG
In recent years, China's ESG development has rapidly entered the "fast lane", and one of the obvious trends is that the ESG disclosure awareness of listed companies has gradually increased, and the disclosure rate has increased year by year.
In the past five years, the number of listed companies in China disclosing ESG reports has doubled from 2018 to 2022. According to the China Association of Public Companies, in 2022, more than 1,700 companies compiled and published ESG-related reports individually, accounting for 34%. Among them, the release rate of ESG-related reports in banking, non-bank finance and other industries exceeded 80%.
ESG investment products and green financial products are another important starting point for building an ESG system. According to the central bank, as of the end of the second quarter of 2023, the balance of green loans was 27 trillion yuan, a year-on-year increase of 384%, higher than the growth rate of various loans of 278 percentage points.
ESG has become an important consideration in investment decisions, and ESG** is growing rapidly. As of November, the number of ESG ** stocks reached 805, and the scale reached 5,2562.5 billion yuan, with a compound growth rate of 36 in the past ten years07% and 2299%。At the same time, the scope of ESG investment has gradually expanded, covering more relatively cutting-edge issues, among which topics with Chinese characteristics such as new energy, green development, low-carbon and social responsibility have been welcomed by the market.
It is worth noting that in more than 1,700 ESG reports of listed companies, issues with Chinese characteristics can also be seen, among which the "dual carbon" goal, common prosperity, rural revitalization, party building, etc., which have attracted high attention.
Rural revitalization is the main content of the social responsibility section of the ESG report, and all companies describe rural revitalization cases in detail. The analysis found that listed companies actively participated in rural revitalization, and helped the comprehensive revitalization of rural industries, talents, culture, ecology, and organizations by participating in infrastructure construction, supporting characteristic industries, carrying out skills training, and setting up support funds. Rural revitalization and social welfare indicators fully demonstrate Chinese characteristics and the performance of Chinese enterprises in social responsibility.
In addition, more than half of the companies disclosed the topic of party building business, reflecting the important role of party building in leading the direction of governance. The study finds that Chinese enterprises have embedded the company's party organization into the corporate governance structure, and established and improved a corporate governance mechanism with Chinese characteristics that performs its own duties, assumes its own responsibilities, coordinates operations, and has effective checks and balances, so as to promote corporate compliance construction, enhance sustainable development awareness, and promote ESG work.
Whether it is the focus on the environment in the "dual carbon" goal, the emphasis on social equity in rural revitalization, or the comprehensive concern for the economy and society in common prosperity, all of them provide rich connotations and broad space for ESG practice in China. In the past year, substantial progress has been made in the construction of an ESG disclosure system that introduces local characteristic indicators, and the construction of an ESG system with Chinese characteristics is accelerating, which will increase China's influence and voice in the global ESG system and clarify the direction for future ESG development.
ESG construction needs to form a synergy
At present, ESG is accelerating, but there is also a lack of unity in the understanding of ESG, and there is still room for improvement in terms of understanding international standards, scientific data collection, and scientific calculation models. In addition, international ESG ratings tend to underrate Chinese companies and financial institutions.
At the same time, it is necessary to establish and improve the ESG system of ESG in China as soon as possible, promote the convergence of relevant international and domestic standards, and formulate an internationally comparable, fair and equitable reference system for China's ESG standards.
At present, various stakeholders, including enterprises, investors, businessmen, customers, employees, communities, etc., have realized that ESG is a complex ecosystem, and its construction should not become the responsibility of regulators or any single collective, but should form a joint force at all levels and in all formats to build an ESG industry ecology that takes into account international consensus and reflects Chinese characteristics.
In order for stakeholders and the public at large to better understand the value of ESG and its importance to society and the environment, third parties such as ** need to strengthen ESG communication. At the same time, by advocating the concepts of sustainable development, social responsibility, environmental protection and low carbon, in order to establish a clear social value orientation, promote enterprises to continuously optimize ESG practices, and form a good atmosphere for the whole society to pay attention to and promote ESG development.
We sincerely hope that all Chinese enterprises will actively embrace and practice the ESG concept, continuously improve their ESG, carry out ESG practices in a down-to-earth manner, and demonstrate their corporate responsibility, so as to promote sustainable economic development and long-term stability, and share a green future of sustainable development.