Produced by Tiger Sniff ESG Group.
Author Yuan Hike.
Header image Visual China.
This article is the 064th article in the ESG Progress Insights series.
Key words for this observation: ESG with Chinese characteristics, China Special Assessment.
A few days ago, at the "2024 Caijing Sustainable Development Summit Forum", Peng Huagang, former member of the Party Committee and Secretary-General of the State-owned Assets Supervision and Administration Commission, who has just retired, delivered a speech entitled "Practicing ESG Concepts and Cultivating World-class Enterprises".
When we do ESG,Utilitarian tendencies should be avoided," Peng Huagang pointed out. "By simply overemphasizing the impact of financial objectives and risk management, ESG is reduced to a tool to serve capital gains. "Instead, ESG should be promoted".Beyond the pursuit of profits, the pursuit of economic, social, environmental comprehensive value maximization
He mentioned that large Western companies are beginning to believe that "shareholder interests are no longer the most important goal of the company", which is implicit in the position of socialism.
Secretary-General Peng conveyed a judgment on ESG stance with Chinese characteristicsIt's well worth discussing and interpreting. In 2023, when new ESG controversies and new rules are surging internationally, what is the position of "ESG that can't be too utilitarian"?
Is ESG utilitarian?
Objectively speaking, the current mainstream opinion of the market is to hope that ESG will become more utilitarian and develop in the direction of better serving capital.
At present, ESG has not even reached the level of "serving capital".。Especially from the perspective of the domestic capital market, it is difficult for the interests of investors to be fully protected, and the ESG evaluation systems launched by domestic companies such as China Securities and China Securities put the protection of shareholders' rights and the evaluation of controlling shareholders' behavior in the first place.
The biggest event in the ESG field in 2023 is the release of the new "Standards for Sustainability-related Financial Disclosures" by the ISSB (International Sustainability Standards Board) in June, which is expected to unify international ESG disclosure standards. The starting point of this new standard is to serve investors and capital, identify relevant party, social and environmental information that may have an impact on a company's revenue, and help capital make better investment decisions.
We are also looking forward to what the market will look like in 2024 after the unification of the new ISSB standard. If the new standards are proven to be more effective by the capital markets, they can also promote companies to be more committed to ESG. More companies and capital are waiting for an opportunity: when ESG proves to be profitable, they will invest more in it. This is especially true in an environment of sluggish corporate growth and low return on investment.
So the current dilemma is that ESG is not utilitarian enough.
In 2023, there has been a large-scale resistance to ESG in the United States, and according to statistics, at least 20 states have introduced anti-ESG regulations. The main reason for the opposition is that ESG contains a political stance that transcends the economy, and capital does not have the right to make political demands on companies in the name of ESG, and these demands are contrary to the interests of some states and voters.
Pictured: The U.S. on ESG. Blue and green are pro-ESG states, and red and orange are anti-ESG states. Where:
Green: Integrate ESG factors into state investments. Blue: Advocate for investment restrictions on coal or other industries.
Red: It is forbidden to consider ESG factors in state investments. Orange: Restrictions on ESG investment institutions.
This means that if ESG cannot justify itself in an economic sense, it needs to justify itself in terms of political and social consensus. The latter tends to be harder. Although ESG is nominally an international consensus, as ESG carries more and more missions, there will be a lot of disagreements when it is actually implemented.
As a result, ESG needs to be "de-burdened". What is climate is to the climate, what is charitable is to be charity, and what is profitable is to make money.
Recently, when MSCI released its 2024 ESG trend outlook, it changed the name of the report to "sustainability and climate trend outlook" due to various controversies over the term "ESG", and did not mention "ESG" for the first time. In fact, in the new regulations of the ISSB, there is no mention of "ESG" either.
When we have too much hope for ESG—hoping that ESG can promote sustainability, promote business and capital for good, promote carbon peaking and carbon neutrality, and also create excess capital returns—in the end, you may not be able to answer the question "what is ESG?" again. This confusion can lead the market to bypass the conceptual baggage of "ESG" and return to a naïve utilitarianism: how this set of rules, whether called "ESG" or anything else, can help companies deal with non-financial risks and allow investors to make better judgments.
non-utilitarian ESG" and how to land.
In his speech, Peng Huagang mentioned: "In the case of laws and regulations that restrict negative externalities, encouragementPositive externalitiesMore important. For Chinese enterprises, these positive influences especially include "the implementation of national strategies, the promotion of coordinated regional development, the Belt and Road Initiative, the realization of carbon peaking and carbon neutrality goals, poverty alleviation and rural revitalization, etc."
As Secretary-General Peng saidThis drawback of ESG has been recognized by the industry: too much attention is paid to risk control, but there is insufficient recognition of the positive value created by enterprises. In May 2022, Musk angrily denounced ESG as ** on Twitter, precisely because the S&P ESG index rated oil companies higher than Tesla, and apparently did not consider Tesla's efforts to save the earth's environment in the evaluation system.
Picture: Musk once tweeted: "ESG is a **. It has become the ** of hypocritical fighters for social justice.
Positive externalities are difficult to evaluate because of the lack of measurement standards for things that do not come to money. Taking "rural revitalization" as an example, the public relations and publicity of enterprises are relatively vigorous, but many outsiders judge the weight of these "positive externalities": who really supports rural development, and who only donates a few boxes of mineral water. A lot of people simply don't care about this part of the matter anymore.
This year, the State-owned Assets Supervision and Administration Commission (SASAC) has carried out some cutting-edge developments, which echo Peng Huagang's speech. In July, the SASAC issued the "Research on the Preparation of ESG Special Reports for Listed Companies Controlled by Central Enterprises" prepared by the SASAC Research Center ("SASAC") to central SOEs and local state-owned assets to guide central SOEs to carry out standardized ESG information disclosure.
It is worth noting that in September, an article written by a state-owned assets research expert published in the "State-owned Assets Report" very intuitively explained the intention of "non-utilitarian ESG" mentioned by Peng Huagang. The article is called:"Establish a first-class corporate social performance evaluation system with social value as the goal based on ESG concept", and how to realize the social value created by state-owned enterprises "into the table".
The paper gives the formula for calculating the social value of five state-owned enterprises(see the table below), and proposed that the calculated social value be included in the current profit, and clearly advocated that the economic value created by state-owned enterprises should be combined with the "off-balance sheet social value", and the value of state-owned enterprises should be comprehensively examined. The following five social values are also very important ESG issues with Chinese characteristics.
At first glance, the formulas given by the State-owned Assets Research Institute show that several social value items only add up the relevant expenditures, but do not calculate the effect and efficiency of these expenditures. Whether this value system can be financially and accountingly feasible, and whether it can finally be recognized by the capital market, so as to (as the article says) "narrow the gap between the value of listed companies controlled by central enterprises" is a complex and professional issue, and there is still a lot of work to be done.
But the attitude of the State-owned Assets Research Institute is clearly positive. The article uses this model to talk about the development proposals within the state-owned assets system, and also says that it needs to be attractive to external social capital.
Consensus is scarce. Many people may know, intentionally or unintentionally:ESG is a call for a new value consensus。The reason why the concept of ESG has swelled to an incomprehensible level is that many people want the market to help realize value in addition to talking about money. When the value increases, the ESG swells.
What else is valuable besides money?Just as Peng Huagang stands in the position of state-owned assets, he hopes to promote the market and society to reach some new consensus, especially "the implementation of national strategies, the promotion of regional coordinated development, the Belt and Road Initiative, the realization of dual carbon goals, poverty alleviation and rural revitalization, etc.", these social contributions can be counted as the value of enterprises.
However, it is difficult to say that the penetration of these values in the domestic market is still complete. In developed countries, the "non-utilitarian" nature of ESG is mainly driven by capital, and investment institutions can demand certain values without explanation: "I hope that so-and-so company will reduce carbon emissions as soon as possible", "I hope that companies will pay more attention to the rights and interests of vulnerable groups". Domestically, you may have to add some utilitarian justification: "I want so-and-so to reduce carbon emissions, because the state promotes it and helps prevent risks." ”
Of course, the SASAC took the lead. The State-owned Assets Supervision and Administration Commission (SASAC) requires SOEs to "do ESG without utilitarianism", as opposed to the requirements of SOE shareholders for SOEs. It's very socialist.
At present, our consensus on value beyond "money" is still scarce. Many market studies claim to prove that "domestic consumers are willing to pay a premium for sustainable products", but few sustainable products are sold at a premium. Cheapness itself is still king. This situation can only force companies, investors, and other market participants to return to utilitarianism.
From the standpoint of **, we also hope that when talking about ESG, we will not be utilitarian, and we will not always have to defend "making money". In this way, we can talk about environmental protection, charity, etc., and dig out more interesting stories.
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