On December 4th, the 6th China Social Investment Forum (SIF) Annual Conference took place in Futian, Shenzhen. As a leading event in responsible investment field, the annual conference attracted guests from both international and domestic industry leaders and practitioners, experts and scholars, other than regulatory bodies. They had in-depth discussions on how compulsory environmental, social and governance (ESG) information disclosure improves values of listed companies, and how to integrate ESG factors to realize robust investment in banking, insurance, and asset management sectors.
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Dr. Ma Jun, as the Head of Green Finance Committee of China Society for Finance and Banking, stated that regulatory bodies have been advocating green finance and responsible investment since the issuance of the Guidelines for Establishing the Green Financial System by People’s Bank of China and six other agencies. Almost half of the guidelines have been put into implementation. The international trends for the development of green finance include green asset backed securities, green VC/PE, the combination of green finance think tank and digital technology, environmental information disclosure of financial institutions, environmental risk analysis for financial institutions, etc. Ma Jun suggested that the institutional investors can focus on developing green finance products, raising green finance awareness and exploring ways to practice responsible investment.
Mr. Wang Zhongmin, ex Vice Chairman of National Council for Social Security Fund, Mr. Cao Deyun, Vice President and Secretary General of China Insurance Asset Management Association, and Ms. Huang Liping, Deputy Secretary-General of China Asset Management Association, addressed the significance that ESG integration has on risk management, sustainable long-term return, and the support for financing a sustainable economic growth, from the perspectives of pension fund management, insurance asset management, and fund management respectively. They also pointed out that the recent years has witnessed a rapid growth of green finance in China, and ESG investment has been regarded as a new conceptual investment framework for the financial sector. However, the implementation of ESG investment is still at an early stage in China, and one of the biggest challenges is the insufficiency of ESG information disclosure. Ministry of Ecology and Environment and China’s Securities Regulatory Commission would introduce a three-step pathway to encourage listed companies to disclose environmental information, and make it compulsory to disclose environmental information before 2020 for all listed companies.
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Ms. Sandra Carlisle, Head of Responsible Investment Specialists of HSBC, and Ms. Margarita Pirovska, the Programme Manager of Fiduciary Duty in the 21st Century of PRI and UNEP FI, introduced the significance and international practices of ESG integration from the standpoints of banks and responsible investors. Sandra pointed out that investors’ choice and policy have become two main drivers for the development of responsible investment, and climate change is one of the most significant ESG risks for investors. Margarita stated that align with the fiduciary duties of institutional investors and the chain of value creation through investment, green finance is part of the investors’ duties in the 21st century. ESG factors should be integrated into investment decision making process.
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Mr. Xiao Zhijia, Deputy Director of Shenzhen Green Finance Committee, in his opening remarks, said that the recent publication of Green Investment Guidelines (tentative version) by the Asset Management Association of China is a good opportunity for Shenzhen, a city with stock exchange and concentrated with financial institutions, to promote ESG investment. Mr. He Jie, Vice Governor of Futian District of Shenzhen and Research Fellow of Financial Research Center in Counselor's Office of State Council, said Shenzhen, especially Futian District, has an inherent advantage of green finance as it is the business hub for many active financial institutions. Futian District may become a center for green finance innovation and a pioneer for impact investing through “finance + environment” and “finance + society”.
SGCX ESG 50 Index 2018, jointly developed by SynTao Green Finance with Caixin Data, was launched on the conference. Mr. Zhang Rui, Managing Director of SynTao Green Finance, said that the overall ESG performance of constituent stocks continues to improve. Companies under ESG evaluation cover various sectors, ranging from finance, pharmaceutical, telecommunication, to transportation and automobile etc., which reflects a majority of industries are taking more and more ESG issues into consideration. Based on the historical data, a significant coefficient between ESG performances and financial returns of A-share listed companies is observed. During the past 3 years, SGCX ESG 50 Index has outperformed CSI 300 by 16.6%. Mr. Gao Erji, the VP of Caixin Media and the Executive President of Caixin Insight, said SGCX ESG 50 Index is a cooperation between Caixin and SynTao Green Finance, and they are planning to create investment strategies based on materiality analysis and market performances with the support of ESG data.
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Another important event is about the Chinese version of the Principles for Responsible Banking consultation paper, which was launched by Ms. Yin Hong, Deputy Head of ICBC Urban Financial Institute, and Yuki Yasui, Asia Pacific Region Co-ordination Manager of UNEP Finance Initiative. Ye Yanfei, Counsel of Policy Research Bureau in China Banking and Insurance Regulatory Commission, also attended the launch event. Principles for Responsible Banking provides a common language to banks on how to integrate sustainability at the strategic, portfolio, and transactional levels and across all business areas.
The only plenary roundtable of the conference was hosted by Mr. Ge Xing’an, Secretary General of Shenzhen Green Finance Committee. Guest speakers from China, Japan, UK and the United States shared their views on the relationship between ESG performance and investment returns.
Ms. Miyuki Zeniya, General Manager of Responsible Investment Center at Dai-ichi Life Insurance Company, said Dai-ichi Life Insurance is a signatory of UNPRI and places great emphasis on long-term returns. ESG investment has emerged earlier in Japan than in China, and Dai-ichi has initiated investment in green bonds as well as impact investment.
Mr. Sean Kidney, CEO of Climate Bonds Initiative (CBI), said green bonds have two advantages compared with normal bonds. One is its low cost because it can mitigate policy risk and operational risk, the other is its stability to generate stable returns in time of market volatility. CBI is working with its members to promote green finance via green bonds and assisting policy making process.
Ms. Flora Wang, Head of Investment Stewardship of Greater China at BlackRock, introduced that passive investment takes up more than 50% of asset allocation at BlackRock. However, as active owners, BlackRock continuously engages with investees on ESG issues, and influences the EGS performances of those companies through voting rights. Flora said that ESG investment needs to address several questions, that are how to better define ESG investment, how to utilize various ESG rating results available in the market, as well as how to adjust weighting in different portfolios.
Mr. Zhao Yonggang, Vice President of R&D at China Securities Index Co., Ltd., said there are three aspects can improve for ESG development in China. Firstly, obtaining ESG data is the major obstacle for ESG investment, and listed companies should constantly improve their ESG reporting. Secondly, a standard that is comparable and could gain market consent, needs to be established. Thirdly, individual investors’ willingness to buy ESG products is the key —an extension from sustainable consumption to the sustainable investment.
Mr. Yu Yong, Executive Vice President of China Life Asset Management Company Limited, introduced that China Life Asset Management has just joined UNPRI and is initiating its practice of ESG investment. Yong agreed with the logic of ESG investment as being long-term, secure and robust, which is in line with the nature of insurance asset management.
Mr. Fu Jie, Executive Vice President of Caixin Data, said that to integrate ESG factors is one of the major trends in investment. Caixin Data is researching different ESG dimensions influence the financial performance, as well as the impact of ESG on companies’ development, risk control and valuation.
Mr. Ge Xing’an concluded that different countries and economies are at different development stages, therefore various factors under ESG should be differently weighted. Shenzhen government will soon issue a comprehensive and detailed policy to encourage the green finance development in the city, aiming at improving Shenzhen to be a more advanced market for green finance.
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Dr. Guo Peiyuan, Chairman of China SIF, and Chairman of SynTao Green Finance hosted the first half of the conference. He stated that the six years’ China SIF annual conferences have witnessed the start-up and development of responsible investment in China. China SIF will continue to be a professional platform to promote responsible investment in China as well as international networking and talent training.
In the second half of the conference, professionals and academia from home and abroad were invited to thematic forums featuring on ESG integration in asset management, ESG disclosure, responsible banking, and impact investment.
Ms. Luo Nan, Head of PRI China, hosted the parallel forum ESG Integration in Asset Management. Mr. Brian Cahill, Managing Director of Global Executive Sponsor for Moody’s ESG initiatives, said that ESG integration is indispensable, important and is happening at an accelerating speed. For the past few years, Moody’s has established its framework for ESG analysis, covering 84 industries. Moody’s plans to integrate ESG performances into its traditional evaluation and rating business. Ms. Luo Wenjie, Head of Indexing Investment in China Southern Asset Management Co., Ltd., shared her experiences of integrating ESG information into the investment analysis of China A-share listed companies. Using ESG data provided by SynTao Green Finance, the analysis demonstrated a material and stable enhancement effect of the ESG factor (via single factor and multiple-factor models) in the A-share market. Wenjie suggested that an ESG reporting and evaluation system applicable to the Chinese context should be established step by step. Ms. Sandra Carlisle of HSBC, said that ESG integration is to break down big issues like climate change into small and concrete aspects, such as carbon emission of specific companies. The aim is to obtain some sustainable business models that can generate sustainable financial returns. ESG data itself cannot solve problems, but rather is utilized to achieve prescribed objectives. Sandra gave human capital as an example of non-quantified but crucial ESG issue, to show that some ESG data is significant, but cannot always be quantified. While many companies claiming to value their human resources, many lack relevant data and policies (e.g. principle of equal pay). Those companies may be considered by investors as not truly valuing their human resources. Many ESG factors cannot be directly reflected in market prices, however, they do affect companies’ valuation. Mr. Chen Zhengxian, Head of Indexed Investing of Harvest Fund Management Co., Ltd., introduced that Harvest Fund has joined PRI in 2018, demonstrating its commitment to responsible investment. As ESG factor had not become the major driver of China’s stock market, and investors of mutual funds mainly focus on short-term returns, ESG may take some time to become an important part of investment research. The promotion of EGS integration into asset management relies on long-term capital such as pension funds, and on finding ESG factors that have material impact on financial returns in the current A-share market. Ms. Guan Rui, Deputy General Manager of SynTao Green Finance, stated that since the ESG team of SynTao Green Finance was set up in 2009, it has kept vigorous contact and dialogues with major international and domestic asset owners and asset managers practicing ESG investment. Ms. Guan referred ESG integration as both values and value-driven, meaning each institution needs to position itself in its values to hold, as well as to incorporate the most value-driven ESG factor supported by its strategy. Obtaining valid data has been one of the biggest challenges for ESG integration. SynTao Green Finance currently covers about 200 indicators and 1000 data points under its ESG evaluation framework. ESG indicators that would serve the investment purpose, differ across industries, markets, regions as well as from company to company. The ways for ESG integration would be highly diversified and be based on the specific understanding of material ESG factors and ESG strategies implemented by each institution. Gabriel Wilson-Otto, Executive Director at Goldman Sachs and Wei Yixi, Head of ESG Research at E Fund Management Co., Ltd. also shared their views based on their respective experiences. Gabriel claimed that return on capital is always the most important consideration for investment analysis, GS investment will look at whether the ESG data be factored into the valuation, as well as if the cash flow is sustainable. The quality, applicability and comparability of ESG data present to be big challenges in every market. Yixi briefed about the ESG integration practice of E Fund, and how they have been exploring and researching the logic on how ESG can contribute to successful investment. He believed the key of ESG investment lies in the company’s sustainability. Further, international ESG analytical framework may not suit A-share market well. For example, the climate change issue, which is addressed as the most important one by international investors, is less considered in China.
Many stock exchanges have published or are in the process of developing ESG disclosure requirements and guidelines. Parallel forum the Added Value of Mandatory ESG Disclosure focused on ESG reporting, and speakers discussed the way investors utilize ESG data to improve their decision making process, as well as how listed companies can better present their values via ESG reporting and ESG management. Mr. Kong Wei, Covener of Green Finance Development Committee, Lujiazui Financial City Council, hosted the forum. Mr. Huang Anping, from Research Institute of Shenzhen Stock Exchange, introduced that the Shenzhen Stock Exchange has revised disclosure guidelines with environmental information being incorporated into the overall reporting framework. Listed companies are required to disclose environmental risks and accidents, including events of violation and causes of pollution. Industry-specific disclosure guidelines are also issued. The system of reporting established by the Exchange consists of corporate social responsibility reports, regular reports and interim announcements. Ms. Paula DiPerna, Special Advisor at CDP North America, said information disclosure is similar to translation, because it transforms performances of listed companies to information that is easy for the public to understand. As information disclosure starts from inquiry, CDP’s task has always been to ask companies about their carbon emission and carbon pricing. Many changes have occurred since the inquiry started. Further improvements can be achieved if regulatory agencies, companies and investors can generate synergy on environmental reporting. Ms. Margarita Pirovska said that UNEP FI has been promoting compulsory disclosure of ESG information in many countries. The promotion by the Chinese government on ESG reporting is of great significance. ESG cannot be applied to investment without ESG data in good quality. If the market is not ready for compulsory disclosure, voluntary disclosure is recommended. From the experience of UNEP FI, compulsory information disclosure is usually more effective than voluntary disclosure and can generate greater value. Mr. Dante Pesce, CEO of VINCULAR Center for Social Responsibility and Sustainable Development, has been following the progress on ESG reporting in many countries. He suggested that companies may apply differentiated strategies for ESG information disclosure to make their investors better understand them. ESG information disclosure is hindered by lacking the culture of information transparency, as well as the low expectation from the society. No company is an island, and the improvement of ESG disclosure is a systematic task. Mr. Michael Hsih, Chief Representative of Asia in Deutsche Börse Group, introduces that the Deutsche Börse Group is both a stock exchange and a listed company. Corporate social responsibility reporting of the Deutsche Börse Group has been undertaking since 2005. In 2014, as the regulatory requirements from the EU were strengthened, the Group disclosed more information under compulsory disclosure requirement. In recent years, the stock exchange is improving requirement on information disclosure and promoting the standardization of information. It is also working with the German government on setting up a platform for sustainable development and finance. Mr. Kevin Yang, Vice Chairman of Hong Kong Green Finance Association also shared his experience of persuading companies into strengthening their ESG reporting.
The parallel Forum International Practices of Responsible Banking was hosted by Ms. Tracy Cai, Co-founder of SynTao Green Finance. Discussion was carried out regarding the practice of responsible banking in China and abroad. Ms. Yuki Yasui said that investors and banks care about whether their portfolios can be sustainable. Banks hope to satisfy their investors by informing them of the uniqueness and competitive edge of the bank regarding sustainability. UNEP FI has established communication with financial institutions globally to enable them to participate in this field and to inform them about the background and benchmarks of responsible banking, including the Paris Agreement and SDGs. UNEP FI also defined sustainable finance and responsible banking under its framework. Ms. Yuan Wei, Co-lead of Asia ESRM Advisory Program, Regional Coordinator-Sustainable Banking Network, ESG in IFC, introduced that Principles for Responsible Banking is reflecting a trend, especially in China during the past few years, that green and sustainable finance is becoming a hot topic. From the perspective of a practitioner, this is a substantial transition. China Industrial Bank’s Liu Xia, mentioned that the bank adopted the Equator Principles 10 years ago. Although the Equator Principles are not compulsory, the environmental factors need to be taken into major decision making processes, not only because the bank values sustainability, but also because environmental factors correlate with financial returns as the overall environmental standard is rising in China. Bank of Huzhou’s Fang Xiaying introduced that the bank aims at building up a small and beautiful green bank with its own characteristics. As of date, 13 financial products have been developed to facilitate the industrial upgrading of local companies within industrial parks of Huzhou.
The forum Impact Investment and High-Quality Growth was hosted by Ms. Ruby Lv, Co-founder of Impact Hub Shanghai. Participants discussed about how to make social impact while making profits, and how to achieve those two seemingly contradictory goals at the same time. Mr. Ricco Zhang, Asia Pacific Director of International Capital Market Association (ICMA), introduced that ICMA has issued the first edition of Social Bond Principles (SBP) in 2017. Ricco also said the major problems of social bonds are how to quantify the social impact generated by the bonds in line with SDGs, and how to improve the influence of social bonds as a financial instrument. Professor Tzu-Kuan Chiu, from Shanghai Advanced Institute of Finance, Shanghai Jiao Tong University, described the situation of impact investment from an academic perspective. She pointed out that both positive and negative correlations between social and financial returns exist in case studies. Scholars are trying to set up a theoretical ground for impact investment. Ms. Xu Xiuling, Senior Vice President of CreditEase, shared the practice of CreditEase in impact investment, as well as their weight-setting methods for financial and social returns in portfolio management. Ms. Yan Xiuling, Deputy Executive Director of Social Finance and Innovation Center at China Global Philanthropy Institute, demonstrated their project of impact investment case studies in China, and wished the study can provide references for responsible investors. Ms. Bai Hong, Secretary General of CASVI, said that the boundaries of impact investment need to be broadened, and mainstream financial world should raise more awareness of the impact investment. Mr. Wei, Asia Pacific Director of UBS Foundation, stated that for impact investors, the greatest demand is to locate good quality projects that can bring real change. Mr. Lin Feng, Chairman of Beijing United Charity Foundation, said that to undertake social responsibilities, one needs to follows three steps --- finding the right persons (stakeholders), communicating the proper information and to do the right things.
The 6th China SIF annual conference is co-hosted by SynTao Green Finance, Caixin Data, Shenzhen Jifeng Green Finance Promotion Center, UN supported Principles for Responsible Investment, UNEP Finance Initiative, UN Sustainable Stock Exchange initiative, and Shenzhen Green Finance Committee of Financial Society of Shenzhen Special Economic Zone. The 6th China SIF Annual Conference is one of the series event of 2018 China Social Investment Forum Week. There are also side events on issues of ESG and business school education, and investment of charity organizations etc.
Media contact: Ms. LIU Yujun, liuyujun@syntao.com
About China SIF
China Social Investment Forum (China SIF), established in 2012 as a non-profit organization, is dedicated to promoting responsible investment and to providing an internationalized platform for exchanging and sharing ideas on issues concerning sustainable development, with focus on facilitating Environmental, Social and Governance (ESG) integration, advocating green finance, and contributing to a responsible capital market in China as well as its sustainability.
Since the establishment, China SIF has invited domestic and foreign experts to share their research, experiences and cases during both online and offline theme events. Professionals and practitioners from research institutes, financial institutions, listed companies, government agencies, as well as representatives from media have joined our discussion and endeavor to explore multiple ways to practice responsible investment and green finance.
China SIF’s influence has been extended broadly as a series of landmark reports and research results, such as Decennial Report on the Responsible Investment in China, Landsea - China ESG Development Index, and A share ESG database were published.