The risks and opportunities of sustainable development, represented by environmental (E), social (S) and corporate governance (G) factors, have affected the business performance of companies to varying degrees and have had a profound impact on society and the environment. In order to assess and address ESG risks and identify ESG opportunities, financial institutions and investors need to integrate ESG factors into their investment decisions, consider the impact of ESG factors on investment returns, and the impact of investments on the sustainability of the economy and society.
Based on our long-term research experience on ESG factors, SynTao Green Finance launched our self-developed ESG rating system in 2015, and established the first ESG database for listed companies in China. The ESG ratings cover all listed companies in Mainland China, Hong Kong listed companies under Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect, and major bond issuers. Utilizing SynTao Green Finance’s ESG ratings data, financial institutions and investors can better understand the sustainability performance of portfolio companies, including their ESG management performance and ESG risks. It helps financial institutions to integrate ESG factors into their investment management processes.
Rating Objectives
The rating objective is to provide a scientific, objective, transparent and adequate measure of a company's sustainability value after incorporating internal and external ESG factors. The ratings are intended to provide a reliable basis for investors, regulators and other stakeholders to make comprehensive value judgments about a company. The ESG Rating System evaluates a company's ESG performance by measuring the level of ESG management and risk exposure.
Rating Framework
A comprehensive ESG rating framework (Figure 1) has been established to assess the a company's level of management and risk exposure in the three dimensions of environmental, social and corporate governance in each rating period (year). The ESG rating framework consists of 14 key issues, and our ESG analysis team scores nearly 200 ESG indicators by collecting data from almost 700 data points. A total of 51 industry models were created, including industry specific ESG indicators and indicator weights for that industry. The ESG score (0 to 100) and ESG rating (A+ to D, ten grades) for each company are then obtained from the industry models.
Based on our long-term research experience on ESG factors, SynTao Green Finance launched our self-developed ESG rating system in 2015, and established the first ESG database for listed companies in China. The ESG ratings cover all listed companies in Mainland China, Hong Kong listed companies under Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect, and major bond issuers. Utilizing SynTao Green Finance’s ESG ratings data, financial institutions and investors can better understand the sustainability performance of portfolio companies, including their ESG management performance and ESG risks. It helps financial institutions to integrate ESG factors into their investment management processes.
Rating Objectives
The rating objective is to provide a scientific, objective, transparent and adequate measure of a company's sustainability value after incorporating internal and external ESG factors. The ratings are intended to provide a reliable basis for investors, regulators and other stakeholders to make comprehensive value judgments about a company. The ESG Rating System evaluates a company's ESG performance by measuring the level of ESG management and risk exposure.
Rating Framework
A comprehensive ESG rating framework (Figure 1) has been established to assess the a company's level of management and risk exposure in the three dimensions of environmental, social and corporate governance in each rating period (year). The ESG rating framework consists of 14 key issues, and our ESG analysis team scores nearly 200 ESG indicators by collecting data from almost 700 data points. A total of 51 industry models were created, including industry specific ESG indicators and indicator weights for that industry. The ESG score (0 to 100) and ESG rating (A+ to D, ten grades) for each company are then obtained from the industry models.
Figure 1 SynTao Green Finance ESG Rating Framework
Materiality Analysis of Industries
Our ESG research team at SynTao Green Finance has summarised a series of ESG issues based on each industry's characteristics and key stakeholders' concerns. Combining international standards with China's current environmental, social and economic development, the SynTao Green Finance ESG Rating System identifies 14 ESG key issues that affect the operations of Chinese companies at this stage, including five environmental issues, six social issues and three governance issues.
nce ESG Key Issues Figure 2 SynTao Green Fina
ESG Indicator Selection
The key factors considered by SynTao Green Finance in identifying ESG indicators include:
- Maximum coverage of representative, available and material ESG indicators
- Material ESG indicators that are consistent with international practice and the actual situation in China
- Investor concerns
- Industry characteristics
Based on the factors mentioned above, the SynTao Green Finance ESG research team first developed a long list of ESG indicators and determined the composition of indicators under each ESG theme based on cluster analysis. The ESG indicators are divided into two categories: core indicators and sector-specific indicators. The indicators that need to be assessed for all industries are core indicators, and the indicators that are evaluated for select-ed sectors are sector-specific indicators. This results in a company-specific ESG indicator system for each sector (see Figure 3 for an example).
| ESG Issues | Examples of core ESG indicators | Examples of sector-specific ESG indicators | ||
|---|---|---|---|---|
| Mining | Agriculture, Forestry and Fishery | |||
| Environmental | E1 Environmental policy | Environmental management systems, objectives, energy and water savings policies, green procurement policies, etc. | Mining area recovery, etc. | Sustainable agriculture (fisheries), etc. |
| E2 Energy & Resource Consumption | Energy consumption, energy saving, water saving, energy use monitoring, etc. | - | - | |
| E3 Pollutant Discharge | Sewage discharge, exhaust gas discharge, solid waste discharge, etc. | Integrated waste utilisation rate, etc. | Pollutant Emission Monitoring, etc. | |
| E4 Climate Actions | Greenhouse gas emissions, carbon intensity, climate change management system, etc. | - | - | |
| E5 Biodiversity | Biodiversity conservation targets and measures, etc. | Ecological restoration measures, etc. | Use of Threatened and Endangered Animals, etc. | |
| Social | S1 Human Capital Development | Employee development, health and safety, employee rights, etc. | Occupational health and safety management systems, etc. | Occupational health and safety management systems etc. |
| S2 Supply Chain Management | Supply chain responsibility management, supply chain monitoring system, etc. | - | - | |
| S3 Customer Rights | Customer relationship, customer information confidentiality, etc. | - | Sustainable consumption, etc. | |
| S4 Product Management | Quality management system certification, product/service quality management, etc. | - | - | |
| S5 Data Security | Data security management policies, etc. | - | - | |
| S6 Community | Community communication, community health and safety, donations, etc. | Community communication, etc. | Community communication, etc. | |
| Governance | G1 Business Ethics | Information disclosure, board independence, executive compensation, audit independence, etc. | - | - |
| G2 Governance Structure | Anti-corruption and bribery, whistleblowing systems, tax transparency | - | - | |
| G3 Compliance | Compliance management, risk management, etc. | - | - | |
Figure 3 Example of SynTao Green Finance ESG Indicator System
ESG Rating Results
The total ESG rating score is calculated as the total ESG management score combined with the total ESG risk exposure score.
The total ESG rating score can also be calculated by adding the scores of the three first-tier indicators: environmental, social and governance.
ESG Rating Results
The total ESG rating score is calculated as the total ESG management score combined with the total ESG risk exposure score.
The total ESG rating score can also be calculated by adding the scores of the three first-tier indicators: environmental, social and governance.
Figure 4 Composition of SynTao Green Finance's ESG rating scores