Top 10 ESG Events in China in 2022

In 2022, as Covid-19 pandemic drew to a close, China's economy presented strong resilience and potential. The key ingredient for the success is ESG, an important tool to enhance the resilience of corporate development and investment. It contributes to the stability and quality development of China's capital market, improves quality and efficiency for the transformation of the real economy, and gathers momentum for China’s economy. GoldenBee Consulting has been tracking and observing ESG development in China for a long time. Now after the heated discussion, the top ten notable ESG events have been selected with following features:

✦Prevailing: An ESG event that not only derives from key stakeholders in the Chinese ESG ecosystem, but also influences the ESG development.

✦ Pivotal: An ESG-related event that has a far-reaching impact on a broader group.

✦ Unique: A "first-of-its-kind" ESG event that emerges as a milestone in the development of ESG in China.

We welcome those who are concerned about ESG and sustainability to relive these moments to start a new journey in 2023.
 

01 CBIRC issues Green Finance Guidelines for the Banking and Insurance Industry

On June 1, the China Banking and Insurance Regulatory Commission (CBIRC) issued the Green Finance Guidelines for the Banking and Insurance Industry (hereinafter referred to as the "Guidelines"). The Guidelines requires that banks and insurance institutions should incorporate ESG factors into their management processes and comprehensive risk management systems to improve ESG disclosures, their communication with stakeholders, relevant policies and process management. 

Reason for listing:  

The Guidelines requires the banking and insurance industry to embed ESG factors into business management processes and risk management systems to assess the non-financial performance of customers in a more comprehensive way, and evaluate ESG risks to customers as well as their contractors, suppliers and other partners. It is an essential bellwether to ESG financial development and will promote the financial sector’s role as the engine of ESG development in China.
 

02 SASAC requires listed central SOEs to disclose ESG reports by 2023

On May 27, the State-owned Assets Supervision and Administration Commission of the State Council (SASAC) issued the Work Plan for Improving the Quality of Listed Companies Controlled by Central Enterprises (hereinafter referred to as the "Plan"). The Plan requires central SOEs to further improve the ESG working mechanism and enhance ESG performance to act as exemplars in the capital market. Based on the actual situation of SOEs, the Plan includes ESG disclosure rules, ESG performance ratings and ESG investment guidelines with Chinese characteristics, contributing to the ESG development in China. Furthermore, it improves ESG professional governance and risk management capacity of listed central SOEs and promotes their disclosures on special ESG reports with the aim to "fully cover" the ESG special report disclosure by 2023.

Reason for listing:  

Amid the global ESG development, especially rapid ESG development in China, it is well-timed for the SASAC to promote listed central SOEs as pioneers in establishing ESG system in China. By focusing on ESG information disclosure requirements, listed central SOEs can not only enhance their transparency, accelerate the process of ESG strategy planning and improve their sustainability, but also set an example of ESG governance for Chinese enterprises and push all listed companies to improve their ESG management and practice.
 

03 SSE mandates STAR companies to disclose ESG information for the first time

On January 19, the Shanghai Stock Exchange (SSE) issued a notice on disclosing 2021 annual reports of companies on the STAR Market (the “STAR companies” for short), which for the first time imposes mandatory requirements on disclosing CSR reports of STAR companies. Star companies in STAR 50 Index should disclose separate CSR reports or ESG reports, disclose ESG-related information in their annual reports and focus on the disclosure of actions pertinent to sustainable development, especially their contribution to the carbon peak and carbon neutrality. A new chapter on “Environment, Social Responsibility and other Corporate Governance” has also been included in the annual report template for STAR Companies.

Reason for listing: 

SSE started to require three types of listed companies, including 230 companies leading in corporate governance, 50 companies listed overseas and 21 financial companies, to disclose CSR reports in as early as 2008. The SSE, as a model, has now further proposed the requirements and coverage of ESG-related information disclosure for STAR companies, which indicates a trend for all listed companies to disclose ESG-related information in the future.
 

04 SZSE releases ESG ratings methodology and ESG indices

On July 25, Shenzhen Stock Exchange (SZSE)’s wholly-owned subsidiary Shenzhen Securities Information Co., Ltd. (SSIC) officially launched CNI ESG Ratings Methodology and released ESG indices and ESG leading indices of SZSEs’ core indices (Shenzhen Component Index, ChiNext Index, Shenzhen 100) that were compiled based on the methodology. The CNI ESG Ratings Methodology aims to provide ESG rating tools that are suitable for the Chinese market. The ESG indices are positioned on ESG investment performance. The stocks ranked in the last 20% places in their respective industries are removed. The ESG leading indices are positioned on quality ESG investment targets and highlight the earnings of ESG factors.

Reason for listing:  

ESG investment booms in China. The CNI ESG ratings methodology and indices are pragmatic measures of SZSE to fully apply the new development philosophy, fully leverage platform functions of the capital market, continue to refine the index system with SZSE’s characteristics, actively meet diversified ESG investment needs, and better serve green, low-carbon and high-quality development. The ESG indices provide references for ESG investment.
 

05 Industrial Bank develops ESG credit policy for 23 sensitive industries

On August 26, Industrial Bank released its 2022 semi-annual report, stating that it has incorporated ESG into its credit granting policy for sensitive industries and into the whole-process risk management. Besides, it has issued special ESG credit granting policies for 23 industries, including agriculture, forestry, thermal power, hydropower, nuclear power, photovoltaic power generation, chemical coal chemical, coal, mining, shipbuilding, textile industries, and sewage treatment. The bank has guided credit resources to be invested in the ESG-compliant fields with low energy consumption, low emissions, low pollution, high efficiency and rosy market prospects.

Reason for listing:

The inclusion of ESG in the credit granting mechanism can better guide the fund flow to the sectors with green and low-carbon development, and urge enterprises to improve their own ESG management and information disclosure, thus promoting the green, high-quality and sustainable development of the industry. The ESG credit policy for sensitive industries developed by Industrial Bank pioneers in implementing the Green Finance Guidelines for the Banking and Insurance Industry of CBIRC.
 

06 Guotai AMC offers its first ETF tracking MSCI ESG Index

On May 24, Guotai MSCI China A ESG Universal ETF was offered, the first traded open-ended index securities investment fund tracking MSCI China A RMB ESG Universal Index. In September 2019, Hwabao WP Fund offered a fund product tracking MSCI ESG index, Hwabao MSCI China A Inclusion ESG General Index Fund (LOF).

Reason for listing:

Based on the constituents and the weights of the underlying index of MSCI China A RMB ESG Universal Index and their changes, the MSCI China A ESG Universal ETF constructs the equity portfolio with the ESG index compiled by MSCI as the core. The tracking of developmental characteristics of this fund, such as return, size and liquidity, sheds light on whether the MSCI ESG Index can provide investors with appropriate risk exposure in the Chinese capital market and gain recognition among investors.
 

07 CSI 100 Index becomes the only broad-based A-share index practicing ESG negative screening

On June 13, the revision of the CSI 100 Index officially took effect. The new version included the ESG investment concepts, emerging as the only A-share broad-based index adopting ESG negative screening. The revision took into account the ESG factors and excluded stocks with a CSI ESG rating of C or below.

Reason of listing:

"Negative screening" is a common strategy for global ESG fund investment, which refers to the exclusion of companies with negative ESG scores, such as those with controversial, socially unethical or even regulatory violations. Studies in several markets around the world have shown that companies with poor ESG scores are often on the verge of a meltdown. The CSI 100 Index has become the only broad-based A-share index adopting ESG negative screening, signifying a new development of ESG application in the A-share market, which not only improves the safety and sustainability of the index and optimizes capital allocation, but also attracts international investors.
 

08 CAPCO releases ESG Industry Report for Listed Companies

On December 26, the China Association for Public Companies (CAPCO) released the ESG Industry Report for Listed Companies (2022) (hereinafter referred as the “Report”), with the research objects covering representative listed companies in ESG practices and information disclosure in seven key industries, including electric power, automobile, electric equipment, electronics, real estate, and banking. It provides a comprehensive overview of the current situation of industry development, policy trends, characteristics of industry development, and risks and opportunities faced by the industry. Based on the characteristics of industry development, the Report summarizes the key ESG-related issues of each key industry to guide listed companies to carry out more effective and targeted ESG information disclosure.

Reason for listing:

The release of the Report is a major action initiated by CAPCO since the establishment of ESG Professional Committee. It provides normative guidance and intellectual services for listed companies to carry out ESG disclosure based on their actual situation and the characteristics of industry development. In the long run, it will effectively assist listed companies in strengthening their ESG management, preventing relevant risks, and building a harmonious relationship with the market, thereby achieving achieve high-quality development of the capital market.
 

09 CERDS publishes the group standard of Enterprises ESG Evaluation System

On November 16, the China Enterprise Reform and Development Society (CERDS) released the group standard, Enterprises ESG Evaluation System (T/CERDS 3-2022), which is set to be implemented from January 1, 2023. Based on national regulations and standards and referred to international ESG evaluation system, it is developed and set up through environmental, social and governance. This ESG evaluation system is not only in line with international standards, but also suitable for the characteristics of Chinese enterprises, providing a basic framework for the ESG evaluation of all kinds of enterprises.

Reason for listing:

The group standard, Enterprises ESG Evaluation System provides Chinese enterprises with a comprehensive and scientific ESG evaluation standard that combines national characteristics with internationally accepted standards. Thanks to those standards, Chinese enterprises can further contribute to ecological conservation, improving people’s livelihood, and establishing a better modern enterprise system with Chinese characteristics. Therefore, those enterprises can not only improve their own quality and their market recognition, but also guide investors’ attention from short-term share price to the intrinsic value and long-term development. They can form a reasonable judgement of the value of listed companies, thus stabilizing the capital market and boosting investors’ confidence.
 

10 GoldenBee Consulting and CNICC release ESG Competitiveness

On June 16, the ESG Competitiveness, co-written by GoldenBee Consulting and China National Investment & Consulting Co (CNICC), was officially released at the Roundtable Forum on Shaping ESG Competitiveness. The book introduces the prevailing attitudes, actions and impacts of ESG among key stakeholders in China’s ESG ecosystem, namely regulators, stock exchanges, social organizations, third-party rating agencies and investors. Besides, it analyzes the impact of ESG on investment and financing behavior and interprets climate change and biodiversity issues from the perspective of ESG, providing methodological tools and references for companies to carry out ESG management.

Reason for listing:

The book proposes ESG competitiveness as a new connotation of sustainability in the new era, further explains the relationship between ESG competitiveness and corporate value and advocates the re-measurement of an enterprise’s true value based on the externalized value and cost of ESG. To embed ESG value into enterprise value to achieve the valuation of non-financial factors will undoubtedly promote the inclusion of ESG in ESG investment and financing and the building of sustainable capital market.

Image Source: The Internet

Source: GoldenBee Consulting