ESG Value Accounting Report for Chinese Listed Companies released

2024-12-31未知责任编辑0

On November 22, the China Association for Public Companies (CAPCO) unveiled the ESG Value Accounting Report for Chinese Listed Companies (hereinafter referred to as the “Report”), with the Report on ESG Development of Chinese Listed Companies and the 2024 ESG Industry Report for Chinese Listed Companies released in the same event.

With technical support provided by GoldenBee Consulting, Member of CAPCO Sustainability/ESG Committee, the Report systematically reviews relevant research and practices at home and abroad from the perspective of environmental and social impacts, and delves into the ESG value performance of companies listed in China during the period of January 2023 to August 2024. The Report also explores the specific application scenarios of ESG value accounting in sustainable investment and corporate information disclosure.

On the press conference, Yin Gefei, Member of the Sustainability/ESG Committee of CAPCO and Founder and Chief Expert of GoldenBee Consulting, made an in-depth interpretation of the cores of the Report and forward-looking predictions about the future trends.

Progress in research on environmental and social impact assessment

Over the past year, research on the environmental and social impact assessment has made a headway both nationally and globally.

Internationally speaking, the Capitals Coalition and International Foundation for Valuing Impacts (IFVI) launched a series of major results, including six accounting methodologies like General Methodology 1: Conceptual Framework for Impact Accounting, General Methodology 2: Impact Measurement and Valuation Techniques released in 2024. Those methodologies specify the monetized assessments on greenhouse gas emissions, occupational health and safety as well as consumption of water resources.

Domestically, practices on ESG value accounting have also been advanced. By August 2024, 245 listed companies had disclosed the social contribution rate per share,134 more than that of 2019. China National Nuclear Power Co., Ltd(CNNP), China General Nuclear Power Group (CGN), China Petrochemical Corporation (Sinopec) and other companies also conducted natural capital accounting, quantifying their positive and negative impacts on the environment and society and setting examples for ESG value accounting.

Methodology of ESG Value Accounting

ESG value accounting calculates net ESG value and ESG risk/opportunity value by making monetized assessments on a company’s positive and negative impacts on the environment and society over a certain period.

Net ESG value is composed of net environmental value and net social value. To take greenhouse gas emissions as an example, the net value of GHG emissions is obtained by subtracting the negative externalized cost of emissions and the positive externalized value of carbon sequestration measures. Similarly, the net value of waste and pollutant discharged, resource utilization, etc. can be calculated and the net values of all factors added up come the net ESG value.

ESG risk/opportunity value is calculated by comparing a company's net ESG value with the industry average. If the result is a positive number, it suggests that the company is above the industry benchmark and experiences opportunity emergence. On the other hand, a negative number means that the company is below the industry benchmark and faces risk exposure.

In addition, the accounting results can be broken down into net ESG value per share, ESG risk/opportunity value per share and ESG price-earning ratios, providing companies and investors with more targeted analytical tools.

ESG data disclosure rate by listed companies witnesses a substantial growth

ESG value accounting is inseparable with the support of high-quality data.

From 2017 to 2023, the number of A-share and mainland companies listed on SEHK releasing ESG reports has climbed up year by year.

For instance, the disclosure rate of greenhouse gas emissions in the reports released has grown from 57.01% in 2022 to 63.04% in 2022, and the disclosure rates of such indicators as the solid waste discharged and fresh water consumption have seen a substantial growth as well, providing a solid support in basic data for high-quality ESG accounting.

The number of A-share listed companies with positive net influence grows by 31 from the previous year

An assessment on the ESG value of A-share listed companies from 2018 to 2023 shows that in regard of net ESG value, the number of listed companies which have positive net ESG influence has reached 1,439, up by 31 compared with the previous year. The net environmental and social values have seen a notable rise, with intensity of emission from non-ferrous metal industry, waste discharged from building materials, water consumption in transportation sector decreasing. On the social front, there has been an increase in net gender equality value in sectors such as social services and utilities.

In terms of ESG risk/opportunity value, 2,270 A-share listed companies showed ESG investment opportunities in 2023, constituting over 40% in the total number and increasing by more than 10% compared with last year.

The application of ESG value accounting

· Factor testing for stock yield: ESG value accounting offers a more direct and consistent data support for investors. In the factor information coefficient (IC) test, if the ESG risk/opportunity value, net ESG value per share, ESG risk/opportunity value per share, ESG value per unit of revenue, net ESG value per unit of net asset and average information coefficient (IC) are all above 2%, then the investment factor is significant and of great guiding importance for the market.

· Index investment: The assessment is conducted by using the CSI 300 Index as the benchmark index, replacing market value with ESG risk/opportunity value per share, replacing the component equity weight in the benchmark index, and forming ESG risk/opportunity value index. The backtesting data shows since March 2018, the cumulative return of ESG risk/opportunity value index has exceeded that of the CSI 300 Index, with the maximum being 78.64%.

· “Dual materiality” assessment: According to the Guidelines on Sustainability Reporting for Listed Companies (Trial), companies should evaluate the financial materiality and impact materiality of sustainability topics comprehensively following the “dual materiality” principle. A "dual materiality" analysis matrix using net ESG value and ESG risk/opportunity value can help companies identify both financial materiality and impact materiality.

· ESG statement preparation: Based on the conventional three financial statements, the “fourth statement” written by utilizing ESG value accounting data, presents the outcomes of ESG management and practices and provides more direct reference for the decision making of investors, regulators and other stakeholders.

Trends and prospects

According to Yin Gefei, ESG value accounting will find wide application in the future. It will not only make information disclosure of companies more standardized, but will also give strong support for formulating sustainability policies, improving valuation mechanism, investing in sustainable companies and the like. Going forward, more guidance and support from stakeholders are needed in making concerted efforts to apply and improve ESG value accounting in information disclosure, policy making, valuation mechanism, sustainable consumption and other areas.

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