ESG With Chinese Characteristics

Man Group’s Co-Head of RI Jason Mitchell speaks to Yao Wang, Director General of China’s International Institute of Green Finance.

As China aims to transition itself from a developing country to a modern nation, “from the higher authority to the public, there is no debate that we should protect the environment,” according to Yao Wang, Director General of China’s International Institute of Green Finance and the Director of the Research Center for Climate and Energy Finance.

Progress to clean the air in China has been erratic, but improving. In 2013, levels of PM2.5 – the most-hazardous, tiny particulate matter – peaked in Beijing at 35 times the World Health Organization’s recommended limit.1 This led to Premier Li Keqiang declaring a “war on pollution” in March 2014. In 2015, Beijing issued its first red alert – the highest of four levels – as an ash cloud bigger than Spain settled over northern China. However, since then, air quality has generally improved (Figure 1).

Figure 1. Beijing Air Quality …

Source: Bloomberg, US State Department; as of August 2018.

Figure 2. … Has Generally Improved

Source: Bloomberg, US State Department; as of 8 March 2019.

This improvement in air quality came at a time when China was experiencing solid economic growth. However, amid trade tensions with the US and a slowing economy, the environment ministry has said that a more flexible program for its output curbs will be adopted.1

In a podcast hosted by Man Group’s Co-Head of Responsible Investment Jason Mitchell, Wang admits that the slowing Chinese economic growth poses some challenges for ESG, but also stresses that this presents opportunities. “Some companies which are international and innovative will improve themselves as they look to become greener,” she said. Indeed, the People’s Bank of China is pushing incentives for green finance and has said it would broaden the range of collateral it accepts in its medium-term lending operations to include debt instruments tied to the green economy.

Sustainable investors are thus seeing the opportunity in Chinese companies: According to a September survey by UBS, about 60% of Chinese investors with at least USD1 million in investable assets said they have already incorporated holdings focused on environmental, social, and governance (‘ESG’) issues into their portfolios.1 Even here, Wang believes there is room for improvement, especially as it pertains to data. “If investors have poor data to analyse, they will make wrong decisions,” she said.

Progress is being made to combat the data issue. The China Securities Regulatory Commission (‘CSRC’) is now working on ESG guidelines and has declared that by 2020, China’s listed companies should disclose their environmental data, according to Wang. The guidelines will cover all of the nearly 3,500 listed Chinese companies. The policy will also apply to bond issuers.

1. Source: Bloomberg.


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