By Geilan Malet-Bates (Co-Founder, Plenitude)
The Hong-Kong based Securities and Futures Commission (SFC) has recently issued further guidance to its green and sustainably-labelled authorised asset owners, on how to coherently report on how their funds’ investment process integrates ESG factors. This is part of a broader effort to position Hong-Kong as a major green finance centre and enhance data comparability. An important move, at a time when the majority of companies listed in Hong Kong were not reporting adequately enough, with some companies flirting with potential green-washing.
Meanwhile, in mainland China, the Chinese Securities Regulatory Commission (CSRC), also recently outlined a ‘disclose or explain’ policy to come into force in 2020, mandating all listed companies and bond issuers to disclose all their operational ESG risks. China’s ESG effort has been more than a decade in the making, driven by its central bank pushing forward key sustainable finance initiatives; China’s first banking sector CSR report was published in 2008, and in 2009 the Shenzhen Stock Exchange (SSE) launched China’s first ESG Index.
These green moves may be surprising to some perhaps, given China’s aggressive economic growth (expected GDP growth of 6.4% in 2019 vs World growth of 3.5%) and enormous population (1.4bn people ~ 18% of the world). This strong push for economic reform has been socially costly, including environmental issues, an ageing population, health inequality and poverty – these two latter sadly contributing to China’s high suicide rate.
China’s ESG effort has been more than a decade in the making, driven by its central bank pushing forward key sustainable finance initiatives.
A visit to Shenzhen with my colleague this month, China’s very green and innovative city, with a population of 12.5mm (approx. 100,000 in 1980), tells a more promising future story. Sitting in the south of the world’s largest green bond market and bordering Hong Kong, Shenzhen was named National Model City for Law-Abiding Governance in 2017. Shenzhen is also home to BYD, a firm we visited, and supplier of the city’s 100% electric bus fleet (a world first). Buses represent 2% of traffic but account for a third of a city’s carbon emissions. This widespread electrification is just one in a series of country-wide government initiatives that have seen pollution levels drop markedly, especially in the capital, Beijing. The government looks to inject a further $2.2trn in sustainability-focused sectors, in the coming year.
These green moves may be surprising to some perhaps, given China’s aggressive economic growth (expected GDP growth of 6.4% in 2019 vs World growth of 3.5%) and enormous population (1.4bn people ~ 18% of the world).
Determined to continue this positive momentum, driven partly by foreign interest, ESG investment in China has already grown considerably, boasting $29.8bn of AUM in green and ESG funds as of 2018 (the more mature US sustainable finance industry is at $2.2trn) and with growing retail demand. The United Nations Principles for Responsible Investing (UNPRI) has set out 4 policy frameworks and sustainable investment recommendations for the CSRC and the Asset Management Association of China (AMAC) to adopt, in order to guide fiduciary duties and drive forward the integration of material ESG issues into pension and investment considerations.
Speaking with the Shenzhen Finance Institute and discussing where China goes from here, they emphasise that growth of the ESG landscape relies on tackling social issues on a local basis, rather than applying blanket reforms. Corporate governance continues to be scrutinised and undeniably has some way to go, if it’s to open-up more foreign capital. Finding a compelling way of engaging those companies not already onboard with the government’s already functioning and successful initiatives, remains a priority too. Ultimately, it’s hard not to be astounded by the sheer scale of China, and with a growing focus on green finance and ESG, we may be starting to see the green shoots of a large-scale sustainable finance movement with Chinese characteristics.