Cheung Kong Graduate School of Business (CKBSB) Professor of Marketing and Director of the Social Innovation and Business for Good Center, Zhu Rui, along with industry experts shared insights on China’s global environmental, social and governance (ESG) reporting, its new environmental impact regulations and the future of ESG investment. Zhu was joined by Wang Xitong (Adeeb), Head of Senior Affairs/Senior Associate at Everbright Belt & Road Green Fund, Michelle Cameron, Head of Sustainable Investment and Finance Sales, Asia at Refinitiv (a subsidiary of the London Stock Exchange Group), and Phyllis Papadavid, Head of Research and Advisory at Asia House, at an event hosted by Asia House on May 17.
Optimism and Growth
Professor Zhu kicked off the webinar with a discussion on how attitudes towards ESG in China are shifting, “When I started teaching in 2016, the concept [of ESG] was very rarely known among my Chinese audience. Over the years, I saw a change in terms of how much people are paying attention [to ESG]”. Since 2021, Zhu has been leading the “Social Innovation and Business for Good” Field Course at CKGSB. The one-year, socially-minded field course requires students to initiate sustainable business practices in their companies or organizations. This field course started as a core course in the school’s Executive MBA program and is now being expanded to other programs.
The panelists expressed optimism towards the current ESG landscape. Zhu said, “during times of crisis, I see a greater demand from the public and consumers asking companies to pay more attention to be more responsible, to adopt ESG principles.”
Wang was also optimistic about the direction ESG is taking in China. He mentioned that the cumulative returns of the CSI 500 ESG benchmark index are 8.1% higher than the parent index.
He pointed out some key regulations in China: In 2020, the Hong Kong Stock Exchange required all listed companies to disclose ESG reports. In 2020, the China Banking and Interest Regulatory Commission issued a guidance requiring banking and financial institutions to incorporate ESG reporting into the entire credit granting process. In April 2022, the China Securities Regulatory Commission issued deadlines for listed companies to include ESG in the communication content of investor relations for the first time.”
However, Papadavid noted, “the push for sustainability comes at a time of heightened geopolitical and macroeconomic risk, and the nature of the slowdown means that persistent weakness in certain sectors of the economy will take precedence over the push for sustainability.”
One of the key themes that featured in the webinar was the challenge to ESG reporting in China and around the world due to a lack of unified standards in ESG reporting.
When Zhu first started teaching ESG related courses, she used the Sustainability Accounting Standards Board (SASB) which categorizes ESG standards across 77 industries. However, Zhu highlighted, “there are a lot of these guidelines around the world and criteria you have to meet, but some of them don’t quite fit into the Chinese context. For example, in the gaming industry, which falls into the “Internet Media and Service Industries” category, its ESG criteria relates to consumer privacy, data privacy, employee engagement and inclusiveness. But these issues are not what Chinese computer game companies pay attention to. They care more about gaming addiction in adolescents.” Zhu is now working with her colleagues to promote initiatives and guidelines for each industry centering around ESG principles in a Chinese context.
Cameron agreed with Professor Zhu, saying that “there are different weightings that need to be applied across different sectors depending on which parts of ESG they have more exposure to.” She also identified the problem that, due to many ESG data providers, there are many ways in which the data is collected.
Further discussion involved data consistency required for global ESG reporting. Cameron said, “we need to get to a point where we can run and compare data across the globe and look at the differences between the industries in the different jurisdictions.”
Wang developed this point further: “A lack of globally accepted standards is a problem…we have seen a lot of ESG or green finance rating agencies in the market, but each of them has their own set of ESG or green finance indicators and their own approaches to give ESG and green finance scores. A unified standard for ESG or green finance is important not only for investors but also for consultancy firms.”