China’s weak ESG data undermines Xi’s bold pledges – Euromoney magazine

China’s weak ESG data undermines Xi’s bold pledges Euromoney magazineChina’s weak ESG data undermines Xi’s bold pledges Euromoney magazineChina’s weak ESG data undermines Xi’s bold pledges Euromoney magazine

It is well-known that China is a laggard when it comes to sustainability. China has a reputation for being a laggard. If a multinational lender or state lender doesn’t know the ESG parameters it should use, how can it set a timetable to decarbonize or establish rules to limit its exposure to polluting sectors or firms? Every company has a different reporting scope for ESG. The reporting scope of ESG in every company is different. It is fair to say that China is a sustainability laggard. Jonathan Ha, founder and chief executive at Seneca ESG (a Shanghai-based business intelligence company), said that China is far behind in ESG reporting and awareness when compared to European countries. It’s still early days to get a standard approach to ESG adopted and integrated into the overall ecosystem. It also lags other jurisdictions. The UK was the top-scoring country in the MSCI index. It scored 7.7 out 10 against 7.1 for Australia, 5.9 Japan and 5.5 for the United States. With a score of 2.9, China ranked 47th out of 50 countries. It is not even performing well in its home country. The World Economic Forum published a March 2021 note entitled ‘A leapfrog moment in China in ESG Reporting’. It noted that Hong Kong required listed companies to publish an annual ESG report since 2016. “The key word is “expect”. Waiting for rules A China-based analyst claims that he has been waiting for regulators in Shanghai and Shenzhen ESG standards to be developed for years. “We have expected something since 2018. “First Covid delayed them – we think – and now, we are looking at 2022. “Seneca ESG’s Ha believes both bourses would implement sustainability disclosure requirements for all listed businesses “within a year”. Esther Tsang, an ESG analyst at Bloomberg Intelligence Hong Kong, expects that onshore regulators will establish ESG requirements for listed constituents within the next two to three-years. According to Esther Tsang, an ESG analyst at Bloomberg Intelligence in Hong Kong, the ESG requirements for listed constituents will be set by onshore regulators “within the next two to three years.” They claim that regulators are working with the most engaged offshore firms to create new rules to ensure that every company collects and reports sustainability data in standardized ways. When they deliberate, they draw on data and perspectives from many sources. They draw data and perspective from many sources when they deliberate. They will often refuse to answer media inquiries because they are uncertain of their political background or unsure of their position on a topic. No comparison It is almost impossible to compare ESG metrics of similar companies or the overall performance in China’s industry. Data providers are constantly faced with this dilemma. Bloomberg’s Tsang says that ESG reporting scopes in different companies are often different. “Some companies report ESG data from their headquarters while others report from individual sites. It’s difficult to compare companies even if we try.” The state wants to improve the lives of the people and generate economic growth. But pollution is putting those at risk. Wilco van Heteren and Sustainalytics. Seneca ESG’s Ha says that the ESG data packages and offered by data providers are “alas, not at a level we would expect or wish it to be.” He adds that ESG data is essentially self-disclosed to companies in the form annual sustainability reports. This is unstructured data and there is no industry standard or global standard as to what is being disclosed and how. “Many companies publish sustainability reports. E-commerce firm JD.com’s 2020 report is 57 pages. China Merchants Bank’s 2020 sustainability report is 135 pages long and includes data and information about its internal projects. It places a greater emphasis on ‘S” issues like poverty alleviation than it does on corporate governance or the environment. However, the report is 135 pages long and is full of data and information about internal projects. Ha says that the information is not consistent across companies, markets, or sectors. This makes it difficult to assess. The challenge is then extracting data from the reports – data that may not exist at all. There are no standards Data providers are always looking to find new ways to examine firms’ sustainability credentials. Wilco van Heteren is the executive director of ESG risk at Sustainalytics. This Amsterdam-based company specializes in ESG ratings. “We review around 50,000 media sources and if a company name appears more often, we investigate it. Global investors have difficulty comparing the performance of different mainland corporations. How can you achieve standard outcomes if there are no standard inputs? Analyst It’s not a demand issue. One analyst based in Shanghai says that buy-side firms are looking for standard ESG data. They tell data providers: “Find me some common ground these businesses are disclosing, and package it into data sets that investors will want. They do. But the result is totally random. “How can you have standard outcomes if there are no standardized inputs?” The analyst asks. “Plus, there are translation issues. The end result is that each data provider has a different approach [to] Chinese ESG data from the next. Learning process There are many factors that can be mitigated. China is not the only country that has yet to create its own set of sustainability disclosure rules. It is possible to argue that even advanced markets are still struggling to develop a coherent set of ESG reporting rules. Seneca ESG’s Ha says: “We don’t yet have a standard approach to ESG data disclosure scope and measurement. Companies that issue securities often only disclose as much information as they feel is necessary or what the exchanges require. This is true in most, if no, all market jurisdictions. Therefore, regulators must be more strict about sustainability disclosure. It is a learning process. One source recalls working with the Hong Kong Stock Exchange during the first disclosure requests. They note that most firms didn’t know how to proceed. They didn’t have the resources or knowledge to publish an annual report. It was a mess, but things got better. China will get there.” Slowly moving in the right direction
China’s disclosure has improved in the past decade. According to the United Nations Environment Programme Finance Initiative, the share of Shanghai-Shenzhen CSI300 Index firms that voluntarily and annually reveal their internal environmental, social, and governance data almost doubled between 2009 & 2018. It was 43% vs 82%. Abrdn, an investment firm, published a report titled “China’s ESG Trailblazers” in February 2021. It highlighted offshore firms that go the extra mile. The list includes Nari Technology, a Shanghai-listed manufacturer of secondary power equipment, the reformated China Tourism Group, and Contemporary Amperex Technology (a Shenzhen listed maker of lithium batteries). Financial services are also seeing progress. Jonathan Ha, founder and chief executive at Seneca ESG, says that there are many Chinese fund management companies that have begun to incorporate ESG into their investment process. It’s not a “just dot the-‘i” approach. Instead, it’s a data-driven approach that can produce higher than expected risk-adjusted return for discerning investors. Experts say that Ping An Asset Management in Shanghai, China Asset Management in Beijing, and Harvest Fund Management in Beijing are all examples of ESG leaders in this area of finance. China must move. Cambridge Associates’ September 2021 report titled ESG challenges and opportunities Chinese equities’ noted that half the companies included in the MSCI China index were deemed ‘ESG laggards’. This is defined as any company with an ESG rating below ‘B’. Yadea, a manufacturer of electric two-wheeled scooters, was the only mainland-based corporation to have a triple A rating. The report notes that even China’s largest technology companies, such as Tencent and Alibaba are only rated ESG average’ by index provider. That is almost certain to happen, and for two reasons.First, China has belatedly realized the triple threat a deteriorating environment poses to the economy and to national security.It needs to shed its image as a ‘dirty superpower’ and transform itself into a world leader in everything from, say, ‘green’ concrete and hydrogen, to advanced medical, logistical and technical equipment.That, it hopes, will create more higher-paying jobs, and close the widening income gap that threatens to undermine social cohesion.Biodiversity, overlooked in a rush to generate jobs and growth at all costs, is a big threat. Beijing unveiled its first group national parks on October 15. They cover 230,000 kilometres from Tibet to Hainan. It is part of sweeping plans that seek to repair fast-fragmenting practices and combat the insidious polluting that kills land as well as lives. “The state wants the people to have economic growth and make their lives better, but the pollution is putting that at danger,” says Sustainalytics’ van Heteren. China cannot also self-generate capital to build a clean’ economy for the 2020s and beyond. It must tap into external sources more actively and improve its ESG reporting. Van Heteren says that after Covid, many Chinese companies are well aware of the direction of ESG travel. A mainland company that doesn’t publish an annual report detailing its achievements and ambitions in sustainability is “a big warning sign that it doesn’t care about ESG” says Bloomberg’s Tsang. “Global investors will give errant offshore companies an ever-wider berth when stocking and restocking their funds and portfolios. We believe that a lack of disclosure implies a higher risk for investors.

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