The chief investment officer of the China Investment Corporation (CIC) has warned that the Covid-19 pandemic will affect the global economy for longer than many people expect. In the search for more stable returns, the Chinese sovereign wealth fund (SWF) will continue its push into ESG and private market investment.
During a session of the Asian Financial Forum on January 10, Ju Weimin, CIO of CIC, who is also the vice-chairman and president of the $1.2 trillion SWF, the country's biggest, said the uncertainty about the size and length of the pandemic's impact means investors should remain focused on supply chain problems, inflation and mixed performance in different markets.
“Despite this [uncertainty], the global economy was stronger than expected in 2021. But we should not be over optimistic,” he said, pointing to labour shortages, supply chain bottlenecks, and rising energy prices, as well as significant changes in global inflation.
“And with high levels of national debt and high stock prices in the mix, the macro environment has become more complex,” he added.
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Ju noted that CIC is set to invest more in equity and sustainable assets, which will be favourable in the long term.
"I think Southwest [Asia] SWF funds will be a key source of long-term global capital, and they will grow rapidly. and make a big impact on international markets and capital flows given their sizeable assets," he said
Indeed, sovereign wealth funds like CIC have become increasingly influential in capital markets in recent years.
Since the global financial crisis in 2018, they have doubled in size worldwide and are almost as big as alternative investment funds. "They are particularly favoured in some emerging markets, playing a bigger role in their economic and social development," Ju continued.
Sustainable investment, another focus for CIC, is growing in popularity in China, but Ju said it faces challenges such as inadequate data disclosure and a lack of standards about what the principles of ESG investing are and what they should be measuring.
“For example, we currently have many data providers, but the scope of coverage and data quality all vary which make it difficult to select the appropriate data set. We also have yet to develop a uniform ESG evaluation and rating methodology. To encourage development in portfolio companies, investors need to be more than just a provider of capital,” he added.
Ju believes policymakers and regulators should continue to enhance the information disclosed about sustainable investing because companies, financial institutions and other organisations are only doing so on a voluntary basis.
The CIO also expressed some concern about greenwashing but noted that policy makers and regulators are making progress in the whole area of ESG investment.
“Over the past two years, green awareness is rising in China. Several months ago, Peoples Bank of China released China's first guidelines on green finance, including guidelines on environmental information disclosure for financial institution and the environment equity financing tools,” he added.
CIC launched its approach to sustainable investing in November, saying that it would incorporate ESG factors into its entire investment process, from project screening to due diligence. At the same time it would review and update its negative investing list more frequently, according to the statement.
“We have actively optimised our asset allocation to promote sustainable development by setting up a more detailed sustainable investing strategy with green and low carbon assets at the core," he said.
“In the private market, we continue to expand investment in renewable energy,” he added, noting that the fund continue to explore related opportunities, with a focus on climate change, in the private market, which Ju believes has more potential than its public counterpart.
According to IFC data, the scale of impact investment in 2020 was around $2.3 trillion and the global issuance of green bonds, social bonds and sustainability bonds was around $1.3 trillion.