Norway pension fund’s TCM exclusion highlights ESG balancing act

Norges Bank Investment Management added four prominent traditional Chinese medicine (TCM) firms to its exclusion list but has also been increasing its emerging market exposure.
Norway pension fund’s TCM exclusion highlights ESG balancing act

The exclusion of four prominent traditional Chinese medicine (TCM) firms by the $1.4 trillion Norges Bank Investment Management (NBIM) underscores the difficulties of balancing sustainable investment practices with opportunities in emerging markets, experts told AsianInvestor.

NGIM, one of the world’s largest pension funds, announced on September 29 that it would exclude Tong Ren Tang Technologies and its subsidiary Beijing Tong Ren Tang Chinese Medicine, state-owned China Traditional Chinese Medicine and China Grand Pharmaceutical and Healthcare because they posed “unacceptable risk” of contributing to severe environmental damage.

These companies manufacture medicines that include threatened species in their ingredients, including leopard bone, pangolin scales, saiga antelope horns and musk deer pods, according to the September statement.

The fund reportedly held as much as $27 million worth of shares in the four companies combined, according to a media report


Institutional investors have been under increasing pressure to adopt environmental, social, and governance (ESG) principles in their investment strategies. Sustainable investments have grown 15% in two years to $35.3 trillion, representing 36% of all professionally managed assets.

At the same time, asset owners have been allocating more into emerging markets. NBIM, for instance, has increased allocation to equities in China, Taiwan and India in the past few years. 

According to its latest annual report dated February this year, China accounted for 5.3% of the fund’s equity investments ($48.8 billion) and was its single largest emerging market exposure, followed by Taiwan at 2.1% and India at 1.3% (see chart below).

Comparatively, China accounted for 2.9% of the fund’s equity investments in 2015, while Taiwan made up 1.4% and India 1.1%.

Equities investments in China provided NBIM a 33.9% return in 2020, ahead of the US’s 17.6% return where it put more than 40% of its assets to. Alibaba and Tencent were its largest holdings in China equities allocation. 


Aaron Costello, 
Cambridge Associates

Evidently, there are returns to be had in emerging markets, but ESG continues to be a concern. For instance, "when you analyse Chinese equities through ESG, the ratings are extremely low," Aaron Costello, regional head for Asia at Cambridge Associates, told AsianInvestor

“Some of this has to do with Chinese companies being engaged in sectors or practices that score low from an ESG perspective, but part of it is also that Chinese companies simply do not disclose very much ESG data," he said.

READ ALSO: Investors still optimistic on China but aware of regulatory and ESG risks

However, the exclusion is not specific to China, an NBIM spokesperson told AsianInvestor.

The decision was based on recommendations from the independent Council on Ethics set up by the country’s Ministry of Finance, the spokesperson said. According to the list the firm provided, there are more than 140 companies that are either on observation or excluded by the Council on Ethics.

NBIM is the investment management division of the Norwegian Central Bank and is responsible for investing funds belonging to the Norwegian Government Pension Fund Global. As of end-2020, NBIM had around $5 billion invested in equities and $1.8 billion in fixed income in China.

As of 31 July 2021, NBIM had 53 employees at offices in Singapore, Shanghai and Tokyo, the spokeswoman said. 


Vikas Pershad,
M&G Investments

There are also political implications of excluding TCM companies. President Xi Jinping has in recent years called for further development of TCM as part of a nationalism push, stressing the need to integrate Chinese and Western medicine. TCM accounted for 40% of China’s pharmaceutical market in 2020.

Industry insiders also expect healthcare to come under regulatory scrunity after Beijing's recent clamp down on the tech and property sectors. 

READ ALSO: Next up? Chinese regulators eye healthcare, property

However, Vikas Pershad, portfolio manager (Asian equities) from M&G Investments, remains cautiously optismistic. "While we might have to assume that the ceilings on pricing are lower than previously estimated, there are some risks that seem to have lessened (though not fully dissipated)," he said in an email response.

"This is evidenced by an increasingly receptive environment where foreign life sciences companies are encouraged to tap into China’s market, along with Chinese companies being primed to adopt a more global outlook,” he said.

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