Ping An Group, parent company of China’s second-largest life insurer by investable assets, is playing a bigger role in driving environmental, social and governance (ESG) investing, which is gradually gaining momentum in the country.

The financial group is the first China asset owner to have signed Climate Action 100+ and the United Nations’ Principle of Responsible Investment (UN PRI), in December and September last year, respectively. Climate Action 100+ is an investor initiative to help reduce greenhouse gas emissions, while UN PRI signatories are to incorporate ESG factors into their investment and ownership decisions.

Richard Sheng

As one of the biggest listed companies in China, Ping An is influential in the capital markets. Its actions in the ESG space can set an example for other peers in the industry, Richard Sheng, board secretary and brand director of Ping An, told AsianInvestor in an interview.

“Ping An has a huge scale of assets under management,” he said. “With asset managers to which we entrust [our assets], we obey [rules] for reducing greenhouse gas emissions together.”

Outsourced assets account for nearly 2% of Ping An's Rmb3 trillion ($434.6 billion) insurance investment funds, but it is gradually outsourcing more, a company spokesman said.

GAINING GROUND

Discussions around ESG have been growing in China with environmental protection one of the government’s top goals. In its 2019 budget, the central government expects to allocate Rmb60 billion to prevent and control pollution. Accounting for 35.9% of the budget, it's the biggest item on the agenda.

Relevant rules have also been introduced. The China Securities and Regulatory Commission, in collaboration with China’s Ministry of Environmental Protection, mandates all listed companies and bond issuers to disclose the ESG risks associated with their operations this year. In July 2018, the Asset Management Association of China (AMAC) proposed guidelines for asset owners in China to evaluate the adoption of ESG principles by external managers better.

In the last ten months, Ping An and 14 Chinese investment managers have become UN PRI signatories, bringing the total number from the country to 37. That is over 10% of the total number of signatories in Asia Pacific, underlying increasing ESG awareness in China's investment communities. 

ESG strategies are likely to be integrated with investments in China as the economy continues to open up and more of its companies become subject to global governance standards. In that regard, the inclusion of A-shares in MSCI's emerging markets index could be a catalyst.

PING AN’S GREEN EFFORTS

Sheng also explains how Ping An integrates environmental considerations into its overall asset allocation and portfolio management processes after signing Climate Action 100+.

For polluting industries or those that emit high levels of carbon, Ping An will include them in a monitoring and control system according to requirements of Climate Action 100+. It will also step up its assessment on their impact on climate risks, Sheng said.

Besides restrictive investment policies, the insurer will also invest more in environmentally friendly industries, such as windpower and hydropower industries, through a variety of financial instruments, he noted.

Ping An’s insurance funds buy the listed stocks or bonds of such companies while Ping An bank lends to them. “If there are suitable [investment] targets in the new energy and environmental areas, we do not rule out [the option of] private equity investment,” said Sheng.

He also pointed to the fact that Ping An has built an AI-ESG platform that generates automated ESG reports from massive amounts of data and flags ESG investment risks so that it can better execute its ESG policies in the investment process.

When asked about whether incorporating ESG criteria in its investment process can help Ping An increase investment returns, Sheng said that it helps achieve stable returns over long-term periods.

Ping An’s investment portfolio consists mainly of its insurance funds, which pursue safe, steady and sustainable returns. ESG policies can protect insurance companies from risks that derail them in this pursuit, Sheng asserted.

The Chinese government has never before put such effort into environmental protection. If Ping An screens out an investee corporate that runs contrary to the country’s environment protection policy, it is avoiding investment risks brought about by regulatory actions in the future, he said.

The annual AsianInvestor Insurance Investment Forum will return on March 10th in Hong Kong and March 12th in Singapore to address the pressing issues arising from the low-yield environment. Please click here for more details: Hong Kong | Singapore.