China’s government made several promising environmental policy announcements when hosting the G20 Leaders Summit last week. But none of the country’s asset owners have yet actively engaged in international responsible investing efforts

Jessica Robinson, head of Asia (ex-Japan) at United Nations Principles for Responsible Investment (UN PRI), is hopeful this will soon change.

“I’m confident that we will get our first [asset owner] signatory from China in the next year,” she told AsianInvestor, noting that the agency was speaking to several mainland investors about engaging more.

UN PRI is the global agency responsible for promoting environmental, social and governance (ESG) investing principles. It has 1,557 signatories to its six investing principles, but only 81 of these are from Asia and none of its asset owner signatories hail from China to date.

There are many reasons for this. China has faced a number of challenges, not least the fact that its asset owners are forced by regulations and capital controls to primarily invest with onshore companies, many of which are state-owned enterprises that are not committed to offering high levels of disclosure over their operations.

Additionally, UN PRI representatives point to the fact that the concept of fiduciary duty has been culturally challenging for several Asian nations, including China, which don’t have an equivalent term in their local languages.

“The likes of Singapore, Hong Kong and India get it, partly because of their [historical] links to the UK legal and regulatory system, but it’s been harder to translate this to some Asian countries,” admitted Will Martindale, head of policy at UN PRI.

ESG emphasis

UN PRI has been working with local regulators and investors to deepen the understanding of investor responsibilities and ESG issues.

In early September, the agency launched a new report that titled ‘Investor Obligations and Duties in Asian Markets’, which focused on investor efforts to incorporate ESG issues in six Asian markets: China, Hong Kong, India, Malaysia, Singapore and South Korea.

The report was based upon a comprehensive legal review of the six markets and was based upon interviews with 80 investors in the region. “The idea is to move ESG from being permissible to required [in these markets],” Martindale told AsianInvestor.

Robinson noted that China’s interest in raising its engagement with ESG and particularly green finance had been underlined by the fact Ma Jun, the chief economist for the People’s Bank of China, submitted one of the forwards to the report.

Within his comments, Ma noted, “there is much that we can learn from each other in order to build the necessary capacity and expertise along the investment chain – and thereby change practice so that ESG factors become a part of routine investment management”.

He also spoke live via video link at PRI in Person, UN PRI’s 10th annual summit in Singapore on October 6 to 8, discussing China’s role in getting green finance onto the G20 agenda, and particularly its interest in green bonds and creating a carbon emission scheme. Part of these plans include a commitment to raise $300 billion in green financing each year until 2021.

Areas for improvement

Despite these positive steps, the UN PRI report noted several areas in which China could take action to improve the consideration of ESG issues among its investors.

“The government could have all state pension funds, the National Social Security Fund, enterprise annuity plans and mutual funds take account of ESG issues, encourage high standards in investee companies and report on how they are doing so,” it suggested.

Other suggestions included expanding green finance, which according to Ma is well on Beijing’s agenda, supporting more academic research into ESG issues; expanding and enhancing efforts to reduce pollution and improve energy efficiency among all Chinese companies; and enhancing corporate disclosure.

While this is a big to-do list, the willingness of Beijing to discuss green finance at the G20 summit is a sign that it is taking the concept seriously. Robinson said it was an indication of the importance China’s authorities are now placing on actively trying to improve pollution and environmental factors in particular.

“I think China’s government realises that [being seen to actively pursue environmental improvement] is a social stability issue; many officials are worried,” she said. “As a result I’m more optimistic than I’ve ever been.”

The UN PRI report had advice for the other countries it covered as well. It suggested all markets revise their pension regulations to require investors and pension funds to take account of ESG issues.

It also suggested that Hong Kong’s stock exchange and the Securities and Futures Commission work together to analyse and report on the disclosures being made by listed companies, suggested India’s regulator improve oversight of disclosures made by the country’s top 500 listed companies against its onshore responsible investing guidelines.

Additionally, the report requested Malaysia’s regulator effectively implement its stewardship code for institutional investors, suggested Singapore’s GIC and Temasek make concerted public actions to integrate ESG in their investment strategies, and said Korea’s regulator could develop a stewardship code.

This story has been amended to make clear that Jessica Robinson of UN PRI was discussing asset owners when talking about gaining signatories from China.