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Chinese regulators issued new guidelines for publicly listed
companies to disclose risks posed by environmental, social, and
governance (ESG) factors, as financial advisers, institutional
investors. and fund managers across mainland China, Hong Kong, and
Taiwan, step up their investments in this arena.
The China Securities Regulatory Commission (CSRC) issued a final set of risk
disclosure rules on 28 June that for the first time highlighted the
growing interest in environmental protection and social
responsibility.
With China's large clean technology manufacturing footprint,
financial firms are exposed to risk posed by new and emerging
technologies, as domestic and global appetite for investment in
this sector heats up.
As these financial firms launch new products, ranging from
exchange-traded funds (ETFs) to green bonds, the Chinese government
has stepped in with the intention of regulating what has become a
growing sub-sector of financial activity in the country.
The CSRC rules require companies to disclose procedures for
preventing pollution of air, water, and soil, plus methods for
managing waste as well as reporting environmental incidents,
especially if any penalties are associated with them.
Like its US counterpart—the US Securities and Exchange
Commission—though, the CSRC encouraged companies to report
voluntarily their carbon emissions to meet state goals of carbon
neutrality. The agency also is requiring voluntary disclosure of
risks posed by poverty alleviation outcomes and rural
revitalization efforts.
The rules also encourage companies to disclose adverse impacts
to biodiversity, but don't mandate reporting. This omission stands
out given Kunming, China, is hosting the UN Biodiversity Conference
11-24 October. This conference includes the 15th Conference of the
Parties to the Convention on Biological Diversity (CBD). Signed in
1992, the CBD is the first global agreement to cover all aspects of
biological diversity, from conservation of species to sustainable
and equitable use of all resources.
Above all, the rules provide no metrics for reporting ESG
risks.
"We welcome the improvements on corporate governance disclosure,
especially on issues related to controlling shareholders, internal
controls, and management of subsidiaries," Christine Chow, global
head of IHS Markit Strategic Governance Advisory and ESG
Integration, told Net-Zero Business Daily 6 July.
Chow noted that the rules don't mention carbon neutrality goals
or the Paris Agreement, even though those two factors are driving
the push toward decarbonization policies and technologies that
influence investors' risk. More can done to improve ESG performance
disclosure, given China's pledge to become carbon neutral by 2060,
she added.
"We expect more guidance on the nature-based solutions approach
that should be integrated into companies' business operations given
China's aspirational leadership on biodiversity," she said.
Meanwhile, Chinese financiers are tapping into investment
opportunities in the ESG space as more and more countries align
policies and resources towards a low-carbon future.
A 9 June survey by Brown Brothers
Harriman, an American investment bank, reveals that ESG
investments, especially through ETFs, captured the attention of
investors in mainland China, Hong Kong, and Taiwan. While the firm
did not disclose information about specific funds devoted to ESGs,
it said the survey identified a clear interest on the part of
investors.
At least 92% of those surveyed in mainland China, Hong Kong, and
Taiwan said they plan to allocate more capital to ESG strategies
this year, and more than half of the 146 respondents said they
expect to have at least 11% of their portfolio in ESG-linked
ETFs.
Globally, a record $73.95 billion flowed into ETFs and
exchange-related products linked to ESG factors through the first
five months of 2021, nearly triple the $26.42 billion of flows into
the products by the same point in 2020, according to a 24 June estimate by ETFGI, a
consultancy covering trends in global ETFs.
Posted 06 July 2021 by Amena Saiyid, Senior Climate and Energy Research Analyst
