Sustainable Investment in China | Sustainable Investment in China Report Released

What is the main headline on SI in China?

The market for sustainable investment in China—investment using strategies that take environmental, social, and governance (ESG) factors into consideration—remains nascent. Most domestic-market participants have not yet moved from the "what" and "why" to the "how". Also, confusion over terminologies obscures the difference between sustainable investment and environmental thematic investment, and there is lingering skepticism about the business case for ESG integration and statistical evidence on SI financial returns. A lack of qualified personnel—analysts and researchers trained to perform both ESG and financial evaluations—limits the ability of institutional investors to successfully execute sustainability-oriented investment.

It sounds like there are substantial barriers to SI in China. Where do you see promising areas in this market?

There are a number of encouraging cases in which market pioneers and innovators in different segments of the market have started to explore ESG integration, but these efforts are generally in the very early stages. In the mutual fund sector, for example, AEGON-Industrial Fund Management Co. Ltd launched the first and only socially responsible investment retail fund in May 2008. Tsing Capital, a leading private equity firm focused on clean technology, has integrated ESG factors into its entire investment process and achieved three-digit financial returns. And while most pension funds in China show only limited interest in SI, the National Social Security Fund of China (NSSF)—the country’s largest pension fund with total assets of US$82 billion—lists “responsible investment” as one of its four core investment principles and has expressed interest in learning more about responsible investment practices overseas.

How do you expect SI in China to develop in the future?

Major recent developments bode well for the future growth of the ESG market. Our research found that the evolving ESG regulatory landscape, the growing awareness of the need for risk management among investors, the increasing availability of third-party information and corporate disclosures, and the heightened attention from international sustainable investment initiatives and investors are all driving the growth of SI in China. BSR believes that further growth of the SI market will depend upon:

• increased cooperation among China's sustainable investment community to introduce international experiences and lessons, and engage with policymakers to overcome systemic constraints;
• improved quality and quantity of ESG disclosures and ESG research; and
• enhanced ESG education for investment practitioners, business leaders, and individual investors.

For more information and detailed recommendations on the current state of SI in China, please check out the full report online.