Sustainable Investment in China Newsletter | Q3 2011

   
 

In This Issue

Editor's Note

Understanding ESG Challenges in China

Companies in China face unique environmental, social, and governance (ESG) challenges because of the country's specific investment climate. It is crucial for investors to understand these challenges and how companies can address them, since many companies are neither mitigating nor effectively responding to them. And investors can—and should—help.

In this issue’s feature article, BSR Advisory Services Associate Lindsey Lim examines four of the top ESG challenges facing Chinese companies: lack of governance, misleading marketing, substandard product quality, and waste-water pollution. Lim shares four company examples and their responses to the issues as well as the implications for sustainable investors in China.

Also in this issue, we hear from the executive director of the UN Principles for Responsible Investment, James Gifford, on what responsible investment will look like five years from now, and what will catalyze progress.

Feedback and comments on this newsletter are encouraged and should be directed to Adam Lane at alane@bsr.org.

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In Depth

What Investors Need to Know About the Top ESG Challenges in China

Several factors make the investment climate in China different that in other countries. This article examines the top ESG challenges in China, provides real company examples, and explores how investors can help companies improve their performance.

Learn more →
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Insight From the UN PRI

The Future of Responsible Investment

With assets under management at the UN-backed Principles for Responsible Investment (PRI) now at US$ 30 trillion, it is timely, five years after the initiative’s launch at the New York Stock Exchange, to assess the future of the UN PRI and responsible investment. BSR spoke with James Gifford, the PRI’s executive director to learn more.

Where does the responsible investment movement stand in 2011?

Although more than 900 institutions are now committed to the six PRI principles, I believe responsible investment is still at a relatively nascent stage. However, the next five years will bring significant changes in attitudes, knowledge, and incentives to help make responsible investment mainstream.

What do you think will catalyze progress?

Certainly, climate change is one area where we see policymakers slowly starting to address emissions on a global scale. Other ESG-related trends will emerge, including: demographic changes in youth and aged markets, human rights, water and food security, and increased regulation and transparency of financial markets.

How may this affect responsible investment?

We are likely to see better support for the ESG research industry, local social investment forums, climate change investor groups, corporate responsibility initiatives such as UN Global Compact, and reporting organizations such as Global Reporting Initiative. This growth in research and networks will allow investors to improve analysis of company risks and opportunities; benchmark more accurately against peers; and make ESG integration faster, efficient, and more accurate.

In what area of responsible investment have you seen the most progress?

We’ve seen the most progress in shareholder engagement with companies—the second PRI principle—which is no longer limited to activist investors. Over recent years, mainstream asset owners and investment managers, in collaboration with their peers, have worked to ensure companies are managing ESG issues and meeting stakeholder expectations.

In the next few years, shareholder engagement will be both proactive and reactive prompted by growing ESG awareness and regulation and focusing on systemic issues across regions and industries. These engagements will continue to be supported by the PRI’s Engagement Clearinghouse, which over the last four years has facilitated more than 300 shareholder collaborations on issues such as sustainability reporting, supply chain labor standards, human rights, and carbon emissions.

Where do you think we will be five years from now?

All trustees, including charities and endowments, will be expected to include ESG issues in their investment mandates with their asset managers, and proxy voting and shareholder resolutions will become a cornerstone of many policies. This will produce a tipping point where shareholders are working routinely with other investors on critical sustainability issues and driving performance to everybody’s benefit.

The future is not just making responsible investment mainstream, but ensuring mainstream investors are more responsible.

To view the six Principles for Responsible Investment, visit the PRI website.

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News to Know

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On the Horizon

Upcoming Events

  • Corporate Governance Week 2011 (October 24-28, 2011, Singapore)

    Organized by the Securities Investors Association (Singapore), this week-long event will include a two-day investors' corporate governance conference, a workshop led by the big four accounting firms, a master class, the 12th investors' choice awards, an investors' forum, and a half-day event on crisis management and public relations.

  • ACGA 11th Annual Conference (November 1-2, 2011, Shenzhen)

    The Asian Corporate Governance Association’s (ACGA) 11th annual conference will include case studies on crisis management and corporate governance, discussions on family-business governance, and a special focus on Chinese corporate governance.

  • Anti-Corruption China Summit (November 15-17, 2011, Beijing)

    This conference aims to provide practical tools for developing a compliance plan in China. The summit will feature a panel discussion with senior in-house counsels and heads of compliance on their own compliance programs. The event will discuss the U.K. Bribery Act, the Dodd-Frank Whistleblower Provisions, and how to handle other specific compliance conundrums in China.