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In This Issue
Editor's Note
Investor Activism in China
It is now commonly accepted that investor activism on companies’ environmental, social, and governance (ESG) performance is in both investors’ own interests and in companies’ interests. The recent BP spill off the Gulf Coast of the United States, for example, served to heighten the important role investors should play in ensuring that companies are aware of, and managing, environmental, health, and safety risks. Even now, investors are still recovering from losses resulting from not being as active as they could have been.
In this issue, Adam Lane of BSR’s Beijing office looks at trends in investor activism in China and how minority investors can play an important role in improving corporate responsibility performance. And James Gifford, executive director of the UN Principles for Responsible Investment (PRI), explains that foreign investors can bring international experience to China by promoting responsible investment practices, such as those represented in the PRI, throughout the industry.
Feedback and comments on this newsletter are encouraged and should be directed to Julie Zhu at jzhu@bsr.org.
In Depth
China’s Investor Activism: The Role of Minority Investors
BSR brings investors and companies together to drive effective engagement and improved corporate responsibility performance. Below, BSR’s Adam Lane explores what minority investors can do in China to improve corporate responsibility performance.
Learn more →
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Insight From the UN PRI
Principle 4: Promoting the Principles within the Investment Industry
The UN Principles for Responsible Investment (PRI) were designed as a framework for the whole investment industry, and Principle 4, “We will promote acceptance and implementation of the Principles,” asks signatories to advance responsible investment throughout the investment decision-making chain. According to our 2010 survey of 430 global investors, 70 percent include ESG considerations in their recruitment of third-party providers, and 50 percent incorporate them into contractual agreements.
One reason for the PRI’s growth is the committed network of asset owners incorporating responsible investment into their mandates with asset managers. Sixty-six percent of asset owners put specific ESG considerations into their contracts with managers, and an impressive 85 percent were involved in dialogue with regulators on ESG issues.
The French asset owner Fonds de Réserve pour les Retraites (FRR), for example, incorporates the PRI and ESG-related considerations into their selection processes for both passive and active mainstream equity managers. ESG issues are addressed in both first- and second-round questionnaires, with varying weights applied depending on the evaluation criteria. FRR’s managers are required also to vote and assist in engaging with companies (PRI Principle 2).
However, promoting responsible investment still remains a challenge for many investors. There are myths surrounding what responsible investment means and confusion about its impact. Some see responsible investment as being about “negative screening,” or not investing in a company because of a poor sustainability score. Rather, responsible investment is about expanding the investment universe through the inclusion of ESG data to better understand and evaluate a prospective investment.
Further, most investment decision-making relies, to some extent, on sell-side research providers for information. If sell-side research providers—and likewise credit rating agencies—take ESG issues into account where they are material, so too will mainstream investment decision-makers. However, there are too few incentives for research providers and brokers to address better ESG issues in their research. Only 50 percent of investment managers and 25 percent of asset owners provide financial incentives, for example.
Another challenge is that geographically, the majority of Principle 4’s implementation is occurring in Europe, the Americas and Australasia, and to a much lesser extent (35 percent) in Asia. With 850 signatories and combined assets under management of US$25 trillion, UN PRI members are demonstrating that ESG issues are important and have a material financial impact that needs to be incorporated into their strategies and investments. Asian investors too will need to make responsible investment a core component of their activities. Those that do will be the leading investors of tomorrow by being better prepared for emerging risks and opportunities.
For more information, please contact Joshua Kendall at joshua.kendall@unpri.org
News to Know
- Environmental Pollution Liability Insurance will be Mandatory (Nov. 16, People’s Daily)
At the China Green Policies Seminar held in Beijing, Yang Chaofei, the director of the Department of Policies and Regulations in the Ministry of Environmental Protection, stated that China would accelerate the establishment of an environmental pollution liability insurance system to address environmental problems.
- First Environmental Court Established in Beijing (Nov. 11, China Youth Daily)
Illegal environmental behavior is more likely to be punished following the establishment of the first environmental trial division in Yanqing Court (a district of Beijing). The division will be responsible for environmental-related civil, administrative, and criminal cases, as well as environmental public interest litigation.
- MEP to Publish a Guide to Environmental Information Disclosure for Listed Companies (Nov. 11, Economic Observer News)
The Ministry of Environmental Protection will publish a Guide to Environmental Information Disclosure for Listed Companies requiring all heavily polluting industries, including thermal power, steel, cement, and aluminum, to release annual environmental reports disclosing specific environmental information, such as pollution discharges and compliance with environmental laws.
- Nine Ministries Demand Waste-Incineration Enterprises Release Environmental Reports (Nov. 8, Beijing News)
Waste treatment and disposal centers in Beijing, Tianjin, Hebei, the Yangtze River delta, and the Pearl River delta regions will be asked to monitor and report their dioxin emissions soon, according to the Guidance on Enhancing Dioxin Regulation released jointly by nine Chinese ministries. An integrated dioxin monitoring and regulation mechanism will be established with the goal of cutting dioxin emissions by 10 percent by 2015.
- China’s First Voluntary Carbon Emission Reduction Standard Launched (Oct. 26)
On Oct. 19, in the United Nations Pavilion at the World Expo, Professor Cheng Tianquan, chairman of the China Voluntary Carbon Emissions Reduction Standard Council, announced the launch of the China Voluntary Carbon Emissions Reduction Standard. This is the first comprehensive voluntary carbon emissions reduction standard to be developed in China based on international standards and is expected to be recognized by domestic and foreign markets.
On the Horizon
Upcoming Events
- The Challenge and Opportunity of Sustainable Investment in China Roundtable (Dec. 13, Beijing)
This roundtable, organized by the Association for Sustainable & Responsible Investment in Asia, will provide an update on the trends and developments in key ESG issues and themes. The event will also include opportunities for local investment institutions to engage with industry colleagues on sustainable investment issues.
- 2010 SGS Sustainability Summit (Dec. 16, Beijing)
Organized by SGS and BSR, the summit will convene the government, NGOs, and companies to discuss sustainability trends, environmental performance, carbon footprinting, and quality management.
- 2011 CCS Technology Forum (Jan. 7, 2011, Beijing)
This conference will bring business, governments and academics together to explore the current status of carbon capture and storage (CCS) technology in China and abroad, the developments and trends of CCS technology, and problems and challenges facing CCS projects.
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