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In This Issue
Editor's Note
Understanding ESG Engagement in China
Investors face a number of challenges engaging with companies on environmental, social, and governance (ESG) issues in China, particularly those listed in the mainland’s A-share market. Though difficult, engagement is crucial for investors to help companies mitigate risks and improve their sustainability performance. It is important for investors to understand these challenges and develop appropriate strategies to engage effectively with companies.
In this issue’s feature article, BSR Advisory Services Associate Lindsey Lim examines the landscape for ESG engagement in China, and she provides eight specific challenges facing both international and domestic investors who engage with Chinese companies. Lim also shares lessons for investors to consider as they develop their engagement strategies in China.
Next, we hear from the UN Principles for Responsible Investment’s Head of Reporting and Assessment Lorenzo Saa on why investors should disclose responsible investment information to the public.
Feedback and comments on this newsletter are encouraged and should be directed to Adam Lane at alane@bsr.org.
In Depth
Companies and Investors on ESG Engagement in China
Although investors are exercising increasingly active ownership over their global investments, there remains little public information on engagement practices between investors and companies in China. To help make progress on this issue, BSR recently completed research on investors’ and companies’ views on ESG engagement in the country.
Learn more →
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Insight From the UN PRI
Trends in Investor Disclosure Practices
What responsible-investment information should investors disclose to the public? Should they disclose their policies and processes? How often should they engage with companies, and to what extent should they integrate ESG factors into their decision-making processes? How extensive should public reporting information be? Should it be part of investors’ regular annual reporting, or part of a separate responsible investing-related document?
Different users and stakeholders have varying opinions on what kind of responsible-investment information should be disclosed. Asset owners, for example, use the information to monitor their investment managers and report to their trustees. Consultants use the results to provide new services to investors and track the progress of their clients. Beneficiaries, such as pensioners, use this information to assess the degree of sustainability implementation within their pension schemes. However, many beneficiaries have limited knowledge and time to analyze this information, so there is a critical role for media, consumer and industry groups, NGOs, and regulators to play in informing beneficiaries and other consumers about responsible-investment information.
In this age of transparency, investors are demanding rigorous financial and extra financial reporting from their investees. However, investors’ own reporting often lags behind (which is starting to change), and in many cases is a core part of responsible-investment activities. There are multiple benefits of reporting, which include improving investors’ own understanding of their activities and performance. Reporting also encourages greater internal tracking and oversight mechanisms, giving investors a clearer understanding of their performance. Furthermore, reporting stimulates dialogue with stakeholders, which in return can lead to more innovative investment products and services, new investment practices, and stronger investor brands. Finally, reporting is an increasingly important factor in client retention and growth as it supports increased communication with clients.
The UN-backed Principles for Responsible Investment (PRI) has provided a platform since 2006 to enable investment managers and asset owners to disclose and report on the sustainability of their processes, activities, and outputs as long-term investors. The PRI is a global initiative of investors, currently numbering more than 900 signatories with approximately US$31 trillion in assets under management, who commit to implementing the six PRI Principles. In 2011, 545 PRI signatories completed the PRI survey, with 44 percent publishing their responses online. However, the survey’s ability to provide a clear and transparent account of responsible-investment activities is more difficult with the diverse asset classes and strategies that define typical reporting activities.
To accurately measure responsible investment, the PRI aims to create a new, robust and comprehensive responsible-investment reporting and assessment process for investors. Investors have identified a real need for a reliable process to assess responsible-investment capabilities, and like all other areas of business, there needs to be clear indicators of progress, success, and accountability. While reporting may be resource-intensive, most investors recognize the importance of it, both to their own internal management of these issues, and the integrity of the PRI.
Instead of structuring the new reporting framework for investors around the six PRI Principles, the framework will focus on questions relevant to asset classes (including listed equity, fixed income, property, infrastructure, private equity, and impact investing) and whether an investor makes direct or indirect investments. This will allow stakeholders to uniformly compare investor activities by identifying leaders and laggards, and will provide investors with a way to showcase their strengths and activities in this space.
The new framework will have a significant impact on the responsible-investment industry, especially PRI signatories, where partial mandatory disclosure is being planned for 2013. The PRI recently facilitated a meeting with investors and stakeholders to gather ideas on what should be mandatory and what the consequences of increased disclosure will be. A summary of these results will be released in 2012. For the PRI and the responsible-investment industry, it is clear that investor reporting, accountability, and transparency are fundamental for the future.
By Lorenzo Saa, Head of Reporting and Assessment, UN Principles for Responsible Investment
To find out more about the PRI or how to become a signatory, please visit www.unpri.org/sign.
News to Know
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China Closes 7,000 Enterprises for Pollution Violations in Five years: White Paper (October 27, 2011, Xinhuanet)
Chinese authorities have investigated more than 80,000 cases of violations of environmental protection laws and closed 7,293 offending enterprises over the past five years, according to a white paper issued by the Information Office of the State Council.
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China Water Risk Launched (October 27, 2011, China Water Risk)
China Water Risk is a nonprofit initiative dedicated to addressing business and environmental risks. The site aims to help businesses, investors, and individuals foster a more efficient and responsible use of China’s water resources.
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Public Service Microfinance Wholesale Fund Launched in China (November 2, 2011, CreditEase)
The Inclusive Microcredit Wholesale Fund is the first independent public service wholesale fund in China to provide financial aid to public microfinance institutions through wholesale loans. It aims to solve the current capital bottleneck faced by microfinance institutions in China.
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China's Top Firms Not Sharing Enough (November 8, 2011, China Dialogue)
Olivia Boyd analyzes the latest results of the Carbon Disclosure Project’s recent report on the greenhouse gas emissions of China’s top 100-listed firms, finding that disclosure remains low and the pace of change sluggish.
On the Horizon
Upcoming Events
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AIGCC Beijing Workshop (January 5, 2012 | Beijing)
ASrIA is founding the Asia Investor Group on Climate Change with support from financial institutions across the region. This free introductory workshop for institutional investors will build knowledge about climate change, and create a forum to share best practices from around the world and identify areas for collaboration and engagement with business and regulatory communities.
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Chinese-Listed Companies Corporate Social Responsibility Seminar (February 28, 2012 | Beijing)
Organized by Beijing Chengxin Science and Technology Center, the seminar will explore the state of corporate social responsibility among listed companies. For details, contact the organizers through their website: www.chinacsr.cn.
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