A Series Of Observations On Family Office Investment In Chinese Projects

III. Observations on ESG development in China

The Chinese economy has entered a critical pefriod of structural transformation and is also confronted with a series of medium-to-long-term challenges: deepening aging population, widening income inequality, and prominent climate issues pose another challenge for China's economy. In recent years, the investment philosophy of environmental, social, and corporate governance (ESG) has increasingly attracted attention from various sectors domestically. The promotion of ESG investments and their concepts is expected to become a crucial lever in addressing the above issues.

1. ESG investment and pension issues：

The severe aging trend requires the society to provide a higher level of pension security, while ESG investment can help the pension to better maintain and increase value and avoid long-term risks, and help to deal with the aging problem.

In recent years, the Chinese government has introduced comprehensive policies for ESG investment concepts and established specific guidelines for pension funds' ESG investments. For example, the 2016 "Guiding Opinions on Building a Green Financial System" encouraged long-term capital, such as pension funds and insurance assets, to engage in green investments. The 2018 "Green Investment Guidelines (Trial)" further required domestic and international pension fund trustees to act as responsible investors, actively establishing long-term mechanisms that align with green investment or ESG investment standards.

2. ESG Investment and Income Distribution Issues:

China currently faces the growing gap in income distribution and prominent issues of uneven and unstable economic development. These challenges cannot be effectively addressed through market mechanisms alone, necessitating necessary redistribution and tertiary distribution measures. ESG investment can serve as one of the new approaches to alleviate income distribution issues.

China is currently grappling with an expanding income disparity and pronounced issues of uneven and unstable economic growth. These challenges cannot be effectively resolved by market mechanisms alone; they require necessary measures for redistribution and tertiary distribution. ESG investment can serve as one of the novel approaches to alleviate income distribution issues.

In 2006, the Shenzhen Stock Exchange and Shanghai Stock Exchange successively issued the "Guidelines on Corporate Social Responsibility for Listed Companies," explicitly requiring listed companies to legally protect employees 'legitimate rights and interests while promoting the establishment of systems covering wages, benefits, occupational safety and health, and social insurance. In August 2021, the 10th meeting of the Central Financial and Economic Affairs Commission emphasized the need to establish a coordinated institutional framework integrating primary distribution, redistribution, and tertiary distribution mechanisms. Social responsibility investment funds have been successively launched in China, and they have actively participated in charity, investing a certain proportion of the annual fund management fee income into public welfare undertakings.

3. ESG Investment and Climate Change Issues：

In September 2020, China officially proposed the goal of achieving carbon peaking by 2030 and carbon neutrality by 2060, demonstrating its determination to achieve green and low-carbon development during economic restructuring. The environmental elements of the ESG concept include issues such as climate change, resource consumption, waste, pollution, and deforestation, which align with the requirements for addressing climate change and achieving carbon neutrality goals.

The promotion of ESG investment concepts will provide strong support for domestic enterprises' climate change-related investment and financing activities. Firstly, regulatory authorities have introduced a series of policies aimed at promoting green finance and ESG investments. Since 2021, they have standardized the green bond project support catalog, integrated the "dual carbon" policy into the 14th Five-Year Plan, and released high-level designs and action plans for carbon peaking to achieve the "dual carbon" goals. Since 2006, when the Shanghai and Shenzhen Stock Exchanges began mandating listed companies to regularly assess their social responsibility fulfillment as outlined in the "Corporate Responsibility Guidelines", regulators have successively issued documents that establish the basic framework for ESG information disclosure. Secondly, financial institutions have actively engaged in ESG investments. Since the goal of carbon neutrality was proposed, financial institutions have accelerated the development of ESG investment products. Additionally, the National Council for Social Security Fund has publicly stated its commitment to playing a more proactive and leading role in promoting ESG concepts and implementing ESG investments.Thirdly, enterprises have intensified their Environmental, Social, and Governance (ESG) practices, particularly in green and environmental aspects. Notably, listed companies have been active in this regard. The "ESG Practice Cases of Listed Companies," a compilation released by China's listed companies, features exemplary ESG initiatives from these entities. Projects focusing on green development and climate governance are key directions for corporate ESG practices.

In summary, the development characteristics and direction of China's ESG investment are as follows:

The unique social responsibility attributes and investment principles of ESG investments are anticipated to assist in addressing a series of issues during China's economic structural transformation. Firstly, regulatory authorities are accelerating the formulation of top-level guidance policies for ESG investments, ensuring that institutions have clear guidelines when engaging in ESG investments. The revision and improvement of pension fund ESG investment management systems may incorporate ESG factors into the decision-making framework for pension investments. Secondly, a unified and comprehensive domestic ESG evaluation system will be established, with appropriate adjustments made to adapt to China's national conditions. For example, introducing factors such as energy consumption, carbon emissions, and carbon footprint under the carbon neutrality goal into environmental factors, and adding elements like inclusive finance and rural revitalization to social governance factors. Thirdly, efforts will be intensified to improve the ESG information disclosure system. Regulatory oversight of ESG disclosures is being strengthened to enhance their efficiency and quality. Fourthly, diversified ESG investment strategies and product systems will be promoted. By integrating ESG, thematic investing, negative screening, and other diversified investment approaches, various ESG investment products will be developed to meet diverse ESG investment demands.

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