Themed with “ESG Moving into Mainstream–Risks and Opportunities of ESG Investing in China”, 2020 China SIF Week & The 8th China SIF Annual Conference was grandly held at Grand Hyatt Beijing Hotel on December 1, 2020.
Co-organized by SynTao Green Finance and Sina Finance, this event invited Chinese and foreign regulators, financial institutions, experts, scholars, industrial representatives, and stakeholders to jointly explore the development path of ESG investing. Zengtao WU, Chief Marketing Officer of Southern Asset Management, attended and delivered a keynote speech at the conference.
Below is the whole text of his speech:
The global average temperature is now 1.1 degrees Celsius above the pre-industrial period and is likely to rise by 1.5 degrees Celsius between 2030 and 2052, according to a report by the UN Intergovernmental Panel on Climate Change (IPCC). This will irreversibly undermine the natural environment, ecological system, human health and all the other aspects, and turn into a serious impediment to the sustainable development process of mankind.
The 14th Five-Year Plan recently released by the Chinese government not only proposes to deeply implement the sustainable development strategy and improve the overall planning and coordination mechanism for ecological advancement but also makes it clear the need to develop an action plan for having CO2 emissions peak before 2030. As a key channel for resource allocations, the financial industry should play an important leading role in supporting industries to go green and low-carbon, as well as technological innovation, etc.
Southern Asset Management attaches great importance to the various negative impacts of emissions on the environment and officially signed the Climate Action 100+ in July 2020.） Climate Action 100+ is an investor initiative to ensure the world’s 161 largest corporate greenhouse gas emitters take necessary actions on climate change, make commitments on emission reduction, work out action plans, improve governance and strengthen climate-related financial disclosures.
Also, climate change risks may have an impact on investment portfolios and the stability of the global financial system. Southern Asset Management is already facilitating the assessment of physical and transition risks that listed companies face amid climate change under the framework of the Task Force on Climate-related Financial Disclosure (TCFD) and analyze portfolio risks under different scenarios.
While recognizing the risks possibly brought about by climate change to the financial system, we should also become aware of the policy-driven economic model shifts and potential investment opportunities during going-green and in a long-term low-carbon society. China has recently vowed to achieve carbon neutrality ahead of 2060. To realize this goal, a recent study released by the Institute of Climate Change and Sustainable Development (ICCSD) of Tsinghua University estimates that new investment in the energy system alone in the next 30 years should reach about RMB138 trillion, or more than 2.5% of annual GDP, which will boost related industries, including environmental protection, new energy and energy efficiency gain, over a long period of time.
In fact, the Southern Asset Management has already begun to plan for green transformation and sustainable development investment possibilities at a relatively early time. Moreover, this year, we have also forged a partnership with New Energy Nexus jointly promote clean energy applications and ESG investment concepts, hoping to accelerate the process of clean energy replacement and address climate change risks.
In addition to focusing on climate change and environmental protection issues, Southern Asset Management is also exploring and practicing the localization and integration of ESG. Specifically, on the principles of internationalization, specialization and differentiation, we strive to put ESG into practice in the following five aspects.
First, improving the governance structure of ESG. ESG philosophy involves all aspects of our company, including resource input, process and policy building, assessment and incentives. Our company has established an ESG Executive Committee and four execute groups. The CEO serves as the leader of the ESG Executive Committee. The four senior executives promote the implementation of ESG in the business lines of equity, fixed income, products, and risk control.
Second, promoting the integration of ESG investing. Southern Asset Management has achieved ESG rating coverage for 3,963 listed companies and 3,479 credit debt subjects, a total of 7,442 investment objects. At the same time, a data-sharing platform for researchers and fund managers was established internally to enable fund managers to fully consider relevant ESG information throughout the investment decision-making process.
Third, post-investment management. Through active engage with the management teams of listed companies, we could advocate and urge them to pay more attention to ESG issues in their daily operations and management.
Fourth, building a full range of ESG product line. Southern Asset Management launched the first ESG-themed equity fund in December 2019 and is now actively developing other related fund products.
Fifth, remaining committed to offering a leading ESG brand. For a long time, Southern Asset Management has actively participated in media and association activities, spreading and sharing ESG investing philosophy and calling on the whole industry to jointly act upon this philosophy in practice.
On this occasion, I’d like to share with you the results of our empirical analysis since you are interested in the effectiveness of ESG investing. After the rating coverage of and investment return research on our company’s funds, we have found a high correlation between the long-term yield performance of fund products and the ESG rating of the investment objects: the higher the ESG rating of portfolio, the better the long-term performance of the funds. From a medium- to long-term perspective, high-quality enterprises with excellent ESG performance not only excel in financial performance but also boast stronger resilience and long-term growth potential. This research shows that ESG investing can not only prioritize client interests but also drive sustainable development of society.
Putting ESG investing into practice requires a combination of knowledge and unremitting efforts. We hope more institutions will join us in making ESG investing a positive driving force for good ecology, harmonious society, and economic development.