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Decennial Report on the Responsible Investment in China Jointly Issued By JOINTLY ISSUED BY SUPPORTED BY DECENNIAL REPORT ON THE RESPONSIBLE INVESTMENT IN CHINA JOINTLY ISSUED BY SUPPORTED BY DECENNIAL REPORT ON THE RESPONSIBLE INVESTMENT IN CHINA On the Cusp of a Responsible Investment Boom -- Foreword to the Decennial Report on Responsible Investment in China Guo Peiyuan / Chairman, SynTao Green Finance; Chairman, China Social Investment Forum I started researching responsible investment around 2003, at a time when the notion of corpo- rate social responsibility was still alien to most, much less socially responsible investing. But I was convinced, by the progress of responsible investment in Europe and the United States, that the rise of a similar movement in China was only a matter of time. Based on this belief, I started SynTao in 2005 with Wayne Silby, founder of the Calvert Funds, and later SynTao Green Finance and China Social Investment Forum (China SIF), thus helping jumpstart China’s foray into responsible investment. We made much progress in the decade that followed, including ESG2 Referring to Environ- mental, Social and Governance.] rating of listed companies, environmental risk training for commercial banks, green bonds certification, organization of the China SIF annual conference, and creation of the China ESG Development Index (ESGDI). We believed responsible invest- ment was the future, and we were preparing for its eventual arrival. And arrive it did. In 2015, the China Society for Finance and Banking established the Green Finance Committee to promote policy research. In 2016, seven government agencies includ- ing the People’s Bank of China jointly released the Guidance on Building the Green Finance System. In 2017, the State Council approved the creation of green finance pilot zones in five provinces. And just recently, the Shanghai Stock Exchange announced that it had become the first domestic exchange to join the UN Sustainable Stock Exchange Initiative. As the movement picked up momentum, the market responded. There was an influx of fund and index products based on the theme of responsible investment; China became the largest green bond market in terms of issue volume; and the outstanding balance of green loans from commercial banks grew steadily. With this change come many opportunities and even more things to be done. Fund companies and index companies will develop additional responsible investment products, which will high- light the need for more ESG ratings and other relevant data. These data will mainly come from the ESG information released by listed companies, the quality of which hinges to a large extent on the rigorousness of regulators’ policies. The long and short of this is that responsible investment is an ecosystem; and its success depends on the joint efforts of everyone involved, that includes regulators, listed companies, institutional and individual investors, market inter- mediaries, and data providers. We and Aegon-Industrial Fund are co-publishing this Decennial Report with the hope of presenting a panoramic view of the development of responsible investment in China over the past decade. At the same time, standing on the cusp of this transformative period, we seek to reflect on, foresee, and illustrate the future of responsible investment in China, including that of the responsible investors. We hope all market players will draw something useful out of this report, and thrive as responsible investment takes off in China. 1 Referring to Environmental, Social and Governance. Decennial Report on Responsible Investment in China 1 / Introduction 01 2 / Development Overview 03 2.1 / The Rise of Responsible Investment 05 Overseas Development: PRI Over the Past Decade Overseas Development: ESG-Related Legislative Efforts in Europe 2.2 / Responsible Investment Taking Off in China 07 Survey Observations: 63.2% of Respondents Have Some Understanding of Responsible Investment Policies 2.3 / Investors’ Concerns 09 Survey Observations: General Public, Quasi-High Net Worth Individuals, and Institutional Investors’ Attitude toward Responsible Investment 2.3.1 / Individual Investors 11 Survey Observations: Individual Investors: No Sacrifice of Financial Returns is a Major Precondition for Social Responsibility Considerations Survey Observations: Lowering Investment Risk is the Primary Motivation for Individual Investors to Consider Social Responsibility Factors Survey Observations: Positive Correlation Between Investment Amount, Long-Term Thinking, and Interest toward Responsible Investment Survey Observations: Older, Well-Educated Men Are Most Likely to Think Social Responsibility 2.3.2 / Institutional Investors and Asset Management Agencies 15 Survey Observations: Financial Institutions Seek to Create Value for the Society through Responsible Investment, and Are the Most Concerned about Corporate Governance Topics Overseas Development: Recent Development of Large Pension Funds in Responsible Investment 2.4 / Improving Information Infrastructures 16 2.4.1 / Disclosure of Corporate Social Responsibility (CSR) Information 16 Domestic Development: Disclosure Rate of CSR Reports from CSI 100 Index Constituents Overseas Development: Integrated Reporting Overseas Development: MSCI ESG Indices and ESG Rating System CONTENTS 3 / Experiences from Past Decade 23 3.1 / Strategies and Performance of Responsible Investment Funds 25 Domestic Development: Investment Strategy of AEGON-Industrial (AIFMC) Social Responsibility Hybrid Securities Investment Fund Overseas Development: Morningstar Investigates How Well American Sustainable Funds Uphold their Commitment 3.2 / Strategies and Performance of Responsible Investment Stock Indices 27 3.3 / Responsible Investment Strategies 30 4 / The Road Ahead 33 4.1 / Increasing Importance of ESG Performance 35 4.2 / Development and Innovation by Public Funds 35 Survey Observations: Investors are More Concerned about Social and Environmental Issues 4.3 / Enhanced Disclosure of ESG Information 36 4.4 / A Responsible Investment Ecosystem 37 Appendix 1: List of Responsible Investment Funds 39 Appendix 2: List of Responsible Investment Stock Indices 42 Appendix 3: Public Survey Questions and Responses 45 Decennial Report on Responsible Investment in China Socially responsible investing, or responsible investment, takes environmental, social, and other While responsible investment in China is still in its formative years, the country’s ever pressing factors into account in a variety of ways during investment evaluation and decision-making, in addi- environmental and social issues as well as the vigorous governmental support for green finance tion to mere financial returns. In its narrow sense, responsible investment is focused on the capital have made ESG and other non-financial factors increasingly relevant to discussions on investment markets, referring especially to fund companies’ selection of securities based on the environmental risks and financial returns. Geographically, the most active regions of responsible investment are and social performance of listed companies. In its broad sense, responsible investment covers a Europe, the United States, and Canada, as they collectively account for 95.5% of the ESG assets much wider scope, such as venture capital that seeks positive social impacts, environmental risk globally. In absolute terms, the three regions account for $12.04 trillion, $8.72 trillion, and $1.09 management in banks, carbon market and carbon trading, and inclusive finance which supports trillion of ESG assets, which represent 53%, 22%, and 38% of the professionally managed assets in small and micro businesses and low-income groups. A more recent example – as well as a highly these three regions, respectively.1Given these numbers, it’s reasonable to expect responsible active area of policy development – is green finance, which encompasses economic activities that investment to have a similarly bright outlook in China. support environmental improvement, climate change adaptations, and resource conservation and efficiency, and provides the financial tools and policies for greening the Chinese economy. This report, seeking to retrace the progress of responsible investment in China in the past decade and to provide valuable lessons for developed countries, will first review the market landscape for the Responsible investment not only supplies the means for creating environmental and social values, development of responsible investment, and then analyze the strategies for creating public respon- but also runs on a well-developed market logic. From the creation of the world’s first responsible sible investment funds and sustainability indices and their performances, and finally provide a investment stock index in the 1990s, to the launch of China’s first responsible investment fund forecast on China’s growing responsible investment market. about ten years ago, responsible investment has gradually become a mainstream investment strat- egy due to its ability to reduce investment risks and generate respectable returns in the long run. According to the Global Sustainable Investment Alliance (GSIA), $22.89 trillion of assets were being The project group for this report conducted a survey to better understand the public’s attitudes professionally managed under environmental, social and governance (ESG) considerations as of toward responsible investment. Between June and July 2017, an electronic survey comprising 16 the start of 2016, accounting for 26% of all professionally managed assets worldwide and repre- questions was published on
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