With China’s increasing importance in the global economy, the country is at an inflection point in its broad adoption of ESG principles and stewardship activities. This quarter, we returned to China for the second time in 2018 to meet with portfolio companies and attended the Asian Corporate Governance Association (ACGA) annual conference. Through meetings with companies, regulators and stock exchanges, and local institutional investors, we gauged key driving forces behind the recent ESG momentum in China, identified challenges, and areas where active investors could play a role to further develop the ESG ecosystem.
ESG adoption in China is primarily driven by regulations, less so by investors
First significant updates to Corporate Governance (CG) Code in sixteen years
ESG Disclosure is still voluntary in mainland China, but environmental disclosure will be required by 2020 for all listed companies
There is a lack of strategic integration of ESG issues at C-Suite level management discussions, and ESG efforts are primarily compliance-driven
ESG data is exponentially expanding, but quality is mixed; independent judgment is key
Party Committees, required under the new CG Code for State-Owned Enterprises, raise concerns about companies’ decision-making processes and their Boards of Directors
Active investors need to engage with regulators and companies to share best practices to further build out the ESG ecosystem in China