In recent years, ESG Investment with the Environmental, Social and Governancereporting at its core has gradually become a burgeoning investment strategy, and kept growing in many capital markets. Compared with most western countries, China has a late start developing its ESG Investment. Facing such a variety ofrisks and tough challenges, it is an important task for ESG development in this new era to figure out how to provide investors with more accurate, comprehensive and clearer non-financial assessment information, thereby making them get used to incorporating ESG into their investment decision.
Circular Economy
The emergence, development and maturity of ESG Investment in western societies have been through a lengthy process, from Public Campaign to Green Consumption, to further achieving Green Production, and finally to conceiving the concept of Green Finance. Notably, a number of well-known innovative ideas regarding environmental protection and milestones sprang up in this period, including Circular Economy, Life Cycle Carbon Emissions Assessment, Sustainable Development Goals, and Principles for Responsible Investment. With the rising globalisation in the realms of society, economy, technology and so on, China will keep adapting its industry of ESG Investment to the international practice, effectively taking advantage of the excellent ESG management system and framework, and eventually bringing the long-term and stable economic, social and ecological benefits to stakeholders such as enterprises, investors, governments, and regulators.
Hong Kong Exchanges and Clearing Limited published the Consultation Conclusions on the Review of the Environmental, Social and Governance (ESG) Reporting Guide (Main Board,Appendix 27 and GEM, Appendix 20) in 2015, requiring all listed companies in Hong Kong to publish their own ESG reports with financial years commencing on or after 1 January 2016. It also required that all listed companies should upgrade the specific ESG information (Key Performance Indicators in the Environmental Subject Area
and other descriptions in terms of Environmental and Social policies and practices) to the level of ‘Comply or explain’. Stepping into the year 2018, implementing a more comprehensive and high-quality ESG reporting system and report presentation is an inexorable trend across all industries in light of the increasingly mature ESG market, enhancing cognition of listed companies towards ESG Investment, and continuous amplification of the positive correlation between corporate ESG and financial performance. To the best of my knowledge, the following core principles should be applied to both an outstanding ESG evaluation system and report:
1.A systematic prioritisation on ESG issues that become sufficiently important to investors and other stakeholders through materiality assessment matrix;
2.Quantitative analysis of Key Performance Indicators;
3.The Accuracy of ESG performance data;
4.Completeness of the information from both positive and negative side to avoid any adverse influence upon investors’ judgement;
5.Consistent methodology on calculation and information disclosure;
6.Explicit and balanced layout of report.
The six points above are the basic principles for the presentation of a perfect and effective ESG report. Meanwhile, they are also the foundation to make sure that the entire assessment process and result could practically provide recommendations and guidance to investors in the final decision-making. Notwithstanding that, it would be simplistic if we acknowledge that the core value of a ESG report is to bring investors convenience or purely meet regulatory requirements. Rather, it should be reckoned as a catalyst boosting the corporate sustainable development and genuinely accomplishing the goal that the enterprise thrives in every aspect harmoniously including operation, investment, innovation, environmental protection, and social responsibility, ect.
Therefore, to pursue the integrated corporate sustainable development based on 6 basic principles, as far as I am concerned, a transparent and professional ESG assessment methodology (a) and customised ESG service package (b) catering to diverse operating strategies from different companies are the developing prospect and irresistible trend of the international ESG future market. GCESG has formulated a set of standard ESG assessment and reporting diagram according to the data analysis on the overall ESG performance of over 40 listed companies in the past two years. This diagram not only applies to the listed companies in all 11 industries in Hong Kong, but more importantly, could intelligentise the ESG reporting service, digitalise the corporate sustainable development goals, and crystalise investor’s expected return in an effective way. With such transparent and systematic ESG assessment diagram, a sustainable, resilient and reliable business future in constant pursuit of excellence would never be a fantasy for the enterprise. Considering enterprise’s market share, development strategy, operation pattern and other factors, GCESG will provide a unique service package that would satisfy the demand of different enterprises. For instance, the Gold Package in the list can evaluate the ESG performance of companies, of which the business segments are relatively simple, whereas for companies that have broad operating scope and complicated business model, the Master Package is better to showcase their ESG level from diverse perspectives. Sankey Diagram (c), for example, could help enterprise visualise its carbone missions and emissions scope in the category of use of resources, business segments, geographical location and other aspects during the past years within the defined system boundaries.
GCESG workflow
GCESG service packages
Sankey Diagram of carbon emissions
The 13th Five-year Plan clearly outlined the establishment and development of Green Financial System, Green Debt, Green Bond, and Eco-Development Fund. Undoubtedly, the growth of Green Finance necessitates the participation and collaboration of more ‘Green’ investors. The essential question under Chinese Green Finance conditions, therefore, would be how to formulate a standing investment strategy with effective ESG management systems. By our relentless exploration and innovation, we hope to spare no effort to set up a new framework for ESG reporting, facilitate the fast growth of ESG industry, and accomplish the successful transition towards Green Economy in China as soon as possible under the Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era.
