Towards Better Integration of ESG Consistent with Investor Obligations and Duties in China

27 March 2018

 

Beijing, 28 March 2018

The United Nations Environment Finance Initiative (UNEP FI), the Principles for Responsible Investment (PRI), The Generation Foundation, and the International Institute of Green Finance (IIGF) today published the report – Investor Duties and ESG Integration in China, available in English and Chinese 中文.

Building on the recent achievements of the national Green Finance initiative in China, the report discusses the development of an investment and regulatory environment that promotes consideration of financially material environmental, social and governance (ESG) issues, consistent with investor obligations and duties.

Domestic and international capital markets are expected to play a significant role in financing China’s green transformation and growth. Sitting at the top of the investment chain, asset owners, and specifically State pension funds, are of critical importance to this process. Through their investment practices and through the signals they send to the wider investment market, they have the ability to cascade and drive green and sustainable capital through the investment chain.

Aligning investment practice with sustainability goals will be key to establishing a green financial system. The report considers how responsible investment regulations can contribute to achieving China’s long-term vision of balanced, inclusive and sustainable development.

The central recommendation of the report is that investors should integrate ESG issues in their investment decision-making processes as part of fulfilling their duties towards their beneficiaries and to support the development of China’s Ecological Civilisation. Investor duties should reflect and align with the Chinese government’s Guidelines for Establishing a Green Financial System (GEGFS).

Based on analysis of interviews with key stakeholders in China and the stated priorities and objectives of the Chinese government, the report makes recommendations in five areas – policy guidance, pension regulatory guidance, corporate disclosure, standardised labels, and investor education:

  1. Publishing guidance on green and sustainable investment that articulates how institutional investors and their investment managers should implement the GEGFS;
  2. Introducing regulation for pension funds to integrate ESG issues, encourage high standards in investee companies and disclose on ESG practices and performance;
  3. Ensuring and monitoring the effectiveness of the mandatory environmental disclosure framework for companies, and aligning with international disclosure standards for ESG issues;
  4. Expanding a standardised offering of green and sustainable investment products and comprehensive tools to support their market uptake; and
  5. Supporting investor education and ESG investment research.

Acknowledging the significant progress in China over the past decade in green and sustainable finance, the recommendations aim to accelerate the rate at which China’s investors align their practices with the goals of green finance and sustainable development.

Al Gore, former US Vice President and Chairman of Generation Investment Management, said: “This report outlines important recommendations for creating a more sustainable financial system in China. As part of our Fiduciary Duty in the 21st Century project, the work of the Generation Foundation, along with the PRI and UNEP FI, is helping investors everywhere consider what drives value in investment decision making, including important ESG considerations”.

“This project, driven by the progress of green finance and a rising interest in ESG integration in China, builds knowledge and shares experience among policy makers and investors on how integration of material ESG factors contributes to long-term sustainability,” said Eric Usher, Head of UNEP FI.

“China is emerging as an unequivocal driver of global climate change mitigation, sustainability and green finance. Their bold efforts at addressing climate change, as well as transforming the country’s economic structure, are leading the global agenda,” noted Fiona Reynolds, CEO of the Principles for Responsible Investment.

“As part of aligning financial markets with China’s development goals, asset managers are increasingly integrating ESG factors into their investment decisions,” explained Wang Yao, director general of the IIGF.

“The comprehensive approach of this report is an important contribution to this agenda, providing tangible recommendations within guidance, regulation, disclosure, standards, and investor education.”

 

The project is part of the from the PRI, UNEP FI and The Generation Foundation to clarify investors’ obligations and duties at national and international levels in relation to the integration of ESG issues in investment practice and decision-making. The programme has delivered so far eight country studies, extended the research to six Asian markets, and engaged with the European Commission High Level Expert Group on Sustainable Finance.

 

For more information, Margarita Pirovska.