White Paper on China ESG Practices
The International Capital Market Association (ICMA) and China Central Depository and Clearing (CCDC) jointly release a white paper on China ESG practice, summarizing the current development of China’s ESG from three perspectives: regulation policy, ESG practices by enterprises and ESG practices in financial markets.
China’s ESG Regulation Policy
In 2016, China issued the Guidelines on Building a Green Financial System, putting forward the concept of green financial system for the first time. Since then, regulatory authorities and industry associations have formulated a number of relevant policies involving enterprises, financial institutions and financial instruments with reference to international ESG regulations.
In terms of bank loans, the CSRC issued green credit guidelines in 2012, requiring banks to actively promote green credit and strengthen support for low-carbon economy. In 2022, the CBRC issued the green finance guidelines, which proposed to incorporate ESG into the business process and risk management system for the first time.
In terms of asset management, the Fund Industry Association issued green investment guidelines in 2018 to encourage fund companies to develop green investment and use green standards to screen investment targets. In 2022, the Green Bond Standards Committee, based on ICMA’s green bond principles, issued the China Green Bond Principles, clarified the definition of green bonds, and required that all raised funds be used for green projects.
ESG Practices by Enterprises
ICMA and CCDC investigated ESG information disclosure and actual performance of more than 8000 enterprises (more than 5000 bond issuers and 4000 listed companies), and obtained the current status of ESG practice.
In terms of ESG information disclosure, 19% of enterprises actively disclosed ESG reports in 2021, of which the disclosure ratio of listed companies (28%) is higher than that of bond issuers (16%). Among the types of ESG reports, more than 80% are named by social responsibility reports, mainly disclosing environmental and social aspects. The content related to corporate governance is mainly included in the annual report.
ESG disclosure of large enterprises accounts for a higher proportion. The ESG disclosure ratio of listed companies with a market value of more than 100 billion yuan is more than 90%, while the ESG disclosure ratio of listed companies with a market value of less than 10 billion yuan is less than 30%.
In terms of the actual performance of ESG, the report finds that:
- Environmental: 18% of enterprises set carbon emission targets and measures;
- Social: 16% of enterprises carry out community construction, 17% of enterprises carry out supply chain social responsibility assessment, and 17% of enterprises carry out customer satisfaction survey;
- Governance: 29% of enterprises set up audit committees and 28% of enterprises set up compensation committees;
ESG Practices in Financial Markets
The ESG practice in China’s financial market can be analyzed from three perspectives: investment practice, financial instruments and rating services.
In terms of investment practice, a total of 83 financial institutions have signed up to join the United Nations Principles for Responsible Investment, an increase of 66% over last year. There are 160 ESG public funds, with an asset scale of 400 billion yuan. There are more than 100 ESG wealth management products, with an asset scale of more than 60 billion yuan.
In terms of financial instruments, the cumulative issuance scale of China’s green bonds exceeded 1.7 trillion yuan, with an annual growth rate of about 25%. More than 200 carbon-neutral bonds were issued, with a scale of more than 300 billion yuan. In the future, China will continue to increase the issuance of transition bonds to mitigate climate change.
In terms of rating services, the current ESG rating agencies include financial institutions, ESG information providers, academic research institutions. They provide ESG indexes, ESG reports and ESG ratings for specific financial products. The international sustainable rating system is used for reference in the rating system.