Developments and commentary in and around the ESG investment space.

Local asset managers are building in-house ESG capabilities and launching sustainable investment products but investment uptake remains low, according to Cerulli’s latest assessment of China’s ESG appetite. The consultancy group says issues still revolve around poor understanding of ESG investment and lack of standardised practices.

China has made headway in recent years in developing ESG standards. In 2016, it published its Guidelines On Establishing The Green Financial System. Two national bodies for China's insurance and asset management sectors followed suite in 2018 by publishing guidance to help their industries integrate ESG principles. China A-shares being incorporated into MSCI indices for the first time in 2018 gave another boost to ESG awareness for listed companies wanting to attract investment and build a global brand.

Sewing seeds of awareness go back even further as both the Shanghai and Shenzhen Stock Exchanges have been encouraging ESG disclosure since 2006, Cerulli noted.

Nevertheless, the 2020 reality is that local managers are finding ESG products a hard sell to China's vast pool of retail investors because they are either not aware of ESG products or more concerned with returns.

As ESG becomes the all-singing market solution to solving global problems and the preferred risk management tool, ETFs and private capital vehicles are beginning to trickle into the Chinese marketplace. The consultancy reported that 47 ESG mutual funds and ETFs were created in China to June this year, reaching $7.3 billion in combined AuM. That is up by a third for the first half of 2020 but it is still a token amount of overall investment.

Cerulli says be patient
“With continued regulatory support, the gradual opening of domestic capital markets, and an increasing number of product launches by various asset management players, we see good prospects for China’s ESG integration journey in the long run,” said Ye Kangting, senior analyst with Cerulli.

 “However those wanting to cultivate ESG business in China "need to be patient," Kangting added.  "It takes time to raise awareness, understand asset owners’ expectations, improve ESG data quality, and examine various ESG incorporation methodologies to build trusted performance records for sustainable growth.”  

Ping An Insurance Group is one of only two asset owners in China to date that has commited to the Principles for Responsible Investment (PRI), Cerulli said. China’s state-run pension fund, the National Social Security Fund is also reportedly showing interest in ESG investing, which would set a strong domestic precedent.