Ping An Insurance (Group) Company of China issued “ESG in China,” a report outlining the current state of disclosure and ESG integration among Chinese companies. The report notes that while the situation has been improving, Chinese corporates continue to lag behind their developed market peers on ESG monitoring and disclosure.
Ping An is one of the largest financial service companies in the world. The company has over 204 million retail customers and 534 million Internet users, and ranked 29th on the 2019 Fortune Global 500 list.
Investors are increasingly conscious of the impact their investment allocations can have on sustainability, creating a growing demand for clear, relevant and consistent ESG data from corporations. Additionally, Chinese regulators are expected to detail mandatory ESG disclosure requirements this year, pressuring companies to develop better information gathering, measuring and reporting processes. Ping An’s report outlines several of the challenges China’s companies face in meeting this evolving challenge, with a number of proposals to address them.
First, Ping An points out that Chinese companies lag behind developed market corporates on ESG disclosure, with 85% of Chinese Securities Index (CSI) 300 issuing annual ESG reports, but only 12% issuing audited reports. Ping An notes that the scope and quality of information included in these companies’ reports rank the lowest among companies that are part of major stock market indices, using an analysis of the average Bloomberg ESG disclosure scores for comparison.
The Ping An report notes that most companies are lacking processes for collecting high quality ESG data, relying on manual collection processes across departments, instead of using streamlined internal data collection procedures for robust, timely and consistent information gathering. Additionally, companies have been reporting ESG data annually to meet regulatory requirements, but tend not to perform monitoring and benchmarking with their industry peers, and do not generate actionable insights to improve their performance.
One of the primary problems pointed out in the report, is a lack of consistent guidelines and requirements from a variety of regulators and stock exchanges, creating confusion for companies regarding what information they need to monitor and collect, and even what constitutes good performance. The report found that CSI300 Index companies must follow a set of nine different guidelines, with each providing dramatically different assessments of performance for the companies. Creating even more mixed signals, the report discovered very low correlations in the findings of 4 major ESG ratings providers in their evaluations of companies’ performance.
To this end, the Ping An report proposes that Mainland China regulators develop unified guidelines and converge on a set of the most material indicators that companies must disclose. The report recommends that regulators and stock exchanges should build on guidelines and recommendations from international organizations such as the Global Reporting Initiative (GRI) and the UN-supported Principles for Responsible Investment (PRI).
Finally, the report calls for action on the part of investors. Ping An urges investors to integrate ESG information into their investment processes, develop ESG investment tools, and exert their shareholder influence to encourage better ESG disclosures from Chinese companies. The report provides a guideline to investors for implementing ESG investment strategies, starting with simple processes such as positive and negative screening, moving on to deeper analysis of ESG ratings and data, and ultimately fully integrating ESG factors into their own valuation models, performing their own targeted ESG research, and more fully engaging with companies on ESG issues.
Click here for Ping An’s full report