Each week Emerging Markets ESG publishes an interview entitled, “Five Questions about SRI.” The interview features a practitioner’s insights about SRI in emerging markets and through Emerging Markets ESG shares this expertise with a wide global audience. The goals of Five Questions about SRI are fourfold:
- To collect a catalogue of examples of SRI in practice in emerging markets;
- To raise awareness about SRI in emerging markets;
- To reflect on what SRI in emerging markets means to practitioners; and
- To enable SRI practitioners in emerging markets to network with peers around the world.
This week’s interview is with Dr. Guo Peiyuan, Co-founder and General Manager, SynTao, Beijing, China.
SynTao is a leading consultancy promoting sustainability and responsibility in the Asian region. It provides corporate social responsibility (CSR) and socially responsible investment (SRI) related consulting, research and training services. It is based in Beijing, China. SynTao has developed successful partnerships with a wide range of regional and overseas organizations such as international and national corporations, government agencies, NGOs, media and academic institutions. SynTao’s global sustainability outlook, local expertise and extensive partnership network offer clients reliable support in strategy development, project management and competitiveness enhancement. Its services include: consultancy – sustainability strategy and management, CSR activity planning and execution, sustainability disclosure and report writing and organizational cultural assessment; research – environmental, social and governance (ESG) screening and research, corporate sustainability benchmarking and ranking and stakeholder analysis and engagement; and training – certified training partner of Global Reporting Initiative (GRI), sustainability strategy development and sustainability disclosure. Dr. Guo Peiyuan is co-founder and general manager of SynTao. As one of China’s renowned experts in CSR and SRI, he has been closely involved in responsible management development. He possesses a rich experience in consulting, research and training services, he is a highly appreciated speaker at international conferences and a selection committee member for a number of prestigious CSR awards. He holds a Ph.D. in Management from Tsinghua University in China.
Emerging Markets ESG: How would you define socially responsible investment (SRI)?
Dr. Guo Peiyuan: We think SRI can be interpreted in a narrow and a broader sense. The narrow sense of SRI primarily concentrates on the capital market and screens the environmental and social performance of public companies to exclude risks (negative or positive screening). In both Europe and the United States, there are quite a number of funds and other investors that have incorporated social responsibility principles into their investment requirements. The broader sense of SRI covers a wider range of topics and promotes sustainability leadership, including investments in green venture capital, green banking, carbon exchange market, microcredit and micro-credit insurance, etc.
In emerging markets like China, we see more development of SRI in the broader sense. SRI in the narrow sense is still a very niche market.
Emerging Markets ESG: What distinguishes SRI from mainstream investment?
Dr. Guo Peiyuan: We think, in general, that a SRI fund is a kind of investment style. Such investment style indicates that the investment orientation is relatively more stable and less risky (taking responsibility and ethical risk into account), and targets economic structure transformation in the middle and long term (taking low-carbon and environmental protection into consideration). Hence, these products usually share the characteristics of risk-defensive and excellent performance in the long run, which has been seen by international practices.
Emerging Markets ESG: Which extra-financial theme – environmental, social or governance – is the most challenging for companies in China to manage?
Dr. Guo Peiyuan: SynTao conducted a research in 2011 analyzing impacts of ESG issues on Chinese companies. The results showed that China’s most pressing corporate ESG risks were within the social issues category. The largest share of accidents was generated by occupational health and safety incidents (over 40 percent of the total accidents that SynTao identified in the past two years). The most common workplace accidents include fires, building collapses, explosions, sometimes caused by spills or leaks of flammable materials, and chemical accidents such as poisoning.
The top five ESG issues were occupational health and safety, corruption and fraud, environment and industrial hazard, business ethics and product safety.
Emerging Markets ESG: Which extra-financial theme – environmental, social or governance – is the most challenging for investors in Chinese companies to analyze?
Dr. Guo Peiyuan: We think all ESG issues are challenging for investors in Chinese companies to analyze.
For environmental and social issues, the most challenging part is disclosure. Though the number of CSR reports keeps increasing in China, companies still hesitate to disclose useful information on environmental and social aspects. Without material and quantitative performance data, investors and analysts will not be able to do reliable research on Chinese companies.
For governance issues, disclosure is usually good. Investors and analysts can easily access such information (governance structure, names and background of corporate leadership, etc.) in the annual reports of Chinese companies. But the most challenging part is how to make sure the governance structure is working, and is working well. This requires investors and analysts to maintain close connection and regular engagement with Chinese companies.
Emerging Markets ESG: Are Chinese institutional investors engaged in SRI? Are there any Chinese banks, investment funds or pension funds which focus on SRI?
Dr. Guo Peiyuan: Decades after SRI practices developed in Europe and the United States, the concept has now also arrived in the Chinese markets. In 2006, the Bank of China Investment Management (BOCIM) launched the first fund that was related to SRI elements. It strived for investors’ capital appreciation in the middle and long-term by predominately investing in listed companies that showed some signs of sustainability awareness. Two years later, in 2008, AEGON-Industrial launched China’s first truly SRI fund. This fund announced that it would pursue realization of current yield and appreciation of long-term capital, simultaneously emphasizing the corporation’s compliance with sustainable, legal and ethical principles. This fund turned out to be a great success. Following the example of the AEGON-Industrial Fund, CCB Principal Asset Management and China Universal Asset Management also quickly issued socially responsible funds.
In addition to the funds above that are grouped under social responsibility finance products, there are also some funds categorized under the greater domain of responsible investment, such as for instance low-carbon and environmental protection funds: HSBC Low Carbon Pioneer Fund, HFT Low Carbon Index Fund, Fullgoal Low Carbon Environmentally Friendly Fund, Zhonghai Green New Energy Fund, etc.
China’s pension fund and sovereign fund have no clear strategy on SRI yet.
For a more detailed overview of SRI in China, please read the article entitled, “The Growth of Responsible Investing in China,” published on the SynTao’s website on Auust 29, 2012.