Post on 06-May-2015
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Sustainable Investment in China 28 May 2010
Brief History of
Modern China’s Financial Market
Three Phases of China’s Financial Market
Phase I (1979-1989)
Establishment of Banking Market
Phase II (1990-1997)
Establishment ofCapital Market
Phase III (1998-Present)
Establishment of Legal System
1949
People’s Bank of China (PBOC), served as both the central bank and a commercial bank
1979
Four state owned banks established and took over PBOC’s commercial business
1982
Foreign banks were permitted to set up branch offices in SEZ 1985
Govn’t legalized the status of foreign banks
The Shanghai Stock Exchange, and Shenzhen Stock Exchange have been formed
1990
1992
To consolidated the supervision of capital markets, China Securities Regulatory Commission was set up
1998 The promulgation of the Securities Law formalized the legal status of capital markets in economy.
2005
Govn’t initiated reform that made non-tradable shares tradable, aligning the interests of large shareholders with that of outside shareholders
China established China Insurance Regulatory Commission
China established China Banking Regulatory Commission.
2003
Development with Chinese Characteristics
• Young but growing rapidly– Banking market has 30 years history, but
Total outstanding loans reached USD6.7 trillion (2009) ICBC became the world’s largest bank in terms of market capitalization, and
the most profitable lender (2009)– Securities market has 20 years history, but
Equity market capitalization has achieved USD 3trillion (2007) Shanghai Exchange has overtaken Hong Kong in terms of market
capitalization, became the 6th largest exchange in the world– Legal structure has 10 years history, but
China have over 160,000 governmental officials working in this area (2008)
Outcome: Less advanced infrastructure
• Not only regulator but also shareholder– Govn’t ownership is common (33% public shares were state owned in
2005)
Outcome: Top-down approach
Sustainable Investment in China
Report: Sustainable Investment in China 2009
Objectives
• Investigate current state of sustainable investment market in China
• Develop recommendations to stimulate this market
Scope
• Investment in public equity & private equity in mainland China
• A share market + ADRs
Research methodology
• Desktop research
• Around 100 interview with government agencies, institutional investors, asset managers, equity research, academic and civil society.
Source: EuroSIF. “SRI Study 2008.”
Sustainable Investment Supply Chain
Financial market regulators
Securities exchanges
Insurance company reserve funds
Mutual funds
Pension funds
Endowments & foundations
Asset ManagersBuy-side research
Listed equitiesAlternatives (Private equity,
real estate, etc.)
Sell-analysts (broker/dealers)
Independent research
Stock ownership services e.g. proxy voting
Rating agencies & sustainable
indexes
C O M P A N I E S
High Net Worth Individuals
Voluntary principles& learning network
Investment Supply Chain Mapping
Financial market regulators
Securities exchanges
Insurance company reserve funds
Mutual fundsPension
fundsQFIIs
Asset ManagersBuy-side research
Listed equitiesAlternatives (PE)
Sell-analysts (broker/dealers)
Independent research
Stock ownership services e.g. proxy voting
Rating agencies
C O M P A N I E S
Civil Society
Tsing Capital
NSSF
STB
Norwegian Pension
Fund
Industrial FundChina Reinsurance
SSE-SRI
CCB-Principal
Green IPO Policy & CSR
Reporting
Key Findings
• Sustainable Investment (SI) is a nascent market in China.
– SI is still a niche play rather than mainstream strategy
– SI supply chain has not formed yet, and the market currently remain undeveloped
• Chinese homegrown SI mythologies primarily focuses on compliance and governance.
• The current SI development is early signs of a growing market in China.
BSR Overview
We work with business to create a just and sustainable world
We have worked in more than 70 countries from six offices in Asia, Europe, and North America
San FranciscoBeijingGuangzhouHong KongNew YorkParisWashington DC
Languages & Dialects Spoken:
CantoneseDutchEnglishFrenchGermanGuaraniHindiItalian
JapaneseKannadaLaoMandarinPortugueseRussianShona
SpanishSwedishTagalogTaiwaneseThaiUrduVietnamese
The BSR Approach
MemberNetwork
Cross-sector Collaboration
ConsultingServices
Research & Innovation
Member Network: More than 250 BSR member companies
Industry Focus Areas
Agriculture, Food, and Beverage
Consumer Products
Energy
Financial Services
Information and Communications Technology
Media and Entertainment
Mining and Minerals
Pharmaceuticals and Biotechnology
Transportation and Logistics
Travel and Tourism
Sample member companies• The Allstate Corporation • American Express Company • ANZ Banking Group• Barclays Bank PLC• The Bank of New York Mellon • Calvert Group, Ltd. • Citigroup Inc. • General Electric Company • Kohlberg Kravis Roberts & Co.• The Redwoods Group• Risk Metrics Group, Inc.• Rockefeller & Company • Standard & Poor’s• State Street Corporation• Sumitomo Trust and Banking Co.• Tsing Capital • Visa USA, Inc. • Wells Fargo & Company
ESG Services in China
Strategic Focuses:
Awareness Raising
ESG News Screening
ESG Engagement
BSR works with financial institutions to develop sustainable business solutions, and customized support
Awareness Raising
What We Do:– Investor workshops/network– Sustainable Investment in
China Quarterly Newsletter with support from UN PRI
– Independent research: Word from The Street” Issue
Briefs on investor perspectives on Toxicity and Health (Apr 08) and Water (May 08)
ESG: Moving to Mainstream Investing? (Aug 08)
ESG in the Mainstream: The Role for Companies and Investors in Environmental, Social, and Governance Integration (Sep 09)
Sustainable Investment in China 2009 (Oct 09)
Key Learning:– It’s a long term process
Mainstream domestic investors have not yet moved from the “what” and “why” to the “how”
– Confusion over terminology slows market uptake
“Without a clear definition, people would tend to ask what SI is and why it is important; and the government would be skeptical to promote it in China” – a government official
ESG News Screening
• What We Do:– Screen and classification of ESG
news, and providing regular and flash reports
– What we look at:
• Key Learning:– Negative news are limited and
do disappear sometimes
– The Chinese govn’t is raising the bar on ESG regulation.
In the past 6 months, central govn’t introduced 16 ESG-related regulations and laws, making extensive efforts to increase level of detail on requirements and remove loopholes in ESG legislation, which will make it increasingly difficult for companies to commit violations in these areas.
Environment: Environmental management and policies :standards, polluting control, waste & recycling, etc Environmental legal compliance Ecosystem impact Climate Change: awareness and reporting, carbon emission, energy efficiency, green products
Social: Labor management and standards Healthy and Safety compliance Human rights Community relationship and philanthropy
Governance: Commitment and standards on governance Minority shareholder rights Transparency and disclosure Control environment and process Business integrity
ESG Engagement
• What We Do: • Key learning:– Letting the candidate
companies understand the consequences are more important than providing them solutions
1
2
3
1 Learning of client responsible policy and objectives
Conduction of ESG assessment and identification of priority issues
• Desktop review
• Field-visits and interviews
• ESG analysis and issue prioritization
• Documentation and reports
Engagement with candidates
• Preparation proposals
• Partnership with stakeholders
• Initiation of engagement
Thank you!