Summer Summit

2021 China SIF Summer Summit | ESG Investment Strategies under Carbon Neutral Targets

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Update time : 2021-08-13 15:00:00
How can ESG investment strategies serve the double carbon targets and how do they incorporate climate risk factors? What are the current practices of financial institutions? What are the international developments? At the recently held China SIF Summer Summit, the participants discussed "ESG Investment Strategies under Carbon Neutral Targets". Ms. Grace Guan, Secretary General of China SIF and Deputy General Manager of SynTao Green Finance, moderated the panel discussion, and representatives from international and domestic financial institutions shared their views on ESG integration, zero carbon investment strategies and TCFD disclosure framework.

Moderator Grace Guan
After years of practice, leading international asset management institutions have made ESG principles the basis of their actions, analyzing and disclosing the risks and opportunities presented by climate change with the support of third-party data and external experts, while conducting independent research, developing product strategies, and providing customized investment solutions for clients, etc. Various domestic financial institutions have launched ESG practices. ESG financial products are one of the special features of the Chinese market practicing responsible investment. Driven by the 30-60 target, large financial groups have also started to make efforts to start a comprehensive ESG integration effort. Overall, ESG investment research and practice among Chinese financial institutions are rapidly evolving. TCFD (Climate Related Financial Disclosure) is increasingly being adopted by institutions to better identify, analyze and address the direct financial risks as well as opportunities arising from climate change, while covering the risks that arise when decisions are not aligned with climate objectives.
The following content is based on the actual transcripts of the guests' speeches.

Rob Neilson, Head of Product Strategy and Solutions at Invesco EMEA, IFI:

Rob stated that ESG integration is the foundation of Invesco's principles and actions. Invesco incorporates ESG considerations across all markets in the fixed income asset class. The research conducted by Invesco's credit analysts includes an ESG evaluation of each issuer and benchmarks it against its global peers. Environmental factors are the first to be included in the credit evaluation, with consideration for carbon, which has undergone significant change over the past 12 months. Invesco now anchors its portfolio with a carbon target that corresponds to a certain benchmark. Rob explains further, that, in terms of a global strategy for credit investment, Invesco hopes to reduce the portfolio's carbon footprint relative to the global credit bond market. Regarding the zero carbon goal, Invesco's focus is on investment direction aligned with the Paris Agreement, and on a zero carbon framework. And while it is important to understand the portfolio's carbon footprint (from the past), it is more important to see where it will be going in the future. It's not about how much emissions are reduced on day one, but about planning an overall path towards emissions reduction for the future portfolio.

Rob introduced that, in terms of ESG data, Invesco has both third-party, as well as independent researches. Currently, Invesco covers more than 1,700 issuers. The asset portfolio uses a tilted preference strategy, focusing on issuers whose ESG performance is above the global average; and optimizing the portfolio around carbon emissions and climate change solutions. Researches show that consumer demand trends are likely to change as Invesco moves into a more sustainable market. All of this hands-on work is very exciting and supports Invesco in better serving its clients from a research perspective; on the one hand, dedicated investors can customize ESG products based on their preferences; and on the other hand, Invesco also distributes ESG fixed income products to the market through mutual funds.

Panelist Rob Neilson

Invesco released its first climate report last year and is now preparing its second disclosure report under the guidance of the TCFD framework.

Rob also shared Invesco's practical experience in applying the TCFD guidelines for climate report disclosure. The benefits brought by the TCFD disclosure have allowed Invesco to better address decarbonization in its investment management. Invesco's experience is to integrate climate science with investment management, which requires new models and expertise to fully assess the impact of climate change on the business. Therefore, Invesco has brought in external experts to help prepare TCFD reports and to better monitor climate risks in the portfolio as well as in the investment process. Rob recommends investors to identify current gaps early, engage external experts and apply external expertise to help implement TCFD requirements as quickly and effectively as possible.

At the same time, one of the big challenges when implementing an ESG investment strategy is the availability of data. Rapidly changing markets and regional differences all add to the difficulty of obtaining data. Despite this real challenge, all should remain true to their goals and practice ESG investing in a pragmatic spirit and with as much transparency as possible.


Li  Xiao, Vice-President of ESG Business Dept., Huaxia Wealth Management Co., Ltd.:

Li Xiao introduced the development background and investment strategy of ESG financial products in detail. He believes that the background of ESG investment of Huaxia Wealth Management involves three aspects. Firstly, the ESG concept is closely related to China's sustainable development strategy in terms of the general environment. Incorporating ESG factors into the investment and financing decisions of financial institutions is a good practical exploration to promote high-quality economic and social development with the new development concept. Secondly, considering ESG factors can help avoid companies with high risks and potential "black swan" risks, achieving stable or even excessive returns of investment, and helping physical enterprises achieve carbon neutrality goals. Furthermore, as a signatory of PRI (Principles for Responsible Investment), Huaxia Wealth Management also hopes to build a brand through responsible investment, attract more people from the investment community to participate in responsible investment and promote the development of responsible investment in China.

Panelist Li Xiao

Li Xiao shared how the ESG strategy of financial products is built into the company's overall ESG full integration system. This integration system combines the complete process framework of investment through several major aspects such as product, investment, and research. It integrates ESG into the whole investment framework based on the dimensions of different assets such as stocks, bonds and funds, combined with ESG scoring, risk monitoring and other aspects. In terms of research, Huaxia Wealth Management continues to improve its independently developed ESG evaluation system by combining the actual performance and focuses of domestic companies.

In the panel  discussion, Li Xiao echoed Rob's views. The availability of data is a problem faced globally, which will affect the construction and application of ESG evaluation system by asset management institutions. For example, the ESG data of debt-issuing enterprises in the domestic market is relatively scarce at present, and financial institutions that mainly invest in fixed income will face certain challenges in carrying out ESG investment. He expressed that Huaxia Wealth Management, as the first subsidiary of a joint-stock bank registered in Beijing, will continue to build its ESG influence in the domestic asset management industry, spreading the ESG concept to all sectors of the society and at the same time, under the national strategic goal of carbon neutrality, trying to achieve green and low-carbon development transition. 


Dr. Tu Wubin, Member of the China Everbright Holdings' ESG Working Group:

Everbright Holdings is a leading alternative asset management company listed in Hong Kong, with over 20 years of PE investment/asset management experience and a current AUM of over HK$180 billion. Everbright Holdings promotes the "One, Four, Three" strategy, focusing on the core business of alternative asset management, and has incubated four industrial platforms focusing on key industries: China Aircraft Leasing (CALC), Everbright Jiabao (Anshi), Terminus and Everbright Senior Healthcare.

Dr. Tu explained that Everbright Holdings has been publishing social responsibility reports and ESG reports for 11 consecutive years since 2011, organizing a dedicated team from various departments of the company and hiring professional organizations to complete the company's annual ESG report. The company's annual report and ESG report have won several awards, including "Corporate Governance, CSR and Investor Relations Award" in 2016, "Outstanding ESG Performance Enterprise" in 2019, and 36 Krypton Award "Top 20 Best ESG Concept Investment Institutions in China" in 2021. In addition, Everbright Holdings attaches great importance to the social responsibility of state owned enterprises in Hong Kong. Since 2008, Everbright Holdings Charitable Fund has been established to support a number of public welfare programs that benefit the Hong Kong community and national development around four themes: Bright Companion, Vitality Everbright, Education Support and Art Promotions. In terms of social responsibility, the company has received many awards as well, including being awarded "Caring Company" for 11 consecutive years, the “Corporate C itizenship Recognition Mark” for two consecutive years, as well as the “Family Friendly Employer”, “Happy Company” and “Talent Excellence Awards”.

Panelist Dr.Tu Wubin

Dr. Tu believes that ESG teams or management of listed companies should study the indicator settings of international rating agencies and then combine these indicators for more comprehensive information disclosure. In addition, he pointed out that at present, the more influential rating agencies in the market are all overseas agencies, and the rating system is not fully compatible with China's culture and governance structure, so he hopes that there will be more ESG ratings that are more suitable for Chinese companies.  

At the end of the discussion, Dr. Tu presented Everbright Holdings' future outlook on achieving carbon neutrality and ESG investments. He mentioned that Everbright Group has issued several guidance documents related to the "double carbon" target, green and low carbon transition and climate risk management. Based on this, Everbright Holdings has set up a special working group on carbon neutrality and a special working group on ESG, with the Board Director as the chairman and the President as the vice chairman, both of which are very strong working groups on implementation. 

In the double carbon front, Everbright Group will take advantage of its strengths in the green low-carbon field and the long-term accumulation of Everbright Holdings in various fields.  On the one hand, in new energy, focusing on photovoltaic and wind power with raw material technology breakthroughs and the continuous improvement of equipment performance iterations to find investment opportunities; on the other hand, in new energy and smart connected vehicles, focusing on domestic substitution of high-performance core components and automatic driving aids such as sensors to fill the vacancies and layout core node enterprises; thirdly, in the combination of energy and technology, carbon detection and low-carbon emission reduction, with Terminus' Smart City and the industrial Internet of Things as a grip to deepen the smart management of the city; At the same time, Everbright Holdings will continue to focus on and invest in key areas of energy saving and consumption reduction technologies to facilitate energy efficiency and low carbon emission reduction. The fourth is the green living area, focusing on investment in green products in China.

Everbright Holdings has established a special ESG committee of the Board of Directors and invited external professional companies to help improve ESG governance. Everbright Holdings will make good use of its cross-border asset management platform to give full play to its investment capabilities and help green low-carbon investment companies " to Bring in" and "Go Out". The realization of the "double carbon target" and the practice of ESG concept are very long-term strategies, and Everbright Holdings will certainly play its role in related fields.


David Carlin, Head of TCFD Working Group, United Nations Environment Programme Finance Initiative (UNEP FI):

David explained that the TCFD framework provides financial institutions with a system that integrates information disclosure and climate risk management, and that TCFD represents an emerging global standard, particularly in the area of ESG disclosure. An increasing number of financial institutions around the world have adopted the TCFD principles and are required to make mandatory disclosures from the four pillars of the TCFD, including Governance, Strategy, Risk Management, and Metrics and Targets, which form the basis in structure of the disclosure requirements for mandatory disclosures. Mandatory disclosures not only require disclosures to become more comprehensive, but they would also become more comparable, which is far more useful to stakeholders. For companies that are preparing to disclose, the TCFD ensures that they are communicating clear climate risk information to the market and stakeholders under a common standard. The ability of the market and stakeholders to gain a clear understanding of climate risk information depends on incorporating the principle of universality into the disclosure framework to improve consistency and comparability of information.

Panelist David Carlin

David believes that TCFD is a broader framework than other disclosure requirements (SASB, CDSB, GRI), being less prescriptive in its mandates and open-ended in the ways of its fulfillment. When it comes to disclosing risk management and disclosing at the level of specific indicators, there are methodological issues involved, making the coming-together of the existing frameworks necessary. The TCFD framework is now being widely used, acting as the skeleton and the common language  of the disclosures themselves, whereas when it comes to specific disclosures and the metrics used, it would depend on which specific standard is being used and the requirements of the standard setter. For example, in the case of standards related to carbon accounting, it is more about what specific quantitative figures are being disclosed and how the metrics are calculated, which are fitting within the TCFD framework. Therefore the TCFD is not a different set of standards and thus not in competition with existing disclosure standards. 

In addition, the TCFD framework expands the scope of risk disclosures to cover not only financial risks but also risks arising from misalignment with climate goals. The newest TCFD consultation, which was issued just last month, covers how to better align portfolios with the climate goals of the Paris Agreement and provides guidance for companies' own transition planning as well as that of their clients. These elements are very forward-looking and will help address climate risks, not only direct financial risks.

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