It is a great pleasure to participate in the 2022 ESG Global Leaders Summit. I will take this opportunity to share a few thoughts on the theme of the summit, and more specifically the topic of this session, "Global Opportunities and Challenges for Sustainable Development".
The title of my speech is ‘Three priorities for ESG development’.
Ⅰ. ESG IS AN IMPORTANT DRIVER OF SUSTAINABLE DEVELOPMENT.
Sustainable development is a global pursuit. From development to sustainable development, it is not a simple change of expression but a profound transformation of conceptual thinking, i.e. the goals, strategies, and methods of development. It is also a systematic project that requires arduous and long-term efforts.
The key is to gather various resources and form a synergy to promote sustainable development. As we all know, ESG practice refers to the behavior of market entities in relation to the environment, society and governance, and includes enterprises’ operations in these regards and financial institutions’ investment that promotes ESG goals. It should be said that ESG has become a very important force in promoting sustainability.
ESG is a system of metrics used to evaluate enterprises’ performance with regard to environment, social responsibility, and corporate governance, based on which, we can assess the progress that enterprises make in these fields and help them make good use of financial resources for further development. Therefore, it can be said that ESG is a fundamental force for sustainable development at the level of micro market entities.
Specifically, this basic strength is reflected in two aspects.
On the one hand, the ESG practices of enterprises in various industries in the real economy are the core content of sustainable economic and social development. The ESG behaviors of individual market entities will together promote the sustainability of the whole society and play a very important role in the improvement of company valuation, the transformation and upgrading of industries, the optimization of economic structure, and the coordinated development of the economy, society, and ecology.
On the other hand, if the financial institutions focus more on the need of ESG development, allocating more financial resources to support the ESG practice of businesses in the real economy, financial resource allocation will be better aligned with ESG practices, and more funds will be channeled to ESG and sustainable development. This will help expand ESG assets and the ESG market and lay a solid foundation for sustainability.
China has entered a new stage of development in which high-quality and sustainable development is pursued. The world has common goals and tasks when it comes to sustainable development, but due to differences in development stages, development environments, and socio-economic systems, countries have different strategies and actions.
In terms of ecological protection, China's main task is to optimize the ecological environment through the promotion of the dual-carbon goal. As for social responsibility, rural revitalization, common prosperity, inclusive finance are some examples of China’ pursuits of sustainable and high-quality development.
Therefore, to support the ESG practices of businesses and financial institutions is to support sustainability.
Ⅱ. ESG IS AN IMPORTANT DOMAIN OF INSTITUTIONAL OPENING-UP
Sustainable development requires global consensus and calls for more openness and cooperation. More collaborative efforts among countries can gather more strength to promote sustainable development. Such cooperation must have an institutional foundation. Sustainable development emerged as a new global issue in the past decade or two, and gained more momentum in recent years. There is an urgent need to create a conducive institutional environment.
From the perspective of China's opening up, it has gone through a process from trade of goods to market opening over the past 40 years, and now has entered a new stage of institutional opening, a trend that is highly compatible with institutional development required by global sustainable development.
Sustainable development is a key area for China’s institutional opening. As China pursues sustainable development and global cooperation, it can participate more in developing and improving relevant norms and rules, and contribute to the creation of a global environment that promotes sustainable development, especially the institutional environment.
We know that many countries, including China, have already put in efforts to establish institutional arrangements, such as rules, standards, and management approaches for sustainable development. As a major developing country, China has been an important promoter of global sustainable development. Through institutional opening, it could actively contribute to global sustainable development, which means a lot for both China and the world.
Speaking of ESG, why is it a key area of China’s institutional opening-up? ESG development, as a driving force of sustainable development at the market and business level, and has gained more traction and become an trend internationally. Therefore, it is urgent to form international cooperation and action plans for institutional development.
Specifically, China needs to have more interaction with other countries in the development of international ESG systems through institutional opening. For example, ESG standards include taxonomies and disclosure standards for both enterprises and financial institutions. Therefore, it is necessary to build a set of systems, covering standards and indicators that can be accepted internationally and also tailor to China’s circumstances.
For example, data, as an essential and basic resource in ESG development, requires a set of rules for international flow and sharing. Another example is that a scientific and effective system is needed for evaluating ESG development, and the development of such a system cannot do without international cooperation. China can play a significant role in setting up the system. In addition, ESG practices need effective regulation and supervision. More international cooperation in this regard can be achieved through institutional opening.
In this process, China needs to promote exchanges and cooperation with other countries, including regulators, as well as among businesses, financial institutions and intermediaries through institutional opening. In particular, China should actively participate in the establishment and improvement of platforms for international exchanges and cooperation as well as international organizations for sustainable development.
Ⅲ. ESG INVESTING EMBODIES A MAJOR TRANSFORMATION OF THE FINANCIAL AND INVESTMENT SYSTEM.
Investment is indispensable to business and industrial sustainability. Investment must be sustainable to facilitate overall sustainability, and that requires the investment system to upgrade and transform accordingly.
ESG investing is exactly a manifestation of such transformation which involves six dimensions:
First, transformation of investment concepts. Compared with in the past when greater emphasis was placed on commercial and financial values, investment today is more guided by ESG concepts with a greater focus on social values.
Second, transformation of investment theories. Sustainability concepts including ESG investing have solid theoretical foundations which are attracting greater academic attention.
People are attaching greater importance to the externality of economic activities. More attention is being paid to social responsibility and corporate governance theories all of which are important enablers of the transformation of investment theories.
Third, transformation of investment strategies. Compared to traditional financial information, we are now focusing more on nonfinancial information relating to ESG, and that could have important implications for investment portfolios and strategies. Investment portfolios should lean toward ESG enterprises. All of these will drive the transformation of investment strategies.
Fourth, transformation of tactics and forms of investment. When assessing businesses, we will take note of their development both today and in the future, and both their financial performance and non-financial performance. Of particular note, we need to have a more comprehensive understanding of investment targets including their practice relating to environmental protection, social responsibility and corporate governance.
Fifth, transformation of investment management. Money invested needs to be managed properly. Social resources and funds should be used wisely. Information disclosure is important in this process. In addition to information on their own energy consumption/saving behaviors, financial institutions should also disclose the decarbonization practices of businesses and industries receiving their investments.
Sixth, transformation of investment ecology. While reshaping the investment concepts, theories, strategies, tactics and management, ESG nurtures a new investment ecology consisting of all market participants.
For example, we need ESG discloses and related infrastructures, we need ESG evaluation systems and services which are provided by intermediary agencies, and we need regulatory policies and mechanisms. All these entities will help forge a new ecosystem for ESG investing.
Thus, the development of ESG is not only about individual investors making ESG investments; it embodies a major transformation of the entire financial and investment system. We must understand this and what it takes to enable such transformation, especially the requirement for investment institutions.
Above are my thoughts on the three key priorities in pursuing ESG development.
