Dr. Lanfeng Dong, Assistant General Manager, Director of Research, Managing Director

This article is translated and summarized based on an interview of Dr. Lanfeng Dong with Economic Observer in March 2023.

Under the guidance of China's “30-60” climate strategy and the new development concept, comprehensive green transformation of the economy and society, and green and low-carbon development of energy systems have become long-term themes for enterprises and investors.

Financial regulators are leading the support of the real economy to achieve high-quality development, vigorously develop green finance, and promote low-carbon transformation. In 2022, the China Securities Regulatory Commission (CSRC) issued the "Opinions on Accelerating the High-Quality Development of the Public Mutual Fund Industry," promoting the creation of a good development ecosystem for the public mutual fund industry, actively practicing social responsibility, and urging the industry to fulfill its environmental, social, and governance (ESG) responsibilities, achieving unity of economic and social benefits. In the same year, the CSRC also released the "Guidelines for Listed Companies on Investor Relations Management," which, to implement the new development concept, added "information on the company's environment, social, and governance" to the content of communication between listed companies and investors, guiding communication based on ESG information between listed companies and investors. Policies supporting the real economy and financial regulatory policies provide dual support, jointly promoting sustainable corporate development and a comprehensive enhancement of ESG.

In investment practice, more and more asset managers are starting to incorporate ESG factors into the process of investment management. Through ESG investment, asset managers can help funds flow to industries and enterprises that can better manage their environmental and social risks and externalities, or that are more conducive to sustainable development. Additionally, asset managers can enhance ESG performance and achieve sustainable value creation for the companies they invest in by deepening ESG engagement and voting post-investment, and by developing responsible management plans and objectives.

In this process, asset managers aim to accompany companies in balancing business objectives with sustainable development, maximizing the synergistic effects of both, and considering the demands of all stakeholders.

China's ESG investment practices continue to develop and deepen

Driven by the "dual carbon" strategy and the goal of high-quality economic and social development, ESG investment in China continues to receive positive policy support and is facing significant opportunities. Against this backdrop, integrating ESG factors into investment research and development is not only becoming essential for risk management but also a core competitive strength for meeting clients’ needs.

Progress has also been made in information disclosure, an important foundation for ESG investment. In December 2022, the International Financial Reporting Standards (IFRS) Foundation signed a Memorandum of Understanding with the Ministry of Finance to establish the Beijing office of the International Sustainability Standards Board (ISSB), marking the advancement of ISSB's strategy for emerging markets and developing countries. This will also promote the development and implementation of global sustainability disclosure standards. We believe there are several points that investors should pay attention to.

Firstly, the financial materiality of ESG. From the perspective of investment research, the future opportunities for ESG investment and the core competitiveness of ESG for public mutual funds lie in combining the research of financial materiality ESG issues, taking ESG as the supplement and upgrade of investment model, serving shareholders with better performance and lower volatility, and bringing shareholders high-quality returns and better investment experience. The financial materiality of ESG information disclosure promoted by ISSB will help the investors to price stocks more accurately and comprehensively through ESG information, serving the interests of holders within the existing scope of fiduciary duties.

Secondly, the ESG requirements of institutional clients. An increasing number of asset owners have put forward clearer ESG management requirements, including the purpose of ESG integration in mandates and voting requirements. Asset owners integrate ESG factors into investment decisions possibly due to financial considerations, or the pursuit of positive environmental and social impacts. Fund managers will need to enhance their ability to communicate and serve ESG mandates and requirements in the future.

Thirdly, the foundation for ESG investment research. Fund managers should improve information systems and ESG data capabilities, build an ESG evaluation system that integrates ESG assessment with risk management and investment decision-making, and build professional teams to carry out continuous ESG research, deeply understand the relationship between ESG and stock valuation, credit risk, etc. In particular, there is a need to strengthen in-depth research on climate change risk assessment at the portfolio level, deepen the understanding of risks and opportunities in investment management, and explore market opportunities under the scenario of green and low-carbon industry transformation.

“Persisting in doing what is right in the long term”, and contribute to the sustainable development of society and industry

Yinhua has always adhered to the philosophy of "persisting in doing what is right in the long term," integrating the concepts of long-term and value investing throughout the investment and research processes and objectives. The firm is committed not only to generating high-quality performance returns for its holders but also to creating value for society.

Yinhua has been actively practicing its corporate social responsibility, and relying on the advantages of the financial industry, it has carried out actions at various areas such as carbon neutrality, disaster relief, rural revitalization, education, and poverty alleviation, to uphold the social responsibility and public welfare of a financial enterprise.

In 2021 and 2022, in response to the national "30-60" climate strategies, Yinhua took the lead in conducting greenhouse gas accounting and carbon neutrality certification for Scope 1, Scope 2, and part of its Scope 3 emissions. Over the years, Yinhua has also continued to make donations for desertification control through the Yinhua Public Welfare Foundation, organizing employees to physically participate in tree planting and desertification treatment, steadfastly supporting the public welfare desertification control projects in Ejina Banner, Inner Mongolia, and making substantial contributions in the fields of rural revitalization, basic education, natural disaster relief, accident disaster assistance, and epidemic prevention and control. In 2021, the total amount of donations exceeded 5.8 million RMB.

In the field of ESG investing, as a signatory of the United Nations-supported Principles for Responsible Investment (PRI), a supporter of the Task Force on Climate-related Financial Disclosures (TCFD), and an executive member of the Caixin China ESG30 Forum, Yinhua actively promotes the integration of ESG factors into the company's investment research framework, decision-making processes, and fund product design, ensuring that ESG research is a part of the entire stock research process. At the individual stock level, Yinhua has incorporated ESG research as one of the nine factors in its stock analysis framework. Yinhua has also actively developed ESG-themed products, such as Yinhua CSI ESG Leaders, Yinhua CSI Mainland Low Carbon Economy Theme ETF, Yinhua Green Low Carbon Bond Fund, and manages ESG mandates for separately managed accounts. Furthermore, Yinhua actively participates in communication with peers in industry, promptly summarizing and sharing best practices in the ESG field, helping the industry to establish and improve processes related to ESG investment management, and collaborates with peers to promote green and transitional finance, thereby empowering the high-quality development of the real economy.