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Over the past decades, China has followed a path of growth and development unparalleled in human history – lifting untold millions out of poverty and creating a dynamic modern economy. And the country has set its sights on an even more ambitious future. Issues such as environmental stewardship, transparency, and labor rights have not always been a high priority.
February 17, 2021
China is the leading manufacturer of solar energy panels worldwide and taps into environmental challenges to accelerate technological change.
ESG is a key component of many investment approaches. At the same time, one of the biggest stories in investing is the rise of China. At first glance, this puts many modern investors between a rock and a hard place. But things are on the move, and today, Credit Suisse Asset Management sees an opportunity to invest in China applying a robust ESG approach, thereby reaping the benefits of enhanced alpha and risk-adjusted returns.
Better risk/return characteristics of China ESG indices compared to standard indices
Sources: ESG and alpha in China, PRI, 2020
Note: Summary statistics, China strategies based on MSCI. Data from June 28, 2013 to June 28, 2019. All risk and return figures are annualized, based on gross daily index total returns in USD.
Many individual Chinese companies have recognized the opportunity sustainable investing represents. They are interested in expanding their investor base internationally, and displaying the requisite progress and transparency on ESG matters is key to success. And products in the ESG space have enjoyed robust global demand, and these companies have responded. As a result, China is now the leading manufacturer of solar energy panels, electric cars, and other technologies that are crucial in bringing the world economy to live within its means.
Irrespective of the pandemic, however, the spectrum of investment opportunities has actually widened further. "If not now, then when?" expresses an increased willingness to rethink matters at a fundamental level. The new opportunities and challenges this creates are explored in this issue of Scope.
On a collective level, there has also been support for such efforts. In 2016, China published guidelines for a sustainable finance and investment policy framework, based on the PRI. Building on this, various initiatives have helped companies offer ESG products and services and provide the necessary information. As foreign investor interest in China continues to grow, these efforts are likely to accelerate.
The percent of foreign holdings in the Chinese stock market is still low, but growing. This will be a key driver in the accelerating compliance with various ESG criteria by Chinese companies.
Source: Bloomberg
More interesting insights about sustainable investing are just one click away.
Sources: Center for Solar Energy and Hydrogen Research Baden-Württemberg (ZSW); German Association of the Automotive Industry (VDA) Berlin
