Insight & Analysis

China’s corporates get serious about ESG reporting

Published: Apr 2021

Assessing non-financial performance is becoming standardised across the world and reporting environmental, social and governance factors (ESG) is moving to the mainstream. China’s corporates are at an inflection point with their ESG reporting and have the opportunity leapfrog and lead the world.

Green Energy Sustainable Solar Engery in Shanghai

Assessing a company’s performance is no longer just about financial metrics; it is also about the impact on people and the planet. A global movement is under way to standardise the reporting of environmental, social and governance (ESG) factors, and push it into the mainstream. When it comes to ESG, China’s corporates have been maturing and now they stand at an inflection point. In fact, according to a whitepaper by the World Economic Forum (WEF), China has the potential to leapfrog ahead and lead the world with its ESG reporting.

Accounting for environmental and social wellbeing can affect how corporates measure their success, how they raise funds, and who they do business with. Ultimately, ESG reporting can affect capital flows, policy-making and investment decisions.

There is a growing recognition that corporates that value non-financial performance are likely to be more commercially viable in the long term. “Investors know that companies who integrate ESG factors into their strategy and operations are better equipped to identify risks and capture opportunities, improving their prospects for long term profitability and value creation,” said Thomas Leung, Markets leader, PwC China, in a press briefing for the launch of the whitepaper.

There is also a distinction between companies that really care about ESG and those who treat it at as a compliance exercise. This can be seen in the example of Ping An Insurance Group, which is considered to be an ESG leader. In the ‘A Leapfrog Moment for China in ESG Reporting’ whitepaper, Richard Sheng, Secretary of the Board of Directors and Brand Director at Ping An Insurance Group, commented, “ESG helps to enhance Ping An’s brand reputation and overall competitiveness. At the level of our individual businesses, ESG enables better investment management and performance. ESG integration helps companies reduce risks, such as liquidity and asset impairment.”

Ping An has committed to supporting China’s goal of being carbon neutral by 2060, as well as the climate goals of the Paris Agreement, an international treaty. It is a challenge, however, to standardise the ESG reporting as the insurance group comprises 30 companies. Sheng commented that Ping An has since 2018 used artificial intelligence to automate the collection and management of the information, which has dramatically reduced the time to compile the annual accounts. In 2019 the reporting period was reduced by 22 days, and in 2020 by 40 days, compared to that of 2018.

There are other benefits to ESG reporting, as the transport company MTR has found. In the WEF report, Sylvia Ng, General Manager, Corporate Strategy for MTR, explained that it has had an impact in the capital markets. She commented that because of its standardised ESG reporting MTR is included in sustainability indices, such as the Dow Jones Sustainability Indices or FTSE4Good, which has widened its pool of investors.

Both Ping An Insurance Group and MTR are highlighted in the WEF report as examples of corporates that are paving the way with ESG reporting. The report also offers six insights for corporates making a similar move. These are that ESG reporting needs to have a commitment at board level; corporates must move to a purpose-driven strategy; and ESG factors need to be integrated into the business strategy. Also, companies should focus their ESG efforts in areas that are most relevant to their company; and Chinese companies need to ensure they have the right talent and professionals as they ramp up their ESG reporting. There is also an increased expectation for supply-chain sustainability practices to be disclosed - particularly from big name brands. Finally, the report also has a call to action to corporates in China - and elsewhere - to become champions of ESG reporting.

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