China Pacific CIO urges slower ESG adoption
China’s third-largest insurer, China Pacific Insurance Company (CPIC), believes the government should adopt a more measured approach when it comes to encouraging the corporate sector to embrace environmental, social and governance (ESG) principles.
Speaking at AsianInvestor’s 6th Insurance Investment Forum in Hong Kong last week, Benjamin Deng, group chief investment officer at CPIC, said there is a determined drive to push Chinese companies to embrace ESG more fully. But there is a case for the authorities not to push too much, too quickly, to guard against potential social dislocation.
From his travels across the country last year he noted that a common complaint from small business owners was that if a factory was labelled ‘polluting’ or ‘anti-environment’, it was liable to be shuttered immediately.
“The government has to relax the [ESG] policy,” Deng told delegates at the forum. “Otherwise, tons of people will lose [their] jobs.”
While there is no doubting that helping companies to improve the quality of their products and governance will lift the ESG standards of China's corporate sector, these efforts have to move at a gradual pace, Deng said.
Increasingly, the idea of ESG investing is moving away from simply investing in green companies or companies that help prevent pollution to a broader concept of being ESG-conscious.
For instance, going ‘cashless’ can be viewed as being environmentally friendly, Deng said.
“In our meetings at CPIC, none of our people use paper. We all have iPads,” he added, noting how the drive to promote ESG has raised national awareness levels.
CHANGING ATTITUDES
Investors keen to integrate ESG considerations into their decision making typically start by excluding certain harmful sectors such as tobacco and gambling from their portfolios, a 2018 report by Oliver Wyman and Asian Venture Philanthropy Network shows.
More sophisticated ones systematically include ESG factors in their financial analysis, while advanced-stage ESG investors influence company behaviour on ESG practices and policies through direct corporate engagement, the report said.
Increasingly, organisations are trying to reward ESG leaders rather than simply exclude harmful sectors, DWS’s global head of insurance coverage, Michele Gaffo, said, also at the event.
Indeed, excluding securities issued by companies in harmful industries is not always the best way to nudge them further towards sustainable development, forum delegates heard.
Negative exclusion, nonetheless, remains a meaningful investment practice, Ed Collinge, global head of insurance strategy at Dutch asset manager Robeco, noted.
For instance, major asset owners such as Norway’s Government Pension Fund Global already excludes tobacco firms from its investments and this month announced plans to divest itself of oil and gas stocks. Axa also excludes tobacco firms, while fellow French insurer BNP Paribas Cardif recently decided to reduce its exposure to coal.
BEING ESG-COMPLIANT
Chen Yiyun, chief investment officer at Hong Kong-based Tahoe Life, said there are different ways to consider ESG investing.
Energy companies that produce a large amount of carbon dioxide, for instance, don’t necessarily have to be excluded if they can show they are reducing their carbon emissions.
Being more ESG-conscious also helps companies access capital markets more easily, as investors look favourably at those that are seen to be socially responsible, he noted.
Chen also likened ESG investments to an asset class that carry lower risk since they are less likely to be involved in lawsuits related to corporate social responsibility or environmental standards.
“The cost of environmental pollution is getting higher and higher,” Chen said at the same panel. “To me, ESG is definitely a very important asset class.”
Developing ESG-compliant products doesn’t entail higher costs for asset managers either if ESG factors are integrated into their investment processes, DWS’s Gaffo said.
“If [ESG] is something you’ve been doing for a really long period, it’s just a part of what you do,” he said.
More and more asset managers are placing importance on ESG by hiring specialists in the field. Earlier this month, French asset manager Natixis hired its first head of corporate social responsibility and ESG, while JP Morgan named a global head of sustainable investing.
And earlier this week, BNP Paribas Asset Management named Gabriel Wilson-Otto as head of stewardship for Asia Pacific.
Jolie Ho contributed to this story.