Asset management sector urged to invest in ESG

Officials and financial industry professionals urged market players in China's asset management sector to make greater efforts in environmental, social and governance investing, in support of the country's transition toward high-quality development.

China's asset management institutions should firmly abide by the new development concept and become leaders in ESG investment, said Chen Yulu, deputy governor of the People's Bank of China, the country's central bank.

"China has made clear its goal to peak carbon dioxide emissions before 2030 and achieve carbon neutrality before 2060, which needs a tremendous amount of low-carbon investments. Its asset management sector should improve ESG consciousness, actively promote ESG investing, accelerate business innovation and ramp up investments to support better and faster development of green and low-carbon industries," Chen said at the China Wealth Forum in Qingdao, East China's Shandong province, on Saturday.

Asset management plays an important role in promoting China's supply-side structural reform in the financial sector and serving the real economy, the part of the economy that produces goods and services.

By the end of the first half of this year, total assets under management of various types of financial institutions in China reached 92 trillion yuan ($14.2 trillion), accounting for 25 percent of on-balance-sheet assets. Among total funds invested in bond and equity financing, asset management funds accounted for 25 percent and 10 percent, respectively, he said.

Looking ahead, he expects that China's asset management sector will have ample room for sustainable development, as the country will remain as one of the fastest-growing major economies.

Xiao Yuanqi, vice-chairman of the China Banking and Insurance Regulatory Commission, urged the asset management sector to step up support for ESG investment by making full use of its advantages.

"The asset management sector should take an active part in building and improving ESG investment systems, push for the formation of clearer definitions and standards for ESG investing, build frameworks for relevant data collection and statistics, improve ESG evaluation methods, promote companies to create ESG-related information disclosure mechanisms, and comprehensively enhance the effectiveness of ESG investment," Xiao said.

The Chinese economy is making a transition toward high-quality development, and the previous investment model, which overly pursued short-term returns, is unsustainable. In the future, the drivers of growth for the country will mainly come from the areas including technology innovation, green industries, advanced manufacturing and infrastructure construction, all of which need a considerable size of long-term investments, Xiao said.

The asset management sector is expected to explore cross-cyclical investment models to meet the demands for long-term investment. It should popularize the philosophies of long-term investing, rational investing and value investing with investors, rather than cultivating a speculative market atmosphere, he said.

While applauding China's resolution to tackle climate change by striving to significantly reduce carbon dioxide emissions, Ma Weihua, chairman of the National Fund for Technology Transfer and Commercialization and former president of China Merchants Bank, also reminded financial institutions to closely watch potential risks of financial asset losses amid the low-carbon transformation of high-emitting companies, as green lending only accounted for a small portion of total credit in China.

"Taking a long-term view, banks should include ESG into their comprehensive risk management systems and their strategies in terms of corporate governance … Digital technologies can help financial institutions improve risk identification capability, deliver quantitative assessments of environmental risks, implement intelligent pricing, and build data analytics models for the evaluation of green projects," Ma said.

He called for the establishment of a fund promoting the green economy transition and advised the government to set out a clear timetable and a roadmap for its carbon peak and neutrality goals.

It is necessary for the government, businesses and third-party institutions to jointly build an ecosystem fostering green and sustainable finance. Third-party rating and certification agencies should play a highly important role in the process by offering new instruments for value assessment, which will reduce the information asymmetry among regulators, financial institutions and investors, he said.