China A-shares show ‘accelerated’ ESG performance, says local ratings provider

The proportion of listed Chinese companies that received top ESG scores has increased sevenfold since 2018, according to a recent study by domestic ESG consultancy SynTao Green Finance.

The findings are based on an analysis of the benchmark CSI 800 index – which consists of large, mid and small-caps within China’s A-share market – and firms’ corresponding ESG scores as assessed by Shangdao Ronglv, a SynTao GF-owned ESG ratings service.

Shangdao Ronglv was the first A-Shares ESG ratings dataset when it launched in 2015 and is widely used in China. Rated issuers receive an overall ESG score (ranging from A+ to D), and environmental, social and governance-specific scores based on almost 700 data points drawn from topics such as supply chain management, climate policies and business ethics.

The ratings now cover all listed companies in Mainland China, Hong Kong listed companies under Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect, and major bond issuers.

SynTao GF reported that the number of A-share companies which were rated B+ and above rose from 63 in 2018 to 506 in 2023, an increase of 703 percent. In contrast, the number of companies which received C+ or lower plunged from 199 to 34 in the same period.

Overall, the average ESG scores of A-share companies improved by 22 percent in the six-year period.

The research team, which include SynTao GF managing director Rui Zhang, said the findings “indicate that the trend of accelerated improvement of ESG performance among A-share listed companies continues to strengthen, entering a new stage of rapid development”.

However, they noted that the gap between leading and laggard companies “is still further widening” due to uneven progress among index constituents. The study found that just under half of CSI 800 companies received upward adjustment to their ESG ratings, while the rest remained unchanged or received downgrades.

China, together with the US, is one of the few major jurisdictions which has yet to set out a regulatory position on ESG rating products and market practices.

Researchers separately raised concerns over the high frequency of ESG risk events and controversies within the market. A total of 36,621 events were recorded by SynTaoGF over a 10-year period beginning 2012, split more or less evenly between E, S and G topics.

The most common risk events related to compliance with emissions and environmental regulations, labour rights and business ethics.

Despite this, researchers said that ESG risk events have started to trend downwards and stabilise over the most recent three financial years, with around 2,000 events recorded annually.

Outside of its commercial operations, SynTao GF has played key roles in setting up the China SIF and the Green Finance Committee, a sustainable finance research and policy forum led by the Chinese central bank. It was also the first Chinese signatory to the PRI and the first China-based bond reviewer accredited by CBI.