Chinese mutual funds see positive correlation between stock performance and ESG – China SIF

In its first survey of Chinese mutual funds, the country’s Social Investment Forum (China SIF) reports that a majority of responding funds agree that there is positive correlation between stock performance and the issuing company’s track record on environmental, social and governance (ESG) issues. Of the 73 Chinese mutual funds contacted for the survey, 27 responded. Another 22% of the funds, according to China SIF, see a strong correlation between stock and ESG performance, while none of them see a negative link. Around 40% of the funds also agreed that ESG integration lowers their investment risk. “Chinese mutual funds generally agree that SRI (socially responsible investing) lowers risk, is relatively stable and offers better long-term returns,” China SIF said. Another interesting finding was that one-third of respondents believed SRI was in line with the policy trend of the Chinese government. These funds have CNY1.7trn (€20.3bn) in assets under management (AuM), or nearly half of the AuM for all 73 funds. All of the funds (100%) considered product safety to be the greatest ESG risk associated with Chinese companies. That was followed by poor corporate governance and fraud (93% each); environmentalpollution (78%); bribery and corruption (74%); and supply chain management and work safety (59% each). In terms of sectors, 70% of the funds believed extractive industries in China faced the biggest ESG challenges, followed by agriculture, forestry, farming and fishery (63%) and municipal utilities (63%).
But the SIF also said the survey’s findings showed that Chinese SRI was still in its “infancy”. It therefore has made four recommendations to promote understanding of the approach. The first is that as an investment approach, it is not to be confused with corporate social responsibility (CSR). “SRI is not charity, nor is it a tool for public relations, but an approach that can bring long-term stable returns,” China SIF said. The second recommendation is for Chinese mutual funds to actively engage with investees to improve their record on ESG. Investors could also begin this engagement by “focussing on the issues which are considered important by the Chinese public (e.g. product safety and air pollution.” The fourth recommendation is that the Chinese government, regulators, industry associations and media get involved with investors to help raise consciousness about the benefits of SRI.