China Investment Corp’s CIO: Lack of ESG uniformity a ‘challenge’

The $1.2trn China Investment Corporation last year established its first ESG policy framework, as the country bids to reach peak carbon emissions by 2030 and carbon neutrality by 2060.

A lack of standardisation around ESG reporting poses a challenge to the global development of sustainable investing, the chief investment officer of China’s $1.2 trillion sovereign wealth fund has warned.

Weimin Ju China Investment Corporation
Ju: ESG data quality varies

Appearing virtually at the Asian Financial Forum on Monday, Weimin Ju, president and vice chairman at the China Investment Corporation, said regulators and institutional investors both have a responsibility to enhance information disclosure around sustainable investing.

“Sustainable investment has a promising future, but not without its challenges,” Ju said.

“For example, we currently have many ESG data providers but the scope of coverage and data quality all vary, making it difficult to select the appropriate data set. We also have yet to develop a uniform ESG evaluation and rating methodology, meaning there’s no single standard to assess the ESG… of a company.”

In September, 10 global investors, including Coller Capital and Neuberger Berman, joined the launch of a new environmental reporting framework by the Carbon Disclosure Project intended to help standardise ESG reporting in private markets, affiliate title New Private Markets reported. The group, which represents around $2.3 trillion in assets, will seed the disclosure initiative with environmental data from 1,000 privately held companies in its portfolio.

Previous reporting by New Private Markets has shown the industry’s largest investors, both LPs and GPs, are implementing various reporting standards and frameworks into their investment management processes. While the industry initiatives vary, some frameworks – such as the UN-supported Principles for Responsible Investment and the Task Force on Climate-Related Disclosures – have become more commonly used.

For its part, the China Securities Regulatory Commission last year released revised guidelines on the format of annual and semi-annual reports for listed companies, including detailed requirements for environmental and social disclosures, according to affiliate title Responsible Investor. ESG reporting continues to be voluntary or semi-mandatory for most companies.

“The assortment of ESG rating systems adopted by regulators and ESG rating agencies, combined with a lack of appraisal systems, cannot provide enough incentives to investors,” Ju said.

“We hope that regulators can enhance policy co-ordination to create uniform rating standards and the incentives mechanisms. Such policy guidance will increase market share of sustainable investment and boost its healthy development.”

CIC last year established a formal ESG ‘policy framework’, according to its 2020 annual review. The “guiding principles” include: integrating ESG factors into decision-making processes; integrating ESG factors “throughout the lifecycle” of investments; and raising awareness and understanding of ESG among CIC’s employees.

It comes as China aims to reach peak carbon dioxide emissions by 2030 and carbon neutrality by 2060.

“We have actively optimised our asset allocation to promote sustainable development while posting financial returns,” Ju noted. “In the private markets, we continue to expand investments in renewable energies and have made a foray into green investment in physical assets and clean industrial private equities. Going forward… [we’ll] continue to explore related opportunities with a focus on climate change.”