As China continues to recover from the effects of the coronavirus pandemic, one area that could require much-needed focus is environmental, social and governance (ESG) initiatives. Despite ESG becoming a force worldwide, it has yet to penetrate the Chinese markets fully.
“ESG investing deploys more than $30 trillion worldwide, but the vast majority of Chinese companies don’t report enough data to show whether they qualify for the funds,” a Pensions and Investments article said. “Officials have said they’ll make it mandatory this year for the nearly 4,000 listed companies in the country to publish ESG metrics, potentially attracting trillions more into the country.”
“After years of laying the foundations, we hope 2020 will be the year that ESG investing takes off in China,” said Angela Bai, executive director of the China Alliance of Social Value Investment, via the Pensions and Investments article.
How can the second-largest economy embrace the concept of ESG? One simple way is via education—explaining to business leaders the importance of incorporating ESG as well as creating awareness of its benefits.
“Many companies simply aren’t aware of the benefits of disclosure and don’t see why they should take on the extra cost,” said Guo Peiyuan, chairman of SynTao Green Finance, a Beijing-based ESG data provider.
ESG ETF Options in Equities and Fixed Income
Investors looking to get in on the ESG action can look to funds like the FlexShares STOXX US ESG Impact Index Fund (ESG). ESG seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the STOXX® USA ESG Impact Index.
The underlying index is designed to reflect the performance of a selection of companies that, in aggregate, possess greater exposure to ESG characteristics relative to the STOXX® USA 900 Index, a float-adjusted market-capitalization weighted index of U.S.- incorporated companies. Under normal circumstances, the fund will invest at least 80% of its total assets (exclusive of collateral held from securities lending) in the securities of the underlying index.
For ETF investors looking for ESG exposure within the fixed income asset class, they can look to the iShares ESG U.S. Aggregate Bond ETF (NYSEArca: EAGG). EAGG seeks to track the investment results of the Bloomberg Barclays MSCI US Aggregate ESG Focus Index, which has been developed by Bloomberg Barclays Capital Inc. with ESG rating inputs from MSCI ESG Research LLC pursuant to an agreement between MSCI ESG Research and Bloomberg Index Services Limited or an affiliate.
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