Evaluation Report On ESG Development Of China'S Listed Companies (2020): Significant Demonstration Effect Of Duty Performing Stars And Urgent Improvement Of Credit Rating

Sun Yu, research fellow of the 21st Century Capital Research Institute

As a new investment concept, ESG investment is coming out of the mature market and has gradually become a consensus.

In China's capital market, ESG investment has gradually attracted attention and obtained multi-party participation. Recently, the 21st Century Capital Research Institute released the ESG development evaluation report of China's listed companies (2020) (hereinafter referred to as the report).

The report sorts out the development process of ESG investment in the global and Chinese capital markets, and evaluates the relevant indicators of A-share listed companies based on "environment" (E), "social responsibility" (s) and "corporate governance" (g). In addition, based on the current ESG ecosystem in China, the report analyzes and judges the development trend of ESG investment in the future.

In 2020, the 21st Century Capital Research Institute of Nanfang finance and economics all media group carried out research on ESG in different industries, such as online education, biomedicine, securities, etc., and carried out special ESG research on the risks of A-share pledge and fund sales chaos.

According to the plan of the Research Institute, based on the collection of basic data of listed companies, it will also be committed to advocating the concept of A-share responsible investment. In 2021, it will jointly launch ESG series products with regulators, securities companies and fund companies.

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The disclosure rate of A-share independent social responsibility report is still not high

Since 1960s, ESG investment concept has experienced a long period of development in the West. According to the report, it is precisely because of the continuous expansion of the connotation of ESG investment in the course of development - from the evaluation of corporate social responsibility to the consideration of corporate governance factors - it has been able to develop and become increasingly prosperous, and has gradually become one of the mainstream investment strategies in the international capital market.

The 21st Century Institute of capital pointed out that compared with the traditional financial evaluation system, the most important significance of ESG concept for investment is its risk aversion function. Through the tracking analysis of some "soft indicators", the huge losses caused by the "black swan event" of a single enterprise can be eliminated in advance. Enterprises with higher ESG rating have lower investment risk than other companies.

The development of ESG investment in Hong Kong stock market and A-share market is summarized in the report. At present, the policy trend of mandatory disclosure of ESG information in A-share market has been very clear, although there are still many problems in the information disclosure of Listed Companies in A-share market.

For example, according to the statistics of the 21st Century Capital Research Institute, in 2019, the number of listed companies issuing independent social responsibility reports is only 1012, and the actual disclosure rate is only 27.02%. Moreover, the listed companies that disclose ESG reports are mainly large and medium-sized enterprises or leading enterprises in various industries, as well as A-share weighted companies. For example, the disclosure rate of constituent stocks of CSI 300 index is 86%.

On the other hand, the report found that the overall market performance of A-share listed companies with relatively perfect ESG credit was slightly lower than the average market level from the beginning of this year to November 6.

According to the 21st Century Capital Research Institute, this is mainly related to the investment logic, style and speculation habits of the A-share market. At present, the fair price of the A-share market has not been fully formed.

Environmental indicators: enterprises are not aware of "penalty tickets" disclosure

Considering the difference of information disclosure level of A-share listed companies in the three ESG branches of "environment", "social responsibility" and "corporate governance", the report adopts targeted evaluation strategies when evaluating A-share listed companies in different fields.

Due to the lack of institutionalized ESG trust framework, at present, A-share listed companies rarely disclose environmental information in annual reports or announcements, and only some companies disclose relevant data in annual corporate social responsibility reports. According to the evaluation data of the company, A-share listed companies have the lowest score in the environmental field among the three branches of ESG.

In view of this, the 21st Century Capital Research Institute has adopted a qualitative research method in the "environment" evaluation part, using the annual social responsibility report and public data of listed companies to observe the environmental performance and stock price trend of some listed companies with relatively perfect environmental credit by selecting typical A-share industries and companies.

The 21st Century Capital Research Institute selected a total of five industries for analysis, namely, the "petroleum and petrochemical" industry with high carbon emission and high correlation with environmental problems, the "banking", "non bank finance" and "transportation" industries with relatively high ESG credit ratio in A-share industry (the ESG credit ratio of the three industries in 2018 ranked first, second and fifth in a share), and environmental issues The automobile industry is an important manufacturing industry with high relevance.

In the analysis of industry segments, the report not only compares the environmental indicators such as greenhouse gas emissions, power consumption and water consumption of listed companies, but also pays attention to the development of green finance and other environmental protection types of listed companies. The 21st Century Capital Research Institute found that listed companies such as Air China (601111. SH), China Merchants Bank (600036. SH), Haitong Securities (600837. SH), PICC (601319. SH), Yutong Bus (600066. SH) and BYD (002594. SZ) performed better in ESG environmental assessment.

In addition, in the part of environmental assessment, the 21st Century Capital Research Institute also pays attention to the environmental violations of A-share listed companies. The 21st Century Capital Research Institute searched the environmental violations of listed companies since September 2020. Generally speaking, it is related to about 180 listed companies' environmental violations, covering mining, machinery and equipment, automobile, chemical industry, steel, building clothing and other industries, involving violation types such as exceeding the standard, violating laws and accidents.

According to the incomplete statistics of the 21st Century Capital Research Institute, since September 2020, at least 114 A-share enterprises have been punished for violating the rules. Among them, 4 listed companies fined more than 1 million yuan, 8 listed companies fined more than 500000 yuan, and 14 enterprises violated the rules more than once.

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Social responsibility index: manufacturing industry and financial industry are outstanding in anti epidemic duty

In the part of social responsibility index evaluation, the report also adopts a qualitative research method similar to environmental index evaluation. The difference is that the evaluation of this part mainly focuses on CSI 300 component stocks.

The evaluation factors proposed in the report are mainly composed of five negative list indicators and six positive indicators. The five negative list indicators include audit category (whether non-standard opinions have been issued), negative public opinion events (including company negative, product negative, employee negative, supply chain negative), violations, industrial policy changes and regulatory penalties. The six positive indicators include social employment contribution (including localization rate of employees, number of employees, education background of employees, etc.), employee welfare (female employee ratio, social security fund payment, employee training, staff health and safety, etc.), public welfare poverty alleviation, tax payment, responsibility performance of emergency response, etc.

The 21st Century Capital Research Institute found that the disclosure rate of listed companies on specific indicators such as employee compensation and welfare security, tax payment, employee training and growth, professional equity, integrity marketing, brand reputation, social public opinion evaluation and other specific indicators is relatively high, while the disclosure rate on labor dispute and arbitration, community impact assessment, employee satisfaction, third-party authentication and other projects is less.

In addition, the report pays special attention to the performance of Listed Companies in response to the new crown pneumonia epidemic in 2020. Based on the cross analysis of 635 A-share listed companies that participated in the fight against the epidemic as of February 4, 2020, the 21st Century Capital Research Institute found that among the 635 listed companies, the manufacturing enterprises participated in the largest number, and the financial enterprises contributed more.

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Governance indicators: banks, insurance and securities governance is relatively perfect

Different from environmental and social responsibility indicators, due to the mandatory disclosure requirements of China Securities Regulatory Commission on corporate governance projects in 2018, the credit level of A-share listed companies in the field of corporate governance is relatively high.

Considering the integrity of data related to corporate governance, the 21st Century Capital Research Institute adopted a quantitative method to compare the performance of listed companies on board governance, board of supervisors governance, nomination committee, independent directors, equity incentive and other subdivision indicators.

In addition, the report also focuses on external supervision factors such as the disclosure of punishment by the CSRC, the exchange and other departments, so as to sort out some "positive lists" of listed companies with perfect governance structure and in place risk control management, as well as some corresponding "negative lists".

The 21st Century Capital Research Institute found that among the listed companies, the overall governance of bank shares is good, while the overall governance structure of many insurance and securities companies is also relatively perfect. COSCO Haifa (601866. SH), Great Wall Motors (601633. SH), GAC group (601238. SH), Sichuan Chengyu (601107. SH), Chalco International (601068. SH), Dongfang Electric (600875. SH), etc, Also has a relatively complete company internal control situation.

The "negative list" is mainly occupied by * ST, st and other "Beatles and hats" companies. This kind of company lacks stable fundamentals, the management structure is relatively loose, and there is not enough internal supervision and checks and balances. It is easy to form a situation of insider control, such as the board of directors "one word hall", the board of supervisors "stage supervision", the shareholders' meeting into "large shareholders' meeting".

Trend Outlook: ESG credit system still needs to be improved

Looking forward to the future development trend of ESG investment, the 21st Century Capital Research Institute believes that although China's ESG investment started late, due to its huge market capacity and economic structure, its development speed in the next few years is likely to exceed the expectations of all parties in the market.

China's credit environment has improved to a certain extent, combined with the institutional transformation of A-share investor structure, and the increase in the proportion of long-term funds such as pension into the market, the development of domestic ESG investment will be further accelerated. Under the background of accelerating docking between A-share and global capital market and booming overseas ESG investment, A-share market will become the most important ESG investment market in the Asia Pacific region in the future.

The 21st Century Institute of capital pointed out that the core issue of ESG investment in China's capital market is the need to establish a unified information disclosure standard applicable to most industries. For example, for routine ESG indicators such as board governance, tax payment and public welfare, the regulatory authorities can introduce a mandatory disclosure system.

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