Source: Ping An
Ping An Insurance (Group) Company of China, Ltd. (hereafter "Ping An" or the "Group", HKEx:2318; SSE:601318) presented today its responsible investment system to facilitate Environmental, Social and Governance (ESG) investing and promote long-term value creation in China's capital market.
Incorporating its extensive experience in ESG investment, Ping An Group has created the CN-ESG Smart Rating System for the market, providing a suite of smart ESG investment tools with comprehensive, intelligent and practical features that are China-specific.
Companies in China got off to a late start in ESG information disclosure, compared to companies in other major capital markets. Though China company disclosure has increased over the years, the scope and quality of disclosure in China is still behind. In addition, standards of disclosure from different regulatory bodies and assessment by rating agencies are not aligned, resulting in different ratings for the same company. As a result, companies lack actionable insights to improve their ESG ratings or guide their investment decisions.
Despite the continued toll of COVID-19 on the global capital markets, ESG investing has demonstrated strong resilience, and has been increasingly favored by investors during the pandemic. Ping An categorized the CSI 300 companies into two groups: ESG-friendly industries, which include computer applications, electronic manufacturing, medical equipment, environmental engineering and services, healthcare business and semiconductor industries, and ESG-unfriendly industries, which include coal mining, petrochemicals, extractive services, oil mining and other resource-extraction industries. Based on the analysis, the profitability and Sharpe ratios - which measures risk-adjusted returns -- of ESG-friendly industries outperformed the ESG-unfriendly industries significantly.
Ping An has taken a leadership role in promoting responsible investment in China, as a responsible asset owner and technology provider. At the end of 2019, the investment scale of Ping An's insurance funds reached RMB3.22 trillion. Ping An was the first asset owner in China to sign the UN-supported Principles for Responsible Investment (PRI).
Richard Sheng Ruisheng, Board Secretary and Brand Director of Ping An Group said, "ESG is emerging in China. As a pioneer of ESG in China, by tapping on our experience and technology, Ping An has established its proprietary methodology, investment know-how, and product toolkit in the ESG space. These first-mover advantages have enabled us to create an ESG system with unique Chinese characteristics for the industry."
Building a CN-ESG smart assessment system suited to China
Ping An's CN-ESG System has four dimensions: Environmental (E), Social (S), Governance (G) and Business (B), which can be analyzed in three modules: General Indicators, Industry Matrix and Public Opinion. The General Indicators include 13 themes, with 134 mandatory indicators and 260 optional indicators. The CN-ESG system builds on the ESG compliance disclosure requirements of the Hong Kong Stock Exchange and the Shanghai Stock Exchange, as well as international guidelines from the globally influential MSCI ESG Ratings and Dow Jones Sustainability Indices. On the one hand, Ping An's CN-ESG system can help companies to better understand and improve their ESG performance and disclosure standards; on the other hand, the system helps to eliminate ESG-related risks, identify new value of companies, and provide supplementary information to aid investment decisions, so as to identify investment-worthy industries and companies.
For smart data collection, indicator assessments and the scoring process, the CN-ESG system is empowered by artificial intelligence (AI) technologies such as natural language processing, remote sensing image analysis and machine learning. This avoids the subjectivity arising from manual scoring, and enables high-frequency assessment to support timely investment decisions.
Ping An's Own ESG Investment Management System
Aiming to promote long-term sustainable investing and corporate sustainable development, Ping An Group has established a 4-in-1 responsible investment system that incorporates the four pillars of Value, Control, Tools and Practice. "Value" represents compliance with the Group's established responsible investment principles and values; "Control" represents the integration of environmental and social risks into the Group's risk management system; "Tools" represents the Group's comprehensive set of ESG investment management tools and data; and "Practice" represents the integration of ESG principles across the Group's entire investment portfolio. Driven by this 4-in-1 responsible investment system, the Group's green investments in 2019 reached RMB51.2 billion and socially-inclusive investments reached RMB903.2 billion.
"Ping An Group has placed greater emphasis on long-term sustainable development in its business philosophy, rather than merely achieving short-term financial performance. The Group's ultimate goal is to achieve a leading ESG position in China and enter into the international responsible investment market. The Group also aims to leverage ESG investing to strengthen its risk management, thereby achieving stable investment growth to create long-term value for investors," Mr. Sheng said.