Huabao Fund Yan Xu on ESG investment: China will transition from the past traditional economic cycle to the carbon asset cycle

On December 13, Yan Xu, Investment Director of Balanced Growth Style of Huabao Fund, shared how to invest in ESG under the carbon neutrality goal at the 36Kr Capital Market Summit Forum.

After China proposed carbon neutrality targets in September last year, ESG investment is also in full swing in China.

Yan Xu believes that the so-called ESG investment is to add a dimension to our daily value investment process, that is, to pay attention to the environment (E), social responsibility (S), and corporate governance (G), and to incorporate these three elements into investment considerations.

Under the goal of carbon neutrality, China will open a new cycle with carbon as the core. The development of economic structure, changes in industries, and the definition of carbon asset prices will lead to a completely different cycle than in the past.

Under this framework, Warburg Fund divides assets into several categories:

1. Solution class assets. Be able to help solve carbon emissions, such as clean energy, digital economy;

2. Neutral industry. The direct impact of such industries on carbon emissions is not so large. For example, the consumer industry, in addition to reducing carbon emissions in the relevant production and operation processes, may need the industrial chain to gradually achieve carbon neutrality, and finally achieve net zero emissions of terminal products;

3. Transform assets. This includes assets in the industrial sector, such as the steel industry, which has very high carbon emissions. In the future, in the production process, we will use as much green electricity as possible, and constantly explore new processes to reduce carbon emissions in the transformation of production processes;

4. Sunken/stranded assets. In the future, pure resource assets such as coal will receive less and less financial support, and the market's valuation logic will change.

Back to the Warburg Fund itself, The Warburg Fund has begun to do ESG investment research in 2017. It has issued the Green Theme, Green Leading Fund and Sustainable Development Fund, and its Ecological China Fund has won the ESG Gold Fund Award for two consecutive times. In terms of passive products, MSClESG index funds are also laid out. Therefore, in the future, on the ESG as a whole, Huabao Fund will continue to lay out, for sustainable development and for responsible investment.

Finally, she pointed out that in the strategy used by ESG investment in the world, the most important thing is to exclude the tail risk of some investments through negative screening. Strategies for ESG integration and due diligence will also be gradually implemented and promoted in China.

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