What is the relationship between E, S, and G?
E – Environment. The rapid development of modern society has caused serious damage to the environment, and the urgency of environmental governance has been paid unprecedented attention by various governments, which is also the most important concern of the three ESGs.
But in fact, S (society) represents the consideration of the sustainable development of the overall destiny of mankind, including social responsibility, employee responsibility, supply chain responsibility, product responsibility, etc., so it can be said that S (to achieve sustainable development of human society) is the ultimate goal, and environmental issues are the most urgent parts that affect the fate of mankind.
G (governance) is an important means of realization and core, investors mainly through G (corporate governance part) to examine the results of corporate social responsibility implementation. The mainstream ESG investment strategy is divided into 7 categories: ESG integration method, corporate participation and shareholder action, convention-based screening, negative screening/elimination method, best-in-class method/positive screening, sustainable thematic investment method, and impact investing and community investment.
ESG as an investment concept officially entered China only a few years or so, compared with developed countries, mainland ESG investment started late, there is no unified and clear standards or disclosure system, more developed capital market has a certain gap.
The philosophy of ESG investment can be traced back to the ethical and moral investment of religious churches in the twenties of the last century, through selective investment to avoid certain "guilty" industries. As of the 1960s and 1970s, green consumption and environmental protection initiatives have generally emerged in developed countries; since the birth of the Perth Global Fund in the United States in 1971, the attention of the global capital market to sustainable investment has continued to rise, and regulators in various countries have also introduced relevant systems and regulations; and the concept of ESG was proposed in 2004, first proposed by the United Nations Global Compact, as of 2006. The United Nations established the Responsible Investment Principles Organization (UNPRI), under the impetus of UNPRI, ESG's investment philosophy gradually took shape, and the principle of investment was formally established. As a result, ESG indicators composed of environmental, social and governance factors have become an important indicator to measure the sustainable development of enterprises, and ESG investment has also become one of the mainstream investment strategies and investment methods in the world.
As of 2020, the global ESG principle of asset management is nearly 40 trillion US dollars, accounting for about 30% of the entire global asset management scale, and it is expected that by 2025, the global ESG asset size will reach 50 trillion US dollars - in the past three years, the management scale of global ESG funds has achieved a compound growth of more than 60% for three consecutive years; mainland ESG is in the early stage, small in scale, but the growth trend is obvious in recent years. Since the first batch of Chinese institutions joined the United Nations Responsible Investment Principles Organization (UN PRI) in 2018, a total of 91 institutions have joined. According to the China Responsible Investment Forum, as of October 2020, the size of China's ESG market was about 13.71 trillion yuan, an increase of about 22.9% over 2019 statistics, of which green loans accounted for more than 80%. Drawing on the development trend of global ESG funds, it is expected that the scale of China's ESG investment will reach 20 trillion to 30 trillion yuan in 2025, accounting for about 20% to 30% of the total scale of the asset management industry.
As China's economy enters a new stage of high-quality development, especially in the context of national strategies such as "double carbon" goals and common prosperity, ESG has attracted more and more attention and attention from all parties, and the sustainable wave of the fashion industry in recent years is also part of the environmental governance in ESG. In January, Burberry officially secured a sustainability loan totaling £300 million from Lloyds Bank. Burberry described the loan as a revolving credit facility related to the achievement of its ESG goals, which will be earmarked to achieve Burberry's previously announced "2040 targets," such as accelerating emissions reductions of 46% in its supply chain systems by 2030 and achieving net zero emissions by 2040.
After China proposed the dual carbon target, enterprises gradually incorporated ESG rating standards into their development strategies and gradually improved the level of construction. Recently, Morgan Stanley Capital International (MSCI) upgraded the Bosideng Group's ESG (Environmental, Social and Corporate Governance) rating from "BB" to "BBB", ranking a leader in China's textile and apparel industry. The improvement of Bosideng's ESG rating benefits from the company's excellent performance in product quality improvement, supply chain, employee welfare, social responsibility and other issues.
Bosideng has established an ESG management framework from the three levels of decision-making, management and execution to ensure the effective implementation of ESG standards. In terms of product quality, Bosideng focuses on the research and development of down jackets, as of the 2020/21 fiscal year, the brand has accumulated 231 patents of various types, and at the same time, in 2021, it was also selected for the first time in the "2021 Top 50 Most Valuable Apparel Brands listed by Brand Finance", an international brand value assessment authority; in the process of brand development, Bosideng attaches great importance to supply chain governance, attaches importance to the safety, sustainability and traceability of raw materials, as of 2020/ In FY21, 49% of the raw materials purchased have been certified by bluesign, and 95% of the cooperative suppliers have passed RDS certification; at the same time, we pay attention to the learning and training of employees, optimize the personnel structure, integrate sustainable development into talent management, and provide talent reserves for the long-term development of the company; in terms of corporate social responsibility, Bosideng has donated more than RMB 1.2 billion to the society in the 2020/21 fiscal year.
In addition to Bosideng, Shenzhou International, another giant in China, is considered by RBC (Royal Bank of Canada) to be "one of the leaders in the field of EGS" in the apparel industry in the EGS management system. RBC pointed out in the report that in terms of the environment, Shenzhou International continues to develop its energy-saving and emission-reducing facilities and technologies. It has industry-leading cleaner production processes, as well as large-scale reclaimed water reuse facilities that significantly reduce resource consumption, and the company has also applied these processes and facilities to overseas factories in Vietnam and Cambodia; on the social front, Shenzhou International has established a strict employment policy that eliminates child labor, prohibits forced labor, and provides perfect employee benefits. In 2018, the employee turnover rate was only 4.06%, far below the average turnover level of the industry; Shenzhou International's rigorous ESG governance attitude represents that the company is unlikely to be exposed to scandals that harm business interests, which is an extremely favorable factor for attracting customers and investors.
Corporate sustainability requires long-term exploration in order to discover ideas that are suitable for itself. At the moment when the ESG trend is rising, China currently lacks standardized ESG information disclosure guidelines and a localized ESG report rating system, but with more and more companies joining, at the institutional level, it is imperative to establish and develop an ESG system that adapts to China's national conditions and meets the characteristics of China's capital market.