In the first quarter of 2024, China's top-level ESG design has made significant progress.
In February, the three major stock exchanges in Shanghai, Shenzhen and Beijing issued a draft of the guidelines for the disclosure of sustainable development reports of listed companies. In April, the guidelines were officially released, in which the Shanghai and Shenzhen Stock Exchanges adopted a combination of mandatory and voluntary disclosures to require enterprises to disclose sustainable development information.
The issuance of the guidelines provides a clear framework for domestic listed companies to carry out ESG information disclosure, and further consolidates the consensus foundation for all parties in the market to understand and practice the ESG concept.
While the discussion on ESG investment and ESG information disclosure continues to "heat up", the issue of ESG rating has attracted more and more attention from the market. The continuous strengthening of ESG disclosure requirements by regulators and the continuous attention of investment institutions to ESG ratings have put forward higher requirements for enterprises' ESG risk management capabilities. Identifying ESG risk points in corporate operations and improving ESG practices are becoming inevitable requirements for listed companies to meet regulatory requirements and improve market competitiveness.
1,381 listed companies were exposed to 4,906 risk events
In the first quarter of 2024, a total of 1,381 listed companies were exposed to ESG risks, with a total of 4,906 risk events and a risk index of 5,268.6.
From the perspective of ESG, risk events in the social dimension accounted for 51%, and risk events in the governance and environmental dimensions accounted for 37% and 12% respectively.
From the perspective of industry distribution, the top five industries in terms of the number of risk events are manufacturing, real estate, wholesale and retail, finance, and construction.
In terms of the severity of risk exposure, the top five industries with the average risk index are mining, construction, transportation, warehousing and postal services, finance, health and social work.
Five companies, including China Railway Construction, China State Construction, China Railway, Public Transportation, and Greenland Holdings, had dozens of risk events in the first quarter, and the company's ESG risk index ranked among the top five among 1,381 listed companies.
The social dimension of risk is prominent, and security incidents account for more than 70%.
In the first quarter, a total of 2,522 risk events were exposed in the social dimension, accounting for 51% of the total number of risk events in the quarter, involving 749 listed companies. From the perspective of exposed risks, the safety risks are the most prominent, followed by the risks of consumer rights and employee responsibility.
A total of 1,915 safety risk events occurred in the social dimension, including 1,500 risk events in the three categories of fire safety, production safety, and traffic safety. Fire protection and production safety run through the daily operation of the enterprise, which is easy to be overlooked, such as Country Garden Service has been punished for fire safety issues for a total of 25 times, and Shaanxi Coal Industry has been punished for production safety issues for a total of 23 times. Traffic safety often causes public injury, such as the death of 6 people in a traffic accident caused by fatigue driving in Yunda.
The cross-analysis shows that fire safety risk events are mainly concentrated in real estate, wholesale and retail trade, and manufacturing, while production safety risk events are mainly concentrated in mining and manufacturing.
Frequent security risks warn enterprises to not relax on security issues in their daily operations. As social production and business activities enter the peak season in the second quarter, the pressure on enterprises' safety risks will increase significantly, and strengthening operational safety management should be the focus of ESG risk management.
In terms of consumer rights and interests, a total of 566 risk incidents occurred, mainly involving product quality and safety issues (196 cases), false publicity (104 cases), inadequate services and non-fulfillment of promises (59 cases), and 28 incidents of inducing consumption or fraudulent consumption.
In January, the Wenzhou Central Branch and the Hangzhou Central Branch of New China Life Insurance were both fined for defrauding policyholders, and financial companies such as China Reinsurance, China Property Insurance, and Ping An of China were also punished for inducing or fraudulent consumption. Practicing the concept of fair marketing is the basic requirement for enterprises to fulfill their consumer responsibilities. In financial consumption, insurance, wealth management and other services require financial enterprises to uphold a frank attitude when serving customers, fully protect consumers' right to know and choose, and not deliberately deceive.
In terms of employee liability, there were 34 wage disputes such as wage arrears, mainly concentrated in the construction and real estate industries, such as Greenland Holdings, China State Construction, China Railway Construction and other enterprises had a number of cases of arrears of project payments and underpayment of wages.
The manufacturing industry is highly risky, and the mining industry is highly risky
According to the classification of national economic industries, the cloud platform monitors the ESG risks of 19 industries. In the first quarter, there were 1,217 manufacturing risk events, involving 633 listed companies. The number of risk events in real estate, wholesale and retail trade, finance, and construction was 632, 585, 573, and 454, respectively.
The number of manufacturing risk events is "far ahead" of other industries, which is related to the relatively large base of listed companies in the industry on the one hand, and the relatively dense ESG risk points in the industry on the other hand.
Manufacturing companies often have complex production chains, and in addition to managing their own ESG risks, ESG risks in the supply chain or cooperation network will also be transmitted to the enterprises. Monitoring shows that 232 of the 1,217 risk events occurred in the company's subsidiaries or supply chains. From the perspective of the specific risk points exposed (the third-level ESG risk index of Shanzeyun), the ESG risk events in the manufacturing industry cover 70 risk points, which is 29 more than the real estate industry, which ranks second in the number of risk events.
The number of risk events in New Hope, BYD, Huaxin Cement, Guirenniao, Lao Fengxiang and other enterprises ranks among the top five in the manufacturing industry. New Hope exposed 23 risk events, covering fire safety, traffic safety, production safety, excessive exhaust emissions, illegal construction, etc.
In terms of the severity of risk exposure, the average industry ESG risk of the mining industry is higher than that of other industries. In the first quarter, a total of 334 risk events were monitored by 49 mining enterprises, with a risk index of 529.4 and an average industry risk index of 10.8.
The main reason why the mining industry is more risky than other industries is that the impact or hazard of risk events is greater. Among the 334 mining industry risk events, 230 were safety risk events with a risk index of 419.45, and 59 were environmental risk events with a risk index of 73.
PetroChina, Sinopec, Shaanxi Coal, China Shenhua, China Coal Energy and other companies ranked among the top five in the mining industry in terms of the number of risk events. In recent years, the State-owned Assets Supervision and Administration Commission of the State Council has continued to promote the development quality of listed companies controlled by central enterprises, and improving ESG governance and risk management capabilities is an important part of this. Large energy central enterprises or state-owned enterprises should play a leading role in managing their own ESG risks and driving the ESG construction of the industry.
The conductivity of ESG risks in the industrial chain is highlighted
The platform monitors and evaluates the ESG risk performance of listed companies. However, since listed companies usually have multiple branches and multi-level suppliers, the risks of the branches and suppliers of listed companies are also included in the specific monitoring of the risks of listed companies, so as to more comprehensively portray the ESG risk profile of listed companies and reflect the level of ESG risk management.
Of the 4,906 risk events monitored in the first quarter, 1,705 occurred in the branches or supply chains of listed companies, with a risk index of 1,789.4.
Specifically, 536 listed companies were affected by the exposure of ESG risks in the industrial chain. For example, China State Construction exposed a total of 79 risk events in the first quarter, of which 57 occurred in branches or supply chains. Greenland Holdings was exposed to a total of 60 risk events in the first quarter, of which 50 occurred in branches or supply chains. ESG risk transmission and superposition effects are obvious.
From the perspective of industries, listed companies in different industries face different ESG risk transmission points. Fire safety ranks first in the risk transmission point of listed real estate companies, credit management is not in place in the first place in the risk transmission point of financial listed companies, and engineering safety is the most prominent risk transmission point of listed companies in the construction industry.
ESG risks from branches, holding or shareholding companies, suppliers and other industrial chains suggest that listed companies should not only do a good job in their own ESG risk management, but also pay more attention to the ESG risks of industry stakeholders.
China Railway Construction ranked first in the quarterly risk list, and the ESG management of construction enterprises needs to be improved urgently
Among the 1,381 listed companies exposed ESG risks in the first quarter, the top 10 companies in the risk index were China Railway Construction, China State Construction, China Railway, Public Transportation, Greenland Holdings, Shaanxi Coal, Yonghui Supermarket, PetroChina, Yunda and New Hope.
Among the top 10 companies, the top three are construction companies, exposing the frequent occurrence of ESG risks in listed companies in the construction industry, and the level of risk management needs to be improved urgently.
CRCC's risk index totaled 93.4, ranking first in the risk ranking of listed companies in the first quarter. From the perspective of exposed risks, engineering safety, illegal land development, non-compliant construction, excessive exhaust emissions, and production safety are areas with high ESG risks in China Railway Construction.
Objectively speaking, construction enterprises participating in infrastructure projects are facing relatively large risk pressures due to the long industrial chain, the wide range of personnel involved, and the long operation cycle. However, the frequent occurrence of risk events in the field of compliance has exposed the systemic inadequacy of enterprise ESG risk management or the need for further optimization of the current risk management mechanism. As a large-scale comprehensive construction group with global influence, China Railway Construction needs to do a solid job in order to become a "builder of a better life".
Recommendations for improving ESG management
Based on the monitoring and analysis of ESG risk events in the first quarter, we put forward the following suggestions for listed companies to improve ESG management:
First, we should pay attention to the "S" dimension and comprehensively portray the ESG risk map of the enterprise. In response to climate change and the dual carbon goals, public discussions on ESG often focus on the environmental dimension, and some companies are also accustomed to expressing their ESG practices in terms of environmental or even dual carbon actions, resulting in partial generalizations. The monitoring of Shanzeyun found that listed companies are more dense in the social dimension of risk points, and more closely related to relevant parties, and pay attention to the "S" dimension, which helps enterprises to identify ESG risks and opportunities more comprehensively.
Second, pay attention to the transmission of ESG risks in the industrial chain. Listed companies should not only be limited to their own ESG risk management, but should expand the scope of risk identification as much as possible, especially partners who have a close relationship with their own industry, so as to avoid or reduce the possibility of increasing their ESG risks due to the transmission of upstream and downstream risks in the industry.
Third, we will continue to strengthen our compliance operation capabilities. The ESG concept first advocates the comprehensive management of corporate risks, and consolidating the foundation of compliance operation is the most basic requirement for practicing the ESG concept. At a time when business operations are facing uncertainty and the external environment is complex and changeable, only by continuously strengthening compliance operations can we lay a solid foundation for high-quality development.
For more information on ESG risk monitoring, please visit the website of Shanze https://csr.infzm.com/
China Corporate Social Responsibility Research Center of Southern Weekly
Editor-in-charge: Tan Chang