(Source: Caixin.com)
The Caixin Summit 2004 ESG Special Session and China ESG30 Forum Annual Meeting 2024 was held in Beijing on November 9, with the theme "Rooting for Value: Pathway Forward". Participants engaged in in-depth discussions on ESG practices and management of banks. Xia Weichun, General Manager of the Board of Directors and Supervisory Office of China's Industrial Bank (CIB), attended the forum on behalf of the bank and shared practices in the era of ESG investment 2.0.
Xia Weichun pointed out that, ESG has now entered the "deep water zone," which means greater development opportunities for participants but also higher requirements for their ESG management capabilities. CIB has embraced the political and people-oriented responsibilities of the financial sector and strengthened its ESG governance structure and management system. It has charted a course of balanced development that aligns economic, social, and environmental interests, harmonizing international standards with Chinese characteristics in its ESG journey.
Exploring the Pathway of ESG in the New Era as We Enter the Deep Water Zone
Looking back, related ideas such as "responsible investment" and "green finance" had already emerged before the concept of ESG was formally introduced. In 2006, the United Nations-supported Principles for Responsible Investment (PRI) were released. In that same year, Goldman Sachs published an ESG research report integrating the concepts of environment, social, and governance, thus explicitly proposing the concept of ESG.
In 2023, the International Sustainability Standards Board (ISSB) officially released the first set of global ESG reporting standards, providing an international benchmark for companies to disclose climate and sustainability information, thereby further enhancing comparability across companies worldwide.
Domestically, relevant policies are also being refined and detailed. Initiatives such as the "Five Major Topics," the Beautiful China construction, the green transformation of the economy and society, and the "Dual Carbon" goals are continuously enriching the connotation and extension of ESG.
At the same time, the requirements for ESG information disclosure are becoming increasingly specific. In May 2024, the Ministry of Finance released the "Corporate Sustainability Disclosure Standards - Basic Standards (Draft for Comments)" for public consultation, marking the initial formation of a unified national sustainability disclosure framework in China. Its subsequent official release and implementation will promote more standardized disclosure in the ESG field among Chinese enterprises.
Xia Weichun believes that ESG work must be aligned with the contemporary context and specific policies to truly explore a unique "China path" for ESG efforts. As a pioneer in ESG practice in the domestic banking industry, CIB has been practicing sustainable development concepts for 20 years. As early as 2004, CIB introduced the International Finance Corporation (IFC) as a strategic investor and launched the first energy efficiency financing product in China, marking its first steps in green finance. It later became a founding member of the UN Principles for Responsible Banking (PRB) and was among the first domestic banks to sign the UN Climate Neutral Now pledge.
In the context of the new era, CIB advocates for integrating sustainable development concepts such as ESG, green finance, and transition finance to explore a localized ESG roadmap and accelerate the formation of a Chinese-style ESG path that emphasizes political and people-oriented values.
In the Governance (G) dimension, at the board level, CIB has renamed its original Strategy Committee to the "Strategy and ESG Committee," chaired by the Chairman of the Board; and at the headquarters level, it has established an ESG Task Force, which includes specialized committees and working groups assigned with corresponding responsibilities. In addition, CIB pioneered the development of an ESG management system by establishing an industry-leading ESG Management Center that includes a closed-loop management system with four key modules: Strategy, Execution, Performance, and Communication. By setting annual priorities for ESG management, CIB has embedded ESG principles into its overall strategy, key decisions, daily operations, and employee behavior, effectively strengthening its internal governance.
In the Environmental (E) dimension, CIB has financed green businesses and aligned its support for the green transition of traditional industries with the growth of emerging green sectors. CIB has also strengthened its carbon financial service system by incorporating an innovative ESG risk assessment framework into its credit approval processes for companies in relevant industries. The results are tangible. According to the financial report for the first half of 2024, as of June 30, 2024, CIB's green finance balance reached RMB 2.13 trillion, with green loans totaling RMB 915.1 billion, an increase of 13.11% from the end of 2023. These loans support projects that contribute to the annual savings of 10.16 million tons of standard coal, 24.09 million tons of carbon dioxide, and 10.47 million tons of water.
In the social (S) dimension, CIB leverages its unique position as a bank connecting various industries to focus on financially underserved areas such as rural revitalization, common prosperity, and inclusive finance for SMEs, bridging the "last mile" to promote sustainable socio-economic development through high-quality financial services. CIB continues to enhance the accessibility, coverage, and precision of financial services by operating the open service platform Industrial Inclusive Finance, which offers a comprehensive range of "finance + non-finance" services tailored to SMEs. It has also developed an innovative rural financial service model involving financial commissioners as "friends," the Internet of Things as "hands," and satellites as "eyes." Data shows that as of the end of June, CIB's inclusive loan balance of SMEs reached RMB 548.5 billion, up by 9.49% from the end of last year, effectively alleviating the difficulties and high costs of financing for SMEs. Its agricultural loans totaled RMB 727.1 billion, up by 9.38% from the end of last year. Additionally, CIB integrates public welfare with financial services, delves deep into the field of financial services for the elderly, actively assumes corporate social responsibility, and remains committed to long-term philanthropic initiatives, truly embodying the principles of "finance for good" and "finance for the people."
The advanced ESG governance system and management philosophy have gradually established CIB as a benchmark for ESG in the domestic banking industry. Currently, CIB holds an MSCI ESG rating of AA, making it the only Chinese bank to receive the highest rating for five consecutive years. It was also the first Chinese bank to be included in S&P Global's Sustainability Yearbook (China).
Strengthening Competitiveness and Shaping Long-Term Value for Listed Companies
In recent years, governments and non-profit organizations have adopted ESG as a new dimension for sustainable organizational governance. Driven by the rapid advancement of the global green transition, changes in overseas markets, and ongoing domestic and international regulatory developments, the development of ESG in capital markets and investment fields has also entered a 2.0 era.
In April 2024, China's three major stock exchanges officially released the "Guidelines for Sustainable Development Reports of Listed Companies," explicitly stating that listed companies should integrate sustainable development concepts into their development strategies and operational activities, continuously strengthen ecological and environmental protection, fulfill social responsibilities, improve corporate governance, and enhance their governance, competitiveness, and innovation.
For listed companies, future ESG performance will be increasingly tied to their market value management. With the disclosure system becoming more robust, more ESG investment institutions will participate in investing in listed companies.
The data is clear. Take CIB as an example. In terms of active investment, as of the end of June 2024, 140 foreign institutions held shares in the bank, with approximately 36% of them being signatories to the UN Principles for Responsible Investment (PRI). In terms of passive investment, 91% of ESG ETFs holding shares in the bank were tied to MSCI indices. According to S&P Global's analysis, after CIB's MSCI ESG rating was upgraded from A to AA last year, the number of shares held by an ESG-themed index fund increased by 127.65%, which is 8.7 times faster than the growth rate of another non-ESG-themed index fund.
It is evident that, from a capital market perspective, ESG performance effectively reflects a company's long-term investment value and risk resilience, and even serves as a "risk screening mechanism" for institutional investors in capital markets. Therefore, ESG is increasingly becoming an important metric for investors to evaluate corporate performance and is even regarded as a company's second financial statement.
According to research by China International Capital Corporation (CICC), the scale of ESG investment in China is expected to reach RMB 20 trillion to RMB 30 trillion by 2025, accounting for 20% to 30% of the total asset management industry. The rapid growth of ESG investment scale has brought substantial financial support to corporate development. Consequently, enterprises are motivated to integrate ESG into their organizational strategies, major decisions, and daily operations by proactively preparing ESG reports to fully disclose corporate information.
Xia Weichun also expressed this viewpoint. He believes that strong ESG performance will undoubtedly promote the return of long-term company value.
Meanwhile for banks, the significance of developing ESG extends beyond "being a listed company itself" to giving full play to the role of resource allocation. Banks can adjust the size of the credit according to the customer's ESG rating. "Companies with strong ESG performance tend to have lower risks, and banks can increase credit allocation to them," Xia noted.
In practice, Xia proposed "adding a new table alongside traditional financial statements." "In the future, we may need to create a set of tables based on carbon footprints and carbon accounts, and even E, S, and G factors, and combine these two tables to assess financing for enterprises."
Under an efficient ESG management system, CIB actively explores innovative practices in sustainable finance, taking on the responsibility and mission of being a green leader in banking. While promoting the localization of ESG, CIB has translated its ESG leadership into differentiated service capabilities to support China's low-carbon transition and the international expansion of Chinese enterprises. It has developed an innovative "finance + non-finance" sustainable development service model, integrating ESG principles into corporate strategy to enhance the international competitiveness of Chinese enterprises.
For example, one client of CIB's Suzhou branch faced challenges in improving its ESG management capabilities when seeking overseas financing. CIB leveraged its expertise across headquarters, branches, and subsidiaries to assist the client in streamlining its internal ESG indicators and management systems and establishing an ESG management framework, and provide recommendations on improving ESG performance. As a result, the client's Wind ESG rating improved from BB to BBB, and its industry ranking rose from 86th to 6th, effectively reducing overseas financing costs. CIB not only achieved its own transition "from green to gold" but also helped its clients achieve the same.
"By effectively utilizing ESG tools and balancing political significance, social benefits, environmental benefits, and economic benefits, a bank can achieve steady and long-term growth, creating win-win scenarios with clients and securing long-term value," Xia stated.
Conclusion: Looking Ahead to the Exploration and Practice in the ESG Field
The successive implementation of ratings and standards, along with the continuous improvement of China's ESG policy framework, provides more precise guidance for the industry's stable and long-term development and imposes higher demands on ESG practices.
There is a consensus that the importance, specialization and refinement standards of ESG work will continue to increase in the future, with a closer correlation to corporate value returns. In one of the earliest industries in China to prioritize and promote sustainable information disclosure, CIB and other major banks still have a long way to go in spreading ESG concepts and promoting exploration and practice in the ESG field.
However, with perseverance, we will reach our destination.