(Nov. 10, 2018 Beijing) The Asset Management Association of China, supervised by China Securities Regulatory Commission, today issued its first-ever Green Investment Guidelines (for trial implementation) (hereafter the “Guidelines”). As the first systematic and comprehensive voluntary standard for China’s asset management industry, the formulation of the “Guidelines” represents a significant step toward integration of ESG considerations into the investment process of institutional investors and scaling up green investment in China.
With five chapters and 18 articles, the "Guidelines" bring much-needed clarities to the definition, scope, and purpose of green investment activities in China. The "Guidelines" also have a strong signaling effect, as it sets basic principles and standards for several key dimensions of green investment activities, including investment methodologies, investing strategies, regulations, benchmarks and evaluation. On the more practical level, the “Guidelines” also seek to address some outstanding implementation challenges in the ESG investing space, such as the ones concerning information disclosure, indicators, standards, as well as the development of green investment products.
The specific chapters of the “Guidelines” are as the following:
Chapter 1, the General Principles, establishes the overall definition of "green investment", and the scope of application of the Guidelines. Notably, the “Guidelines” will not impose mandatory requirements on fund managers, but rather to serve as a guide for the industry to build a green investment eco-system, and provide a strategic framework and a set of norms for ESG investing in China.
Chapter 2, Aims and Principles, defines the objectives and basic principles of carrying out green investment activities. Specifically, it urges fund managers to prioritize investing in green sectors, and emphasizes the strong linkages between green investment and other policy and business priorities, such as the development of green industry, improving efficiency in the utilization of resources, sustainable and low-carbon development, and socially responsible investing.
Chapter 3, Basic Methods, provides a practical guide to fund managers regarding the many aspects of green investment activities, including staffing need and structure, asset evaluation methods, environmental risk assessment, investment products and strategies, as well as the optimization of portfolios. Specifically, it calls for all fund managers to gradually improve the relevant database, methodology and investment strategy related to green investment, and to eventually build a system that can effectively assess the environmental performance of managed assets.
Chapter 4, Supervision and Management, establishes the monitoring and evaluation measures of fund managers against their “green” performances. In particular, it asks fund managers to conduct self-assessment on an annual basis and submit the results in writing to the Asset Management Association of China by the end of March each year. Quite remarkably, as explicitly mentioned in the “Guidelines”, the Association will also conduct their own evaluations – and on an irregular basis - of the ESG performances of the fund managers. This enforcement mechanism effectively gives the “Guidelines” a semi-mandatory power.
Lastly, Chapter 5 of the “Guidelines” contains supplementary provisions on the responsible party and date of implementation. The self-assessment form for the fund managers is also given in the annex.
The introduction of the Green Investment Guidelines is seen as a potential game-changer in the ESG investing space in China. Currently, many Chinese investors still lack awareness of the concepts, methods, and tools behind green investing. There is also an absence of functioning environmental information disclosure framework, as well as a unified green evaluation system, which makes it difficult for investors to obtain green performance data and make robust assessment of potential investment targets. The “Guidelines” seek to address such barriers and challenges by promoting the establishment of a green assessment system, an array of green project databases, and further innovation of green financial products. Perhaps even more importantly, the trade association-backed new policy directive aims at shifting the market attitude away from the current short-termism toward one that is centered around long-term value investment; as well as establishing a much-needed code of conduct for China’s current and would-be green investors.
Read the full text of the Green Investment Guidelines (Chinese version)
(by Wenhong Xie)