ESG index to launch on Shanghai exchange

In a sign that ESG issues are becoming a greater concern in China, the country’s first ESG index will launch this Friday as a joint venture between the main Shanghai exchange and an Italian research company.The Shanghai Stock Exchange’s research centre director, Professor Ruyin Hu, said the China Securities Index Company (CSI) is working with ECPIT, an Italian company which specialises in sustainability research and ESG (environmental, social and governance) index construction.

Professor Hu said that ESG issues were becoming a greater concern to the Shanghai exchange and this had led to building the new CSI ECPI ESG Sustainable Development 40 Index.

This index follows the recent launches of two ETFs (exchange-traded funds) to track the corporate governance index and the corporate social responsibility index, Professor Hu, said.

This comes at a time when MSCI also recently launched a family of more than 20 ESG indexes.

In an interview with Top1000funds.com, Professor Hu said there was evidence of China paying more attention to ESG issues.

In February 2008, the Ministry of Environmental Protection (MEP) and the China Securities Regulatory Commission (CSRC) launched the Green Securities policy that made it harder for polluters to access capital markets.

Under this policy, enterprises in high-pollution industries had to be assessed environmentally by MEP before an IPO or SEO (secondary equities offering).

During that 10-day pre-IPO evaluation, MEP did its own assessment and solicited public opinion, Professor Hu said, and if MEP-approved, the IPO would proceed.

In July this year, the Zijin Mining Group’s 9,100 cubic metre acid leak from its wet sewage facility killed 1,890 tons of aquatic life, but the company did not admit this for nine days – seven days longer than the mandatory 2-day reporting for such a leak.

Due to this infringement, MEP had closed the mining plant and was investigating the company after issuing a public sanction on the company.

Another signal of progress on ESG issues was that the Shanghai Stock Exchange now required companies to report corporate social responsibility issues separately from their annual reports, rather than being contained within the report.

Professor Hu said one problem facing the exchange was that no uniform standards existed for CSR reporting, and so this was an area that the exchange’s research centre was working on.

The mining sector presented a particular challenge, he said, in its CSR reporting: last year, 318 listed companies (36 per cent) of the total on the SSE disclosed CSR reports, but only 21 firms (about 2 per cent) were from the extractive mining sector.