BSR has released "Sustainable Investment in China 2009," the first research of its kind on the topic, according the World Bank Group's International Finance Corporation, which commissioned the report. Available in a full-length version and as a shortened overview, the report surveys the sustainable investment (SI) landscape in China, identifies the challenges associated with the nascent field, and makes recommendations for speeding up the growth of the SI market.

"The increasing interest in sustainable investment from government agencies, and the practices of investors such as Tsing Capital, indicate there is real momentum gathering behind SI and that it is feasible in China," said Zhuo Xin, BSR's Manager, Advisory Services, who leads BSR's financial services practice in China. "The four main drivers are the evolving environmental, social, and governance (ESG) regulatory landscape; the growing awareness of the need for risk management by investors; the increasing-but still limited-amount of third-party information available; and the increasing attention from international SI initiatives."

Recent Trends

The public and private sectors' strong interest in SI in China is supported by several recent developments. The increase in strategic management of ESG by Chinese companies suggests fertile ground for continued SI growth in China. Some Chinese companies have joined the first tier of global companies in corporate social responsibility (CSR) leadership, such as China Mobile, which was included in the 2008 and 2009 Dow Jones Sustainability Index.

Additionally, a growing number of Chinese companies are improving their extra-financial information disclosures. Due in part to guidelines established by the Shanghai and Shenzhen stock exchanges, more than 500 Chinese companies, including many listed on those exchanges, now release ESG reports annually-a significant increase in the past two years.

Taking advantage of these improvements, China's first mutual fund, the AEGON-Industrial Fund Management Co. Ltd, was launched in May 2008 and outperformed the market benchmark by 47 percent through June 2009.

Other evidence of increased SI activity in China includes the Shanghai Stock Exchange's release of a Social Responsibility Index in August 2009, and the Ministry of Environmental Protection's rejection of 20 companies' IPO applications in 2008 due to their environmental performance.

The growing interest in SI was also evident at BSR's recent Beijing event featuring the report. That roundtable, jointly organized with the United Nations-backed Principles for Responsible Investment, was well attended by local and international investors, research organizations, and civil society groups.

BSR's Recommendations

To nurture this interest and promote the growth of SI in China, BSR makes three main recommendations for the SI community in the report:

1. Form a China sustainable investment working group for cooperation and communication among the SI community and to help define SI in China. This will create solutions that can fill the gap between present needs and the future vision.

2. Enhance ESG research and disclosure that targets mainstream investors, which are a broader audience than SI investors alone. A higher quality and quantity of such data on companies, along with easy access to ESG research, could accelerate the progress of mainstreaming ESG approaches.
3. Increase public education about ESG, including integrating sustainability issues into key training programs. This would build broader buy-in and expertise on sustainable investment and CSR.

Main Challenges

These recommendations are designed to overcome the seven main challenges to SI in China that BSR identifies in its report:

1. Confusion over terminology holds back agreements on what SI is and why it is important.
2. Short-term investment horizons discourage investors from looking at long-term company performance.
3. A questionable business case and lack of empirical data makes it difficult to convince the skeptics.
4. Limited ESG information creates challenges for investors analyzing Chinese companies.
5. SI lacks funding sources due to restrictions on key institutional investors that might have longer-term investment horizons but whose equity investments are restricted by regulations.
6. China's SI market does not have ESG research institutions that can provide investors with the relevant information to make investment decisions.
7. China lacks experienced practitioners who can understand ESG issues and evaluate companies accordingly.
For information about BSR's global financial services practice, contact Laura Commike Gitman at lgitman@bsr.org. For information about BSR's financial services practice in Asia, contact Zhuo Xin at xzhuo@bsr.org.

About BSR
A leader in corporate responsibility since 1992, BSR works with its global network of more than 250 member companies to develop sustainable business strategies and solutions through consulting, research, and cross-sector collaboration. With six offices in Asia, Europe, and North America, BSR uses its expertise in the environment, human rights, economic development, and governance and accountability to guide global companies toward creating a just and sustainable world. Visit www.bsr.org for more information.

BSR

BSR

Since 1992, Business for Social Responsibility (BSR) has been providing socially responsible business solutions to many of the world's leading corporations. Headquartered in San Francisco, with offices in Europe and China, BSR is a nonprofit business association that serves its 250 member companies and other Global 1000 enterprises. Through advisory services, convenings and research, BSR works with corporations and concerned stakeholders of all types to create a more just and sustainable global economy. For more information, visit www.bsr.org.

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