- Signatory type: Investment manager
- HQ: Beijing, China
- Region of operation: China
- AUM: Estimated 600 billion RMB (as of 30 June 2020)
- Asset classes: Fixed income, equity, fund-of-funds (FOF), alternatives
When did you start looking at responsible investment?
Formally known as Huaxia Bank’s Asset Management Department, we initiated ESG research in 2018. We subsequently joined the PRI in March 2019, becoming the first wealth manager from the Chinese commercial banking industry to do so. In April the same year, we became the first Chinese wealth manager to launch an ESG strategic wealth management product. Following the establishment of Huaxia Wealth Management Co., Ltd. in September 2020, the entity substituted Huaxia Bank’s Asset Management Department to be a signatory of the PRI.
Why did you start exploring responsible investment?
Responsible investment is a central tenet of China’s sustainable development policy. As a state-owned company, pursuing responsible investment reflects our responsibility to balance social responsibility and profits, and to ensure the country’s long-term economic development. From an investment perspective, ESG considerations help us to avoid risk and obtain sound investment outcomes. Focusing on ESG-themed investment, such as carbon neutrality, can seize investment opportunities while achieving climate targets. From a corporate perspective, practicing responsible investment is an active choice to cultivate a unique brand identity, which helps build our competitiveness.
What were the initial steps you took to get started in responsible investment? Which stakeholders, internal and external, were involved? What additional steps have you followed as your approach has matured?
As an initial step, we conducted comprehensive research into leading responsible investment methodologies and institutions. We then implemented responsible investment in our activities and constructed an ESG strategic framework: negative screening, ESG integration, and thematic investing . Subsequently, we published ESG Investment Guidelines and established an ESG division. In 2020, we constructed a proprietary ESG data and rating system. As of today, we have rated 2,500 fixed income issuers in China and 800 equity issuers in the CSI 800 index, becoming one of the few domestic asset managers with independent ESG rating capacities.
We realised that the development of ESG investing in China’s asset management industry requires long-term collaboration among stakeholders. By holding thematic conferences and publishing research results, we promoted responsible investment among the investment community. In 2019 and 2020, we hosted the China Asset Management Industry ESG Investment Summit. We invited practitioners from across regulatory, academia, and investment bodies to discuss tops of ESG and sustainable investment.
We currently cooperate with Shenzhen Finance Institute under the Chinese University of Hong Kong, Shenzhen to publish annual reports on China’s ESG investment landscape. Based on a survey of over 200 asset management institutions, our 2020 report, as the first ESG-related report focused on China’s asset management industry, outlined the state of ESG investment, along with challenges and obstacles it faces. Looking ahead, we will continue to use our annual survey to track progress in the domestic market and provide guidance for ESG policymakers and practitioners operating in China.
With our database now matured, we have developed proprietary ESG frameworks for different asset classes such as fund-of-funds, fixed income , and equity. We are dedicated to formulating and implementing ESG investment strategies. In the passive space, we launched the CSI Huaxia Bank ESG Index and the CSI ESG 120 Strategy Index, co-developed with the China Securities Index Company Limited (CSI) in April 2020. In September, we also developed with China Bond Pricing Center Co., Ltd. (CBPC) the China Bond - Huaxia Wealth Management ESG Select Bond Strategy Index, China’s first ESG bond index. Currently, four asset management institutions operating in China have made investments based on the above indexes.
As for active strategies, Huaxia Wealth Management has created a Carbon Neutrality Investment Strategy, utilising our climate change adaptation and mitigation framework. We have launched 49 ESG wealth management products to contribute to UN SDGs, such as high-quality economic growth, reduced inequalities, and sustainable cities and communities.
At what point did you decide to sign the Principles for Responsible Investment, and what were the key motivations for doing so? In what ways have PRI support, resources or signatory status been useful along the way?
PRI’s analysis of challenges and solutions provides us with regular updates on domestic and foreign regulation. PRI also shares with its members ESG investment practice guidelines, tools and case studies for equities, fixed income and alternative investments. These have supported the research and development of our ESG evaluation systems. Thanks to PRI, we have participated in events focused on ESG and credit risk assessment, TCFD disclosure training, China corporate governance, and China Carbon Neutral Week. These activities ensure that we align with best practices, identify other responsible investors, and explore opportunities for cooperation.
What challenges (foreseen and unforeseen) did you encounter getting started in responsible investment?
We initially faced the dual challenge of non-standardised ESG data and a lack of an ESG rating framework for fixed income investment. To build a reliable and effective ESG database, we first needed to examine the consistency and coherence of underlying data. With an increasing number of ESG data and rating providers, we combined artificial intelligence to make our ESG database much more comprehensive. Considering the variability of material ESG issues in different sectors and asset classes, we accordingly established different ESG frameworks. In particular, we self-developed an ESG framework for fixed income due to the importance of fixed income investment in our portfolio.
When the Chinese government announced its ambitious goals to reach peak emissions before 2030 and achieve carbon neutrality by 2060, the market was still in the early stages of research into climate risks and opportunities. Based on our research in mature markets, we published three carbon-focused reports through Bloomberg, addressing carbon neutrality pathways, emissions trading systems, and carbon calibration. In these reports, we shared our insights on traditional industries, such as coal and steel, as well as renewable energy industries, such as solar and wind energy. The report series has generated considerable market enthusiasm and has been shared on social media by several media sources.
What do you know now that you would like to have known when getting started? e.g. What would you advise others to consider when starting out?
Responsible investment should be backed by institutional and procedural safeguards. It often requires collaboration between internal stakeholders, such as the research, investment, and risk management department. Firstly, we advise putting in place procedures to support both consensus and implementation regarding ESG and asset management. Regular training would also be appropriate to promote a better understanding of ESG among employees.
Secondly, a robust ESG database and rating system are the foundations of responsible investment. Due to the lack of standardised data, combining various third-party ESG data products and leveraging NLP technology to build a rich ESG database would be essential. Furthermore, contrasting analysis frameworks for fixed income and equities suggest ESG rating methodologies need to evolve within individual asset classes.
Finally, as responsible investment is rapidly developing, we recommend companies establish both short-term and long-term goals based on their work priorities. Since ESG considerations can influence investment decisions through their impact on risk management and material financial implications. Therefore, it would be beneficial to incorporate ESG into risk management frameworks and conduct negative screening. As factors and data points enrich and rating systems upgrade, ESG can be gradually integrated into the investment process.
What positive results – e.g., for your organisation, your clients, your beneficiaries – has your responsible investment approach had?
After joining the PRI, we have actively practiced the concept of responsible investment in equity, fixed income, and fund investment. We have fully integrated ESG principles into our whole investment analysis framework. From April 2019 to June 2021, we launched 49 ESG wealth management products. Our ESG AUM has reached 24.8 billion RMB as of June 2021, putting us far ahead of our domestic peers.
As a pioneer of responsible investment in China, we are often invited to participate in discussions on establishing domestic ESG-related policies. Some investment industry players have also reached out to learn from our experience. To promote responsible investment in China, we plan to establish an ESG expert committee and hold regular seminars and discussions on the topic. By leveraging expertise from across the regulatory, academia, and investment sectors, the committee can guide ESG practices and explore the potential for a localised ESG framework in the Chinese market.
This series tells signatories’ stories of getting started in responsible investment, looking at why they started and offering tips for doing so that others can learn from.