Survey sheds positive light on Chinese firms' ESG strategies

Chinese companies are increasingly embracing environmental, social and governance (ESG) strategies to meet customer and investor expectations and government initiatives, a Fidelity International survey showed.

The survey, which involved 262 C-suite and director-level corporate executives based in China, sheds light on the current and future planned areas of ESG-related activity of Chinese companies as they rapidly evolve their ESG strategies.

According to the survey, Chinese companies are expanding their ESG capabilities and developing the frameworks they need to incorporate ESG into their organizations.

"As domestic momentum for ESG management and integration gathers pace, and the scrutiny on ESG performance from foreign investment and export markets from increasingly stringent global regulation grows, levels of ESG engagement in Chinese companies are becoming more robust," it said.

ESG reporting is set to become the norm in China, with 53 percent of companies surveyed having publicly announced an ESG, CSR (Corporation Social Responsibility) or sustainability strategy either in a report or on their website, while 18 percent have plans to announce their ESG strategy in the future.

Also, 64 percent of respondents publish annual ESG reports, while a further 29 percent have plans to do so within the next three years, meaning that by 2026, 93 percent of them expect to have published an annual ESG report.

It also highlighted that ESG motivations in Chinese companies are seeing a shift towards being driven by multiple stakeholders, as the development of ESG strategy in Chinese-listed companies gains momentum. While the survey found that the development of ESG strategy in Chinese companies still has further to go to reach global standards, Chinese customers and shareholders are increasingly prompting change, and this pressure is likely to continue to have a direct impact on progress.

The main drivers of ESG adoption were found to be customer and investor expectations, with 47 percent of companies surveyed saying they developed an ESG strategy to meet customer expectations, while 44 percent aimed to meet investor expectations.

This indicates that market concerns are increasingly taking a front seat in shaping corporate behavior. Government initiatives were also cited as a key driver by 37 percent of firms.

The survey suggests that China's appetite to bring ESG into the corporate agenda is on the rise and is here to stay. Two thirds of companies surveyed plan to review focal areas for ESG in the coming 12 months, while over half of companies plan further investment in building tech and data capabilities to improve efficiency in ESG data collection. This will be crucial in enhancing transparency as data collection remains the key obstacle to progress on ESG disclosure, cited by 52 percent of firms.

Apart from ESG strategy review and data collection enhancement, 47 percent plan to review their ESG quantitative targets, which is a strong signal to internal and external stakeholders on the commitment to stated goals.

The survey also found that significant progress has been made on establishing special board functions, with nearly all firms having set up remuneration and nomination committees despite this not being mandatory. Larger firms take the lead on audit, remuneration and nomination committee independence when it comes to outperforming current legislation, but fall back to average in terms of overall board independence.