ESG: A fashionable exotic without strictness
summary
ESG is the English acronym for the three words Environmental, Social and Governance. Investment philosophy and corporate evaluation system in terms of financial performance.
In 2004, the then Secretary-General of the United Nations, Kofi Annan, invited the CEOs of 50 of the world's top investment institutions to participate in an initiative initiated by the International Finance Corporation (IFC) and the Swiss government to discuss how to make better investment and financing decisions. In 2004, as a result of the above-mentioned initiatives, the United Nations Global Compact (UNGC) formally used ESG-related expressions in its report "Who Cares Wins" (Who Cares Wins), and called on global financial institutions and investors to make ESG better It can be integrated into financial analysis, asset management and securities trading.
In 2006, the United Nations Principles for Responsible Investment (UN PRI) listed 6 principles and 34 suggested and feasible plans, aiming to guide and promote investment institutions to incorporate ESG considerations into their decision-making process.
Since then, relevant international organizations and major global investment institutions have continued to deepen ESG concepts and established relevant disclosure standards, rating systems, and investment products, gradually forming corresponding ESG concepts, pri nciples, and standard systems to provide investment guidance for investors.
Obviously, from the perspective of the origin and subsequent development of the concept, ESG can be said to be a completely imported product.
Some scholars believe that ESG can be understood with the "three-day" thinking that contains traditional Chinese culture:
To understand E with "harmony between man and nature", we advocate harmonious coexistence between man and nature; to understand S with "world harmony", to advocate harmonious coexistence between man and society; to understand G with "natural nature", enterprises must have a sound mechanism to ensure The concepts of "harmony between man and nature" and "world harmony" have been put into practice.
This understanding is very enlightening and valuable, but it is only an "after-the-fact" interpretation.
In fact, before the acronym ESG was proposed in the 2004 report "Concerned People Win", there was never a complete corresponding vocabulary in Chinese literature mentioning it.
However, no one can fully explain the logical relationship between E, S, and G even after looking at foreign academic literature: why put these three words together? Why not two words, four words or more? What is the deep theoretical root of these three words put together?
From the perspective of academic research or rigorous norms, it can be said that this is a surprising phenomenon: foreigners simply put the three words together to create a new word ESG, and did not even further refine a higher-order term. The concept is really not rigorous.
From a theoretical point of view, ESG is in the same line as Corporate Social Responsibility (CSR). But even within the controversial discipline of "corporate social responsibility," loose terms like ESG are rare.
British scholar John Elkington pointed out as early as the mid-1990s that to measure the success of an enterprise should not only be based on economic performance, but also whether the enterprise takes into account environmental and social performance in the process of business development. Based on this, Elkington further proposed the concept of “Triple Bottom Line” (TBL) in 1997.
American scholar Howard Bowen, known as the "father of corporate social responsibility", gave a clear definition of corporate social responsibility as early as 1953.
Not to mention the "Corporate Social Responsibility Pyramid" proposed by Archie Carroll and the "Bottom of the Pyramid (BOP)" proposed by management master Prahalad.
In contrast, ESG is more like a "makeshift" vocabulary, and once its logical context and theoretical roots are carefully studied, it is inevitable that it will be unclear.
However, such an imported product that is not rigorous in academics is gradually showing its influence in practice.
As the concept of sustainable development has gradually gained popularity, especially in recent years, many member countries of the international community have proposed their own carbon neutral goals under the initiative and call of the United Nations. ESG investment has achieved rapid development in the past ten years.
According to statistics, in 2021, the scale of global ESG funds has reached 2.74 trillion US dollars, a year-on-year increase of 58%; the number of global ESG funds exceeds 6,000. In 2021, the scale of China's pan-ESG funds has reached 2,380.1 billion yuan, a year-on-year increase of 48%; the number of funds has reached 190.
A careful examination of the 10-year history of ESG from its origin and development to the present shows that ESG is mainly driven by investment: various investment institutions and investment analysis institutions need to make more accurate judgments on which companies really have long-term investment value. Enterprises that pay attention to sustainable development, especially environmental protection, actively undertake social responsibilities, and have a sound corporate governance system are more in line with this requirement.
Investment-related institutions have a strong influence in the real business world. They force companies to pay attention to environmental protection, social responsibility and corporate governance issues in the course of business operations, and disclose many information related to sustainable development opment opment. provide a basis for investment decisions.
Under the job efforths of Investment Companies, Investment Analysis Agencies, GovernMent Regulators, ESG RATINGIES and Investors, Ander The Background THAT S USAIINABLE Development has become the main theme of the times, Global Companies are gradually embracing the esG Wave.
Development and confusion of ESG rating in foreign countries
Although ESG has become familiar to more and more companies, how to measure the ESG level of companies is still in a state of "non-consensus".
Overall, corporate ESG evaluation criteria can be broadly divided into two categories: ESG information disclosure criteria and ESG performance rating criteria.
The difference between the two is that ESG information disclosure refers to the disclosure of information about the company's specific practices in terms of environment, society and corporate governance, which is an important part of the company's non-financial information; ESG performance refers to the company's environmental, social and corporate governance practices. specific actions taken to take into account social, social and governance issues.
In the global capital market, ESG third-party rating agencies mainly use corporate ESG reports (or corporate social responsibility reports, sustainable development reports, etc.) basis for investment activities.
ESG evaluation jumps out of the barriers of only focusing on corporate financial performance, and comprehensively measures corporate value from the perspectives of environment, society, and governance. As an evaluation standard that comprehensively considers a company's financial performance and non-financial performance, ESG redefines "what is a good company" and strives to promote a balance between business value and social responsibility.
With the continuous evolution and deepening of the concept and connotation of ESG, international organizations and investment institutions have gradually constructed a variety of evaluation methods, such as MSCI, Sustainalytics rating agency, Dow Jones, S&P Global Ratings ( S&P). Global) and a series of influential ESG rating agencies. Major foreign third-party ESG rating agencies and their related information are shown in Table 1 on the previous page.
In terms of data sources, each rating agency basically covers the documents disclosed by the rating objects, relevant information provided by governments and non-governmental organizations, professional databases, and media resources; in terms of specific indicators, each evaluation system basically adopts top-down construction, The method of bottom-up aggregation extends from the three levels of environment, society and corporate governance, and disassembles dozens or even thousands of evaluation indicators at the bottom level; The weight distribution basically takes into account the differences in industries.
However, the scope of investigation and underlying indicators of different evaluation systems have different emphases and differences, and the handling and identification of controversial events and risk exposures also have their own characteristics. Therefore, different evaluation systems often produce inconsistent corporate ESG rating results.
This makes many investors confused when faced with different ESG rating results, and it is difficult to accurately distinguish the pros and cons of corporate ESG performance, which weakens the credibility and influence of ESG ratings to a certain extent.
In order to find out how different the data results of the major ESG rating agencies are, Florian Berger, a researcher at the Massachusetts Institute of Technology Sloan School of Management, hosted a study called "Aggregate Confusion" (Aggregate Confusion). ) research projects.
The research team carefully studied the data of six well-known ESG rating agencies (Sustainalytics, S&P Global, Moody's ESG, Refinitiv, KLD, MSCI), and compared the differences in the ratings of the same company by these agencies.
It was found that the average correlation coefficient between the ESG rating results of these well-known institutions is only 0.54, ranging from 0.38 to 0.71. Among the segmentation dimensions, the average correlation coefficient of the environmental dimension is 0.53, that of the social dimension is 0.42, and that of the governance dimension is the lowest, with an average correlation coefficient of only 0.30.
In contrast, the correlations among other products of these rating agencies are high.
For example, the correlation between Moody's and Standard & Poor's (S&P) corporate credit ratings is as high as 0.92. The research project also disaggregated the sources of variance in ESG ratings and found that assessment measurement (measurement of the same indicator using different raw data) contributed 56% of the data variance, and assessment scope (different indicator categories for different rating systems) contributed 38% , the evaluation weight (different views on the importance of the same indicator) contributed 6%.
From this, the “Aggregated Chaos” research team concluded: “Capital markets are rapidly integrating ESG, but ESG data is so noisy and unreliable.”
The low ESG rating of Chinese state-owned enterprises by foreign institutions: the influence of "evaluator effect"
It is an indisputable fact that the rating results of foreign ESG rating agencies are confusing and the correlation between them is not strong. Interestingly, such "noisy and unreliable" foreign ESG rating results show a high degree of consistency in one thing: the ESG rating results of Chinese state-owned enterprises are not high.
Take MSCI ESG ratings as an example. The results of this rating system are divided into 7 grades (from AAA to CCC), which are divided into 3 intervals of "advanced", "average" and "laggard". Figure 1 shows the ESG rating results of the rating agency for 202 state-owned enterprises in China in 2021: the highest grade is A (grade 3), accounting for only 3.96%; it is in the "average" range (grades are A, BBB, BB ) accounted for 36.14%: those in the "laggard" range (grades of B and CCC) accounted for as high as 63.86%.
In 2022, although the agency's rating results for my country's state-owned enterprises have improved (50% are in the "average" range), 50% of the state-owned enterprises are still in the "backward" range, and none of them have entered the "leading" range.
Similar conclusions can be drawn by comparing the ESG scores of Chinese state-owned enterprises with those of European and American enterprises.
Also take MSCI’s ESG rating results in 2022 as an example. After excluding unrated companies, 27% of Chinese state-owned enterprises were rated CCC, only 13% were rated A, and none SOEs are rated AA or AAA; in stark contrast, 33% of S&P 500 constituents (U.S.-listed companies) are rated A, 29% are AA, and 7% are AAA 23% of the STOXX 600 index constituents (European listed companies) are rated A, 40% are AA, and 25% of the European listed companies are rated the highest AAA. In this evaluation system, very few European and American companies are in the "backward" range (grades of B and CCC). Related information is shown in Figure 2.
Regarding this phenomenon, some scholars interpret it as the “intentionally lowering” of the foreign ESG evaluation system when it is applied to my country’s state-owned enterprises, or that my country’s state-owned enterprises are still “unaccustomed” to the foreign ESG evaluation system.
Further questioning, what is the deep-seated reason for this problem?
This may be related to the imperfect development of foreign ESG evaluation systems (for example, some foreign ESG evaluation systems only publish evaluation results, do not disclose specific evaluation methods and data processing procedures, and the evaluation process is not transparent enough), and it is also related to the ESG work of some state-owned enterprises in my country. It is related to the low effectiveness (such as insufficient ESG information disclosure, irregularities, and lack of ESG data accumulation, which also increases the difficulty for foreign institutions to objectively evaluate the ESG work of my country's state-owned enterprises), but a fundamental reason lies in the "evaluator effect". "Impact.
The so-called "evaluator effect", Florian Berger explained it as "the evaluator's overall perception of the company will affect the measurement results of specific categories". That is to say, before assessing a certain company, the assessors of all ESG rating agencies will first look at the overall information at the company level, and then make specific judgments.
In the ESG rating industry, "if you are an analyst and you have a certain opinion about a company, then this subjective opinion will affect your rating of the company". Among the many subjective factors that form "a certain view on the company", the geographical culture of the rating agency and the personal values of the rater play a very large role.
Based on this, we can well explain the problems that arise when foreign ESG evaluation systems are directly applied to Chinese state-owned enterprises.
These evaluation agencies and evaluators look at my country's state-owned enterprises with "tinted glasses". They not only disagree with the social contributions made by my country's state-owned enterprises, but also give them low marks. This preconceived "evaluator effect" can lead to significant bias in evaluation results.
First of all, there are significant differences between my country and European and American countries in terms of national governance structure, social and economic development stage, historical and cultural background, etc., which makes it difficult for the Western ESG system to fully reflect China's unique political system and national conditions, and it is easier to ignore or underestimate the uniqueness of my country's state-owned enterprises. Sex and its social value creation function.
Second, the Western ESG system focuses on ESG risk management and ignores ESG value creation. The important role and special contribution of my country's state-owned enterprises in economic and social development, such as "targeted poverty alleviation", "rural revitalization", "common prosperity" and other concepts and practices with Chinese local characteristics, have not been included in the analysis framework of the Western ESG system .
Finally, the corporate governance theories of Western countries cannot accurately grasp the leading role of party building in the practice of ESG concepts in my country's state-owned enterprises, and cannot understand the important function of the party committee's pre-research on major issues for state-owned enterprises to grasp the correct strategic direction and implement the concept of sustainable development.
Social value and responsibility of state-owned enterprises
Looking at the ratings of foreign ESG rating agencies on my country's state-owned enterprises from the perspective of the "evaluator effect", it can be found that they lack a deep understanding of the uniqueness of my country's state-owned enterprises, and they lack a correct understanding of their social value and responsibility.
The unique social function and status of state-owned enterprises embodies its unique nature. The nature of "state-owned" property rights determines that the main business goal of state-owned enterprises is to serve the overall public interest of the society; profit.
Therefore, state-owned enterprises have the dual nature of "public welfare" and "profit-making", and their uniqueness is mainly manifested in four aspects.
First, the operating objectives of state-owned enterprises are unique. The owners of state-owned enterprises are all the people, so it is not only necessary to maximize the wealth (value) of individual state-owned enterprises, but the most important thing is to maximize the wealth (value) of all state-owned enterprises as a whole.
Second, the tasks of state-owned enterprises are unique. State-owned enterprises are mainly distributed in important industries related to the national economy and people's livelihood, and often undertake specific tasks, such as being responsible for the production of national energy, transportation, communications, national defense construction and military products, ensuring the storage and supply of important materials, and undertaking the essential water supply for ordinary people's daily life , power supply, gas supply, heating and other tasks, they are the cornerstone of the stable operation and coordinated development of the national economy.
Third, the managers of state-owned enterprises are unique. In state-owned enterprises, directors, supervisors, and even some key managers are usually appointed by the state (including governments at all levels).
Fourth, state-owned enterprises are unique in their own responsibility for their own profits and losses. We cannot simply use the profit and loss of economic benefits to evaluate the operating conditions of state-owned enterprises, nor can we simply exclude necessary financial subsidies.
These unique characteristics determine that my country's state-owned enterprises are tasked with maintaining and increasing the value of state-owned assets. They need to work hard in the wave of market economy to earn profits and enhance economic value. At the same time, they have important social value and responsibility. From macro to micro, the social value of my country's state-owned enterprises can be divided into the following five categories.
In terms of national value, state-owned enterprises should deeply participate in major national development plans to realize the maintenance and appreciation of state-owned assets. The primary social value of state-owned enterprises is to resolutely implement the decisions and deployments of the Party Central Committee and the State Council, follow orders when implementing major national and local development strategies and serve the overall situation of national and local development, and play a fundamental supporting role in the forefront.
In terms of industrial value, state-owned enterprises should play a major role in building a Chinese-style modern industrial system with international competitiveness. When coping with the complex economic situation at home and abroad, state-owned enterprises should give full play to the "stabilizer" effect, always insist on becoming stronger, better and bigger related industries, give full play to the leading role of industry leading enterprises and supply chain owners, and strive to accelerate the construction of a good The industrial system contributes to the realization of high-quality and sustainable development of the national economy.
In terms of environmental value, state-owned enterprises should actively respond to the national "double carbon" goal and play an important role in building ecological civilization, promoting economic and social development, and comprehensive green transformation.
State-owned enterprises should take the lead in adopting various effective measures to reduce various waste gas, waste water, and waste residues produced in the process of production and operation, and set an example in maintaining ecological balance, protecting the natural environment, and other fundamental issues related to human survival and social development. Take the lead.
In terms of community value, state-owned enterprises should actively participate in social welfare undertakings, and actively participate in social welfare activities such as poverty alleviation and teaching assistance, emergency rescue and disaster relief, and charitable donations to give back to the society. The community is the soil for the survival and development of enterprises, on which enterprises depend for their survival and strength.
Therefore, state-owned enterprises must not forget their "roots" in the process of operation, fully consider the direct impact on the health, social stability and sustainable development of the people in their communities, pay attention to listening to the interests of the community, and actively respond to community concerns with practical actions , and jointly create a good situation for the win-win situation of the enterprise and the community.
In terms of the value of people's livelihood, state-owned enterprises should actively absorb employment, protect the legitimate rights and interests of employees, and provide the people with the safest and most reliable products and services. The "14th Five-Year Plan" and the 2035 long-term goal outline regard people's livelihood as an important value scale for high-quality development. The business scope of many state-owned enterprises in our country is related to the basic necessities of life of the people. State-owned enterprises need to carry out business activities in a way that is close to the lives of ordinary people.
On the one hand, they wholeheartedly provide the common people with genuine and rich products and services, so that the people can feel that the state-owned enterprises are responsible, and they can rest assured to buy their products. On the other hand, it plays an important role in people's livelihood areas such as road construction, emergency rescue, power transmission, network facilities, material security, security and stability, and escorts the people's pursuit of a better life with the mission of a state-owned enterprise.
Solution: Build a localized ESG evaluation system
In recent years, the global ESG work has progressed rapidly, but the problems and chaos in many foreign ESG rating agencies have also attracted the attention of all sectors of society. Foreign ESG rating agencies deliberately lowered the scores of my country's state-owned enterprises, which caused some troubles for my country's state-owned enterprises. The emergence of these problems determines the necessity and urgency of building an ESG system with Chinese characteristics and in line with the strategic positioning of state-owned enterprises.
We believe that following the principles of inclusiveness, taking root in national conditions and adapting measures to local conditions, we can build a localized ESG evaluation system that is in line with international standards, focuses on state-owned enterprises, and coordinates develop ment.
1. Absorb and learn from the advanced experience of foreign ESG systems
ESG is an exotic. Although its theoretical foundation is not solid and its logical structure is not clear, it conforms to the requirements of the times and enables the concept of corporate social responsibility to be further implemented in the specific business activities of the company, so its influence is still expanding.
That being the case, there is no need for us to beat it to death with a single stick. We can adopt a more inclusive attitude to understand it, learn from it, and use it for me in practice.
In the process of building the ESG evaluation system of state-owned enterprises in my country, we can learn from the advantages of mainstream ESG systems abroad, establish the basic framework of each sub-dimension of ESG, and learn from the rating methods of mainstream ESG rating agencies, so as to ensure that the ESG system constructed is consistent with the international ESG system. have a certain degree of unity and comparability.
In addition, strengthening exchanges and cooperation with mainstream rating agencies will not only help us grasp the development trends and trends of the international ESG system, but also expand the influence of China's local state-owned enterprise ESG system.
2. Based on national conditions, develop an ESG system of state-owned enterprises with Chinese characteristics
On the basis of learning from foreign mainstream ESG systems, we need to build an ESG system with Chinese local characteristics that can fully reflect the uniqueness of state-owned enterprises and demonstrate the social value and responsibility of state-owned enterprises based on China's current development stage, policy guidance and strategic positioning of state-owned enterprises. The ESG system of state-owned enterprises enriches the connotation of the social value of enterprises with Chinese characteristics.
For example, in the environmental dimension, it fully reflects the huge investment and achievements of state-owned enterprises in energy conservation, emission reduction, pollution prevention and control, etc., and shows the Chinese local concepts related to "ecological civilization"; Participate in "targeted poverty alleviation", "rural revitalization", "helping the weak", "anti-corruption", "common prosperity" and other measures with Chinese characteristics, and comprehensively evaluate the social value created by state-owned enterprises; Relevant indicators of party building, examine the important impact of internal control quality on business operations, examine the unique governance effects of state-owned enterprises, and fundamentally improve the applicability of the ESG system for the evaluation of state-owned enterprises.
In addition, according to relevant policy requirements, dynamics of ESG indicators at home and abroad, and investment guidelines in the capital market, dynamically update the existing ESG system of state-owned enterprises, thereby maintaining the accuracy and applicability of the ESG system.
3. Adapt to local conditions and fully consider the differentiated characteristics of state-owned enterprises
State-owned enterprises can be divided into public welfare and commercial enterprises. Each type of state-owned enterprises has different shareholding structure, functional positioning, and strategic division of labor. At the same time, state-owned enterprises in different industries have heterogeneity in terms of resource endowment and operating characteristics. , so we need to build a differentiated state-owned enterprise ESG system on the basis of considering state-owned enterprise types and industry differences.
On the basis of adhering to the classification reform of state-owned enterprises, by defining functions and classifications, implementing classification reform, classification development, classification responsibilities and classification assessment, taking into account the differentiated characteristics of the ESG performance of various state-owned enterprises, and adhering to the principle of classification evaluation to promote ESG work of state-owned enterprises to promote the balanced development of ESG.
Article source: Enterprise Management Magazine
