Companies aren’t always fully transparent – so proprietary research is critical

China’s environmental, social and governance (ESG) practices are a concern for some investors. Corporate governance has improved in recent years, but some companies are still not fully transparent in their disclosures. This is another reason to seek help from an experienced investment partner with in-house research capabilities. Proprietary research can provide important insights into corporate governance practices and financial reporting, shining a light into areas where visibility might otherwise be low.

Sustainability is a high priority – but China needs to do more

China’s environmental practices have given some investors pause. For example, China is the world’s largest emitter of greenhouse gasses and plans to build enough new coal-fired plants to match the entire existing capacity of the European Union. But China’s powerful central government has also declared sustainability a priority and leads the world in renewable energy investment. Look for China’s tech sector to make steady advancement in electric vehicles, alternative energy, solar energy and other sustainable technologies.

China’s investment in renewable energy leads the world

Cumulative renewable energy investments (top 5 countries, 2010-2019; USD billions)

Source: UN Environment Programme. Data as at Sept 2019.

Scrutinise ESG factors and practise good stewardship

Responsible active managers should closely examine ESG factors when researching companies – particularly in China. It’s also a good practice to engage with companies, participate in shareholder meetings, and vote regularly on shareholder and management proposals. In a market like China’s, the ability to conduct proprietary, on-the-ground research can help investors seek out opportunities and mitigate risk.