Insights

The 12th lecture of "Lutalk·Shanghai Financial Lecture Hall", jointly organized by Shanghai Financial Association, Shanghai Lujiazui Financial City Development Bureau, Shanghai Lujiazui Financial City Council, and China Financial Information Center, and co-organized by GoldenBee Consulting, was held online in the afternoon of July 18. Ms. Dai Yibo, Vice President of GoldenBee Consulting, member of the Research Working Group of ESG Technical Committee of China Association for Public Companies, and editor-in-chief of ESG Competitiveness and ESG Management and Information Disclosure Practice, gave a lecture about "why has ESG become a "compulsory question" for financial institutions?" More than 4000 people watched this lecture online. Shuai Shi, Executive Deputy Secretary-General of the Shanghai Financial Association, presided over this event.

ESG has become an important indicator for assessing the sustainability and long-term value of companies. For financial institutions, ESG is not only about corporate social responsibility and ethics, but also about assessing future risks and opportunities. As global attention to sustainable development and climate change continues to rise, financial institutions must incorporate ESG factors into their considerations of investment decisions, risk management, and social responsibility. Ms. Dai introduced the concepts of ESG and its development in China. For the financial industry, she shared cutting-edge information of ESG and the issue of sustainable finance that has been mainstreamed in the industry from the perspectives of investors and companies. 

In 2018, the International Organization for Standardization (ISO) approved the establishment of the Sustainable Finance Technical Committee (ISO/TC 322), responsible for developing sustainable finance standards and promoting the integration of sustainable development factors such as ESG practices into various aspects of economic activity.

ISO 32220, as the most fundamental standard for sustainable finance, was proposed and convened by Chinese experts, which also established China's international position in the field of sustainable finance.

Ms. Dai Yibo summarized and shared four perspectives on ESG issues that financial institutions should pay attention to.

Firstly, in the face of the urgent need for green and low-carbon transformation of the economy and society, climate change has become the top priority issue for the global financial industry. Ms. Dai demonstrated an example of the specific impacts of climate change on the insurance industry.

Secondly, ESG issues are crucial for inclusive finance. It is essential to follow the principles of equal opportunities and business sustainability, provide affordable and effective financial services to all social strata and groups with financial needs to promote balanced and long-term social development.

Thirdly, emerging ESG issues related to digital privacy and security need attention. With the rise of financial technology, financial institutions face the challenge of ensuring network data security, improving customer experience, and building resilient operations in the face of digital transformation.

Fourthly, in terms of responsible investment, financial institutions should incorporate ESG factors into investment decisions and focus on the integration of ESG in the investment process. Currently, financial institutions have some understanding of the concept of responsible investment, but there are not many practices that incorporate it into investment considerations. She also shared some practical information on ESG responsible investment from industry peers such as AIA Insurance and Ping An Insurance in China.

Finally, Ms. Dai shared six suggestions for ESG actions in the financial industry:

1. To set ambitious goals and develop strategic plans that are future-oriented and deeply integrated with the business.

2. To carry out climate management for "Scope 3 emissions". International Sustainability Standards Board (ISSB) standards promote financial institutions' disclosure of "Scope 3 emissions" as mandatory.

3. To focus on financial activities that contribute to climate investment and biodiversity finance, such as the protection, sustainable use, restoration, and benefit-sharing of biodiversity.

4. To use the accessible and affordable features of inclusive finance within the framework of "nature-based solutions" to improve the natural environment.

5. To integrate and apply ESG data information, and incorporate ESG evaluation results into credit management processes.

6. To systematically promote ESG management.

During the Q&A session, Mr. Shuai Shi had an interactive discussion with Ms. Dai Yibo on two issues that financial institutions are concerned about.

Question 1: Can the existing ESG data foundation and ESG rating and evaluation meet the needs of financial institutions for ESG work? What are the trends and possible development directions for future ESG rating?

Ms. Dai said that in the future, the demand for quantitative ESG data will far exceed the demand for qualitative data, so companies need to be able to provide abundant and high-quality data. For financial institutions and investors, they also need to have the ability to identify, screen, organize, and use ESG data, that is, the ability to convert ESG data into quantitative data that financial institutions can use. Currently, this ability is relatively weak and needs to be assisted by professional rating agencies or index companies for integration and application.

Question 2: The ISSB recently released the International Financial Reporting Standards (IFRS) S1 General Requirements for Disclosure of Sustainability-related Financial Information (referred to as "S1") and the IFRS S2 Climate-related Disclosures (referred to as "S2"). What impact does this have on corporate ESG management and how should financial institutions respond?

Ms. Dai said that the release of these standards is a very important event in the ESG field. These two standards provide more detailed regulations on the disclosure of corporate social, environmental, and governance risks, and will take effect after January 1, 2024. The introduction of S1 and S2 solves the problem of standards that enterprises need to refer to. They are not restrictive clauses, but rather establish a baseline. If enterprises want to meet the needs of regulators, communities, and other stakeholders in addition to financial information disclosure, they can also incorporate other content of interest to stakeholders based on S1 and S2. With the introduction of S1 and S2, ESG can be incorporated as more useful data for financial institutions in decision making, especially for investment decisions.

Finally, Mr. Shuai Shi introduced the effort of the Shanghai Financial Association in promoting the practice of ESG responsibilities by financial institutions.

He pointed out that the Green Finance Specialist Committee of the Shanghai Financial Association was officially unveiled at the Green Finance Paralle Forum of the first Shanghai International Carbon Neutrality Expo in Technologies, Products and Achievements this year. Currently, the leading unit of the Committee, BNP Paribas (China), is also leading the R&D of carbon financial products related to Chongming Dongtan Wetland Conservation. At the same time, in line with the promotion of the Shanghai Inclusive Finance Advisory System, there is still much room for exploration and practice in integrating inclusive finance with green finance. Supporting sustainable development is not only the responsibility of financial industry, but also a new development opportunity.

For more information about ESG management consulting, report, rating, training, etc., you can contact the ESG and Climate Change Services at:

Email: esg@goldenbeechina.com

Tel: 010-62132901