China: Becoming the environmental kingpin

The battle to be the leader on environmental, social and governance (ESG) investment is well and truly underway. In The Lens’ latest trip to Asia, it discovered that ESG considerations are not only top of the priority list for asset managers, but could even prove to be critical to the survival of regimes themselves – namely the Communist Party of China.

In the West one of our early morning tasks is to pour a cup of coffee and check the news (albeit digitally these days) and our social media accounts on smartphones. In China, people check the air quality. With air pollution accounting for around 17% of all deaths in China annually, environmental protection is not a risk on the horizon to be dealt with at a later date, it is a visible issue that is a systemic risk to the survival of the current order, and is acknowledged as such.

Last year the United Nations warned there was just 12 years to limit climate change disaster and China is emerging as a visible leader in renewable energy, despite its efforts going largely unnoticed in the West. On a global basis, for example, for every dollar invested in the environment half of it is in China. It has also taken drastic measures to crack down on environmental crime, prosecuting more than 3,500 people in the first ten months of 2018.

Aside from its domestic interests in dealing with the environment, the US’ withdrawal from the Paris climate agreement provides further impetus for Beijing to take the lead on tackling the most pertinent global issue to move a step closer to being the next hegemon.

While China is clearly excelling on the environmental aspect of ESG, question marks linger over social and governance issues for the country – and experts candidly note these as a point of concern. China, and indeed Asia, must do more when it comes to corporate governance standards and gender diversity in the region. But as it fills the current environmental leadership void, we could yet see further investment opportunities in areas such as education and healthcare that also provide clear social benefits.