Scott Yang’s Letter To Clients And Partners: Creating Our Common Future With Proactive Approaches Amid Changes

July 22 00:40 2022

Distinguished clients and partners:

The Covid-19 pandemic, extreme climate change, intensifying geopolitical conflicts and so on are having a profound impact on our lives, and the tasks of Sustainable Development Goals are becoming increasingly urgent. International organizations, national governments, responsible businesses as well as more and more individuals have begun to take actions.

Capital markets, which are at the center of social factor resource allocation and as a bridge to the future, play an important role in advancing sustainable development. Led by a synergy between policies and long-term funds, ESG investing is booming globally and is becoming one of the key variables influencing asset pricing: according to the Global Sustainable Investment Alliance (GSIA), by 2025 ESG assets are likely to exceed $53 trillion, up 51% from $35.3 trillion in 2020.

Upholding the concept and responsibility of a community of common human destiny and responding to inherent trends and the development of the times, China is actively embracing ESG on all fronts and is expected to become an important force in pushing forward global ESG development. For instance, China’s successive roll-out in recent years of top-level designs such as peak carbon dioxide emissions and carbon neutrality, educational equity, common prosperity wealth, rural revitalization, and the building of a pension system has been highly consistent with the various topics in the ESG concept and has provided broad market potential for ESG investing; the “1+N” policy system for peak carbon dioxide emissions and carbon neutrality has been gradually completed, which clearly puts forth the need to actively develop green finance; the Opinions on Accelerating High-Quality Development of Public Funds Industry promulgated by the China Securities Regulatory Commission (CSRC) in April 2022 included advancing ESG investing as part of the said high-quality development. The new era is an era for high-quality and sustainable development, and the new goals in the new era have put forward newer and higher requirements for the practice of ESG investing in China’s asset management sector.

“Southern Asset Management has been serving our clients for over 24 years, and we have always based all our business on value creation for our clients and for the society, and we are committed to improving our core competence through digital-intelligent transformation so as to provide professional asset management solutions to the issues of our times.”

Since joining the U.N. Principles for Responsible Investment (PRI) in 2018, we have implemented sustainable development principles in the entire investment chain and reshaped the foundation of value creation with ESG investing. In the process of ESG localization, we have learned from advanced experiences by benchmarking with international standards and, guided by the new development concepts of “innovation, coordination, green, openness and sharing”, focused on the core issues of ESG in China and on innovation in investment localization.As we issue the Southern Asset Management 2021 ESG Investing Report, I would like to take this opportunity to brief you on the key progress we have made in ESG investing.

1

Strengthening the integration of data and intelligence to support more resilient value creation

Taking environmental, social and governance criteria into account, ESG investing establishes an assessment framework beyond mere financial data and, with a more diversified and sensitive touch, gives early warning for tail risks and identifies potential opportunities in order to optimize the risk-return ratio of portfolios and improve resilience in value creation. In 2021, through external data collection and AI algorithms, we completed an ESG self-rating system and database covering over 4,500 A-share listed companies and 6,364 debt issuers, involving 17 themes, 39 sub-themes and 115 sub-category criteria. In selecting and assigning specific indicators, we carry out differentiation and dynamic adjustment according to the significance and relevance of ESG issues to the society to ensure the effectiveness and timeliness of stock selection based on ESG factors. Thus a reliable ESG database becomes a prerequisite for ESG investing and research integration, laying the foundation for the subsequent “application-improvement-upgrading-innovation” virtuous circle.

For example, to address problems such as inconsistent disclosure standards and lack of ESG data for domestic debt issuers, we have built and continually improved the fixed income ESG assessment system. With the advantages of coverage, adaptability and innovation in our ESG rating system, Southern Asset Management won international recognition when our “Fixed Income Incorporation” was shortlisted for the PRI Award for Emerging Markets Initiative in 2021.

2

Being an active shareholder and a partner in the high-quality development of listed companies

In addition to incorporating ESG factors into portfolio building, out of fiduciary duty, we as a dedicated buyer also proceed from ESG issues and practice the strategy of an active shareholder through communication and dialogue, exercising voting rights and so on to guide our portfolio companies to improve corporate governance, strengthen risk management, and expand strategic maneuvering space, thereby enhancing the sustainable value creation capability of listed companies.

In terms of voting rights, in 2021 we “voted with our feet” as well as with our hands and conducted ESG impact assessments in a cumulative total of 2,010 shareholder meetings. In terms of communication and dialogue, we focused on specific ESG issues such as climate change and, drawing on international standards, took the initiative to offer suggestions and proposals to listed companies.For example, after several rounds of communication and advising lasting over a year, a leading central coal company has set up an improved climate change management mechanism and better staffing and has publicized its commitment to and implementation path for the dual-carbon goals (peak carbon dioxide emissions and carbon neutrality). Moreover, the company also ungraded its “Transition Pathway Initiative” climate change risk management rating by one level in 2021.

3

Increasing the scale of green investment in a scientific and orderly manner in line with industry trends

By systematically changing the competitive landscape in various industries, the dual-carbon strategy will revitalize green and low-carbon and other strategic emerging industries, thereby bringing abundant investment opportunities. Guided by the dual-carbon goals, we continue to increase the scale of green investment in a scientific and orderly manner based on long-term investment and value investment and in line with the low-carbon development trends. As of end of 2021, our cumulative total scale of green investment reached about 232.1 billion yuan, a 129% increase from the beginning of the year.

4

Optimizing financial supply to create a multi-level ESG product system

An important role of public funds is to connect the capital market with ordinary investors. In 2021, Southern Asset Management continued to enrich its ESG product supply by launching various innovative products including green investment and science and technology investment to guide the flow of funds to green transformation, scientific and technological research, and other strategic emerging industries, gradually creating a multi-level ESG product system so as to meet the diversified investment needs of our clients. In the area of green investment, we have issued and established Southern CSI New Energy ETF, Southern New Energy Industry Trend Fund, Southern CSI Yangtze River Protection Theme ETF, etc., whereas in the area of science and technology investment, we have built up our presence with CSI Sci-Tech Venture 50 ETF, BSE Theme Fund, Specialized New Theme Fund, etc.

5

Lending all-round support to national pension system to ensure sustainable social development

On the one hand, reinforcing wealth reserves is an important foundation for coping with population aging and ensuring sustainable social development; on the other hand, the long-term nature and risk-averse characteristics of pensions are highly compatible with the objectives of ESG investing, so that determines the suitability of pensions for ESG investing. In 2021, Southern Asset Management continued to lend all-round support to building the national pension system with its pension management experience over the years, its professional investment research team, its rich and fine product system, its rigorous risk control system, and its professional robo-advisory technology. IIn particular, after nearly four years of mature operation, we have managed to find a solution to “third-pillar” represented by pension fund of funds well adapted to China’s national conditions. Southern Asset Management will continue to make positive contributions as the third-pillar of pension insurance work progresses.

In addition to the above-mentioned ESG investing work, Southern Asset Management is also practicing the ESG concept in its own development to ensure that it become a corporate citizen with high-quality, sustainable development. In 2021 we also took a series of practical actions to build a high-quality management system, implement the client-oriented business philosophy, join with employees to grow together, integrate into the building of the Pearl River Delta Greater Bay Area, contribute to the cause of public service interest, support emergency relief efforts and fight against Covid-19.

Investing is an endless exploration of the future and also a way to proactively shape the future. ESG investing is difficult but it is the right thing to do and there is still a long way to go. Southern Asset Management calls on more colleagues to pay attention to and support ESG investing and to persistently make joint efforts so as to draw up a blueprint for sustainable development and win our common future!

Scott Yang
Chief Executive Officer
China Southern Asset Management Co., Ltd.

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Country: China
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