Under the impact of the COVID-19 pandemic, investment models based on environmental, social, and corporate governance (ESG) are accelerating to become the trend in the investment field. Facing such change, Chinese regulators and market participants, as participants in the financial sector and advocates of global environmental governance, will also need to handle this new trend and adjust accordingly.

This year, China, Japan,South Korea, and the European Union have stepped up their efforts to implement the Paris Agreement's emissions reduction targets. Although the United States has formally withdrawn from the Paris Agreement,JoeBiden, who is likely to become the new U.S. President, has indicated that he would seek to return to the agreement as soon as possible, implying a major change in U.S. policy on environmental issues in the future. As a result, the environmental and emission reduction constraints of countries will increase in the future, and countries will invest in higher amount of funds and technologies to promote the application of new energy and new technologies in the infrastructure construction, energy sector, and the new economy sector. These sectors are also deemed as new drivers of future economic growth. On the one hand, the industrial structure of the fixed assets needs to be adjusted. On the other hand, the construction of new sectors, including the hydrogen energy society advocated by ANBOUND, requires substantial investment and the financial markets to achieve the environmental goals. In this context, the ESG investment model will become an important part of the investment and financing ecosystem.

In fact, ESG investment is not only socially or morally advantageous, but also provides substantial benefits to investors. Several overseas studies have shown that investments in ESG characteristics tend to provide more stable and long-term returns to investors, because these ESG companies tend to pursue long-term development rather than short-term speculation. At the same time, ESG-rated companies have a higher degree of transparency, making it easier for investors to understand the company's business conditions, which is the reason why more and more overseas investors are turning to ESG investments. Global asset prices have suffered sharp declines as a result of the pandemic, but companies with stronger ESG performance have not only performed better than their peers, but also had less volatility and downside risks. In China's A-share market, some analysts believe that the pandemic has led investors to find that listed companies with better ESG management perform better than those with less satisfactory ESG management in terms of both action and production recovery capacity.

At present, ESG investment has increasingly become an important part of the international financial sector. According to the latest statistics from the Global Sustainable Investment Alliance (GSIA), in 2019 alone, more thanUSD18 trillion of global assets under management incorporated ESG factors into investment decisions. Previously, ANBOUND has mentioned that international financial institutions, including BlackRock, Vanguard, and other major asset management companies, have started to apply ESG models to their investments and asset portfolios.Credit rating agencies such as Moody's and some stock rating agencies such as MSCI have established ESG rating and evaluation mechanism to provide a reference for investors making ESG investments.

In this regard, China's ESG investment can be said to have just started. Data show that as of October 26, there have been more than 15 public offering of funds focusing on ESG investment in China, with a total fund size of aboutRMB76.6 billion, an increase of more than 32 times over the same period last year. In addition, many private equity investment institutions have also studied ESG investment strategies as an important part of the A-share investment model. Since 2019, global pension funds and other large international asset management institutions have listed ESG investment strategy as an indispensable "entry threshold" when choosing domestic investment institutions to entrust A-share investment fund management.

However,China's A-share market has not yet made ESG reporting mandatory for listed companies. There are 4,000 listed companies in the A-share market, but less than one-third of them have adopted ESG information disclosure. Moreover, the reports disclosed by these companies were not complete and standardized enough. Many listed companies still conceal, omit, and dilute information about environmental penalties, rectifications, and other problems, which affect investors' judgment of the company.From the perspective of investors, the research and development of ESG investment strategy in China is still in its infancy, and many institutions still face the dilemma of incomplete information access and insufficient data analysis ability. Many institutions need to rely on the models and algorithms of international institutions for research and investment, and there is a significant gap with international institutions in the overall ESG investment model.

In the context of China's promotion of financial system reform and continuous intensification of capital market reform, there is a growing need to strengthen the ecological construction of ESG investment. This can promote the reform of the capital market with corporate information disclosure as the main driver. It can also help listed companies to strengthen corporate governance, further improve the efficiency of management, help companies to establish a long-term development strategy, and form a virtuous circle between capital and the real economy. Song Zhiping, Chairman of China Association for Public Companies, also believes that ESG is an important tool to improve the quality of listed companies. Among the top concerns for investors right now are the fundamentals of the economy and the quality of listed companies. The core of the quality of listed companies is governance, performance, and responsibility. From this point of view, to be a responsible and competent listed company, it is necessary to introduce a system like ESG. At the same time, some relevant people also pointed out that, as an important part of the ESG investment process, whether the quality of information disclosure of listed companies is high and whether the disclosure standard is in line with international standards are directly related to the success of ESG investment strategy.

Relatively speaking, China still lacks a complete ecosystem for ESG investment, and there is a gap between China's ESG investment and advanced international standards in terms of data, standards, professional capabilities, investment research, investor education, and other aspects. Under this circumstance, Chinese institutional investors will face strong competition from overseas institutions in the field of ESG investment; meanwhile, the Chinese financial market will also face competition from the international market, which has a dominant position in terms of investment rules and standards, etc. This gap may widen the gap between China's financial market and the international market in terms of resource allocation efficiency as a whole, and make it difficult for China to take the lead and initiative on environmental issues. Therefore, in the view of ANBOUND, it is increasingly urgent and necessary to promote the ecological construction of ESG investment in the face of great changes in the global economy and society.

Final analysis conclusion:

The ESG investment model and concept will become a new investment trend in the post-COVID period. Its significance lies not only in the investment field, but also in the realization of common global goals such as environmental emission reduction and the leading role of each country in future economic development. Therefore, promoting the ecological construction of ESG investment should become an important part of China's capital market reform, so as to achieve the goal of environmental-friendly sustainable development.