Environmental reforms
Poon says that China was mostly focused on the ‘E’ side of ESG with a great emphasis on air quality.
“With air quality, President Xi Jinping breathes the same air to ordinary citizens so that is something everybody must care about because they have nowhere to hide or run away from this situation,” Poon says.
Lin says the government was reducing pollution by shutting down non-environmentally compliant makers of industrial goods and resources such as steel, paper, and chemical mills.
“Today you can find cement companies in China that have about the same carbon footprint as international companies. While they are complying with international environmental standards they are also enjoying record profits and they are great investment opportunities,” he says.
Lin notes that the government is also supporting industries promoting green or alternative energy such as wind turbines and farms, and solar panels.
“China is also a vibrant landscape for electrical vehicles and batteries. These companies benefit from regulatory compliance that requires companies to reduce pollution on the industrial side so they turn out to be really good investment opportunities,” he says.
“As a European investor if you want to find a pure-play place for exposure in electrical vehicle batteries it’s rather difficult to find in Europe. If you go to Japan and Korea a lot of these makers like Panasonic or LG have other businesses so it’s not pure play, leaving the A-share market as an intriguing market to get exposure into that area.”
Lin says on the political side for a mayor to be promoted to the provincial level and later to the central government level, their key performance indicators (KPIs) include pollution measures.
Poon also says the top KPIs for local government officials are not about growth but about air and water quality.
“The local governments are not sticking to the old mentality of just growth and disregarding the environment, so I think it is a promising change,” Poon says.
On environmentally-compliant companies within the A-shares market, Lin says he likes fertiliser manufacturer Luxi Chemical Group, solar product developer Longi Green Energy Technology, and electrical vehicle battery maker Catl that has just gone public and will be available for international companies in the future.
Monitoring
Lin notes that the Chinese government has put in place monitoring enforcement activities for these companies to prevent greenwashing and bribery.
He says for example the Hebei province inspection team would go to Henan province, and an inspection team from another province would evaluate Hebei to avert collusion.
Both Poon and Lin say that while China is behind on the governance front it is improving.
“There is a perception that China is all about burning coal and pollution… but it is changing fast,” Poonsays.
