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First Study of ESG Portfolio Risk and Performance in China
By Tyler Collins

A recently published study titled Responsible Investment and the Chinese Stock Market has won the 2012 European FIR/PRI award for Investment Strategy.

The study’s authors, Michael Barnett of the Centre for Corporate Reputation at Oxford University, and Jimmy Chen, Andreas Hoepner and Qian Li from the Centre for Responsible Banking & Finance at the University of St Andrews, studied the effect of environmental, social, and governance (ESG) risks on securities’ performance in terms of alpha for Chinese firms.

This study was the first of its kind to research the link between ESG risk assessment and financial performance in the Chinese stock market. The study conclusively determined a continuing opportunity for greater than expected return on investment for ESG risk, referred to as “ESG alpha” in the study.

The authors of the study note that there are three necessary considerations to be made when assessing the Chinese stock market with ESG criteria:

  • In-depth ESG risk data for Chinese firms
  • Distinction between Chinese firms listed predominantly for Chinese and western institutional investors
  • Discrepancies between western and Chinese definitions of ESG criteria

While the report shows significant investment opportunities using Chinese ESG criteria within the Chinese markets, the alpha is generally lower when using Western ESG criteria for Chinese listings. Additionally, research has not yet shown a potential for ESG on Chinese stocks that are listed internationally.

Learn more about Principles of Responsible Investment (PRI) here.

Learn more about Forum Pour L’Investissement Responsible (FIR).

Posted: October 24, 2012