PRI, UNEP FI, Generation Foundation and IIGF publish China roadmap on investor duties

The roadmap was launched at an event in Beijing hosted by BNP Paribas. 

Investor duties – another term for fiduciary duty, although the latter term is not a well-established concept in Chinese law – cover many of the same principles that underpin fiduciary duties – for example, duties of loyalty and prudence, requirements to act with care, skill and diligence, and requirements to act in good faith in the interest of beneficiaries and clients – all of which are familiar to Chinese investors.

Investor duties in China do not explicitly require investors to integrate consideration of material environmental, social and governance (ESG) issues in their investment decision making. However, there is a strong investment case for doing so, while such consideration is in line with the interests of clients and beneficiaries.

China is increasingly recognised by the international community for its leading role in green finance development worldwide, for taking green finance to the G20, and for enhancing inter-governmental dialogues on issues related to private sector climate disclosure. Both domestic and international capital markets are expected to play a significant role in financing China’s green transformation and growth. Asset owners, and specifically state pension funds, because of their ability to cascade and drive green and sustainable capital through the investment chain, are of critical importance to this process.

To align investments and investor duties with the Ecological Civilisation (reflecting the idea of harmony between humanity and nature is an important component of Chinese civilisation and now part of China’s constitution). and the Guidelines for Establishing the Green Financial System (GEGFS) in China, the report recommends:

• publishing guidance on green and sustainable investment that articulates how institutional investors and their investment managers should implement the GEGFS;
• introducing regulation for pension funds to integrate ESG issues, encourage high standards in investee companies and disclose on ESG practices and performance;
• ensuring and monitoring the effectiveness of the mandatory environmental disclosure framework for companies, and aligning with international disclosure standards for ESG issues;
• expanding a standardised offering of green and sustainable investment products and comprehensive tools to support their market uptake. The demand from financial institutions for green investment is growing and can be further strengthened; and;
• supporting investor education and ESG investment research, and building operational capacity for sustainable investment.

Fiona Reynolds, CEO of the Principles for Responsible Investment noted: “China is emerging as an unequivocal driver of global climate change mitigation, sustainability and green finance. Their bold efforts at addressing climate change, as well as transforming the country’s economic structure, are leading the global agenda.”

“This report outlines important recommendations for creating a more sustainable financial system in China. As part of our Fiduciary Duty in the 21^st Century project, the work of the Generation Foundation, along with the PRI and UNEP FI, is helping investors everywhere consider what drives value in investment decision making, including important ESG considerations,” said Al Gore, former US Vice President and Chairman of Generation Investment Management. 

“This project, driven by the progress of green finance and a rising interest in ESG integration in China, builds knowledge and shares experience among policy makers and investors on how integration of material ESG factors contributes to long term sustainability,” said Eric Usher, Head of UNEP FI.

“As part of aligning financial markets with China’s development goals, asset managers are increasingly integrating ESG factors into their investment decisions,” explained Wang Yao, director general of the IIGF.

“The comprehensive approach of this report is an important contribution to this agenda, providing tangible recommendations within guidance, regulation, disclosure, standards, and investor education.”