ESG stands for Environment, Social, and Governance, and is a core framework that comprehensively considers the sustainable development performance of enterprises. It is also an important reference for capital markets to evaluate the long-term value and risk management capabilities of enterprises. In order to systematically understand and analyze the progress, effectiveness, and difficulties faced by the ESG work in the power industry, and to propose targeted policy suggestions and development ideas, China Electric Power Union has carried out research on the ESG system in the power industry, promoting the acceleration of the construction of a joint governance pattern and mechanism guided by the government, fulfilled by enterprises, supported by professional institutions, and supervised by the public, and working together to create a good ecosystem for the development of ESG in the power industry.
ESG development in the power industry
As of the end of 2022, there were 5079 A-share listed companies in China, including 360 power related listed companies, accounting for 7.1%. Among them, there are 73 power generation and supply enterprises and 287 power equipment enterprises, accounting for 10.2% of the total market value. This article analyzes and studies ESG policies, ESG governance and information disclosure, ESG evaluation, and ESG investment.
In terms of ESG policies. In May 2022, the State owned Assets Supervision and Administration Commission of the State Council issued a document requiring state-owned enterprises to control listed companies and strive to achieve full coverage of ESG reports by 2023, promoting the rapid development of ESG in China. The power industry is mostly dominated by state-owned enterprises, and influenced by policy guidance, it has also accelerated the pace of ESG development.
ESG governance and information disclosure. This article conducts statistical analysis on 50 major listed power companies as samples. At present, over 60% of power companies have established ESG related leadership structures on their board of directors, nearly 80% of companies have formulated strategic plans related to ESG, and about 30% of companies have included ESG performance in the scope of management compensation assessment. As of June 2023, around 90% of listed power companies have released ESG related reports. Overall, listed companies in the power industry have conducted extensive exploration and practice in promoting ESG governance, improving their management and information disclosure levels through multiple channels and paths, striving to become the "vanguard" of fully, accurately, and comprehensively implementing the new development concept and the "leader" of accelerating the construction of a new development pattern.
In terms of ESG evaluation. Currently, there are over 600 global ESG evaluation institutions, and mainstream ESG evaluation systems such as Mingsheng have gained high recognition in the global capital market. Currently, international institutions have a generally low evaluation of ESG in the power industry. In the Mingsheng Global ESG Leadership Index, the proportion of energy and public utilities related to electricity is only 3.26% and 1.87%, far lower than industries such as finance and information. At the same time, the evaluation results of Chinese enterprises by international institutions are systematically low, with about 52% of Chinese enterprises in the backward range and no power companies in the leading range yet.
In terms of ESG investment. The current "dual carbon" goal has become the main force driving the development of ESG investment. Since 2020, the number and scale of domestic ESG funds have shown an explosive growth trend. In addition to ESG investment, it also includes green credit, green bonds, green insurance, and other content. The scale of pan ESG investment has exceeded 660 billion yuan.
Problems and challenges faced
The industry ESG lacks a mature development environment. On the one hand, ESG policies lack uniformity and guidance. Domestic policies generally focus on a single dimensional issue in environmental, social responsibility, and corporate governance, lacking a top-level design that promotes the overall development of corporate ESG. The correlation between policies and the capital market is weak. On the other hand, the depth of ESG regulation is insufficient, and more attention is paid to practical issues such as whether to disclose and improve ratings, while there are few constraints on ESG governance, disclosure quality, and evaluation applications.
The ESG governance capability of enterprises needs to be improved. One is insufficient understanding of the essence and logic of ESG. Some companies have deviated from the essential requirements of sustainable development or neglected the inherent connection with social responsibility, lacking initiative and work ideas to promote ESG development. Secondly, the corporate ESG governance structure is not sound. A virtuous cycle has not yet been formed where ideas drive practice, practice receives evaluation, and evaluation guides improvement, which affects the decision-making efficiency, execution strength, and implementation results of ESG work in enterprises. Thirdly, the level of management specialization needs to be improved. The domestic ESG service system is still in the initial stage of construction, and a complete and professional training system has not yet been formed. There is a lack of universally recognized industry standards and professional certifications, and there is a lag in ESG talent cultivation and professional management for enterprises.
There is a significant gap in the quality of ESG information disclosure. There are deficiencies in the completeness, comparability, and accuracy of information disclosure.
The differentiated ESG evaluation results have a certain negative impact. One reason is that the consistency and effectiveness of ESG evaluations by different institutions are poor, which to some extent weakens the credibility of ESG evaluations. Domestic institutions generally lack international discourse power and have not yet gained recognition from mainstream international evaluation institutions and investors. Secondly, international evaluation agencies have a relatively low systematic rating of Chinese enterprises. The overall evaluation results of central enterprises are lower than those of private enterprises, lagging behind the global average, and pushing up the threshold for overseas listing, investment and operation of enterprises. Thirdly, most evaluation systems have not yet involved a single evaluation method for a certain industry, and the accuracy, granularity, and weight setting of universal evaluation are difficult to meet the actual needs of the power industry.
The actual driving effect of ESG investment is poor. ESG investment, as a relatively emerging field, has not yet been widely applied in China. On the one hand, the investment philosophy is not mature. Traditional investment concepts occupy a mainstream position, tending towards short-term returns and speculative behavior, while ESG is more used by investors to avoid risks. On the other hand, there is insufficient driving ability. ESG investment has not yet become an inherent driving force for ESG development. The scale of enterprises targeted for ESG investment is insufficient, mainly small and medium-sized enterprises, and lacks sufficient visibility and attractiveness in the face of market investment.
Opinions and suggestions
Guide the healthy development of ESG in the industry in an orderly manner. Fully understand the rich connotation, practical logic and scientific methods of the ESG concept, give full play to the "first" characteristics of electricity, comply with the wave of ESG development, actively respond to and deeply serve the "the Belt and Road" initiative, rural revitalization and other major national strategies. Effectively leverage the two directions of "policy driven" and "market driven", improve regulatory mechanisms, increase regulatory efforts, and enhance the synergy and linkage between industry policies and the capital market. Based on the nature and scale of power enterprises, we will adopt measures such as "fast pace", "steady progress", and "shoulder to shoulder" to expand the scope and depth of ESG implementation in an orderly manner, be vigilant against the risk of "chaos" caused by "overheating", and guide the healthy development of ESG in the power industry.
Drive multiple value enhancement for enterprises through high-quality ESG practices. Efforts will be made to enhance the ESG governance capabilities of enterprises, promote the integration of environmental, social, and governance factors into business operations and investment decisions, and solidify the foundation of ESG development strategies. Shape the ESG concept of the enterprise, improve the ESG governance structure, and advocate for ESG actions for all employees. Closely focusing on the "dual carbon" goals, fulfilling social responsibilities to high standards, and promoting the integration of party building, corporate governance, and ESG governance. Further enhance the level of ESG specialization in enterprises, and enhance governance capabilities such as data collection, analysis, and integration.
Accelerate the construction of an industry ESG information disclosure system. Establish multi-level ESG information disclosure standards such as general standards, industry standards, and characteristic standards, and expand the scope of ESG information disclosure in stages and scales. Clarify the obligation requirements for enterprise information disclosure, reasonably distinguish between voluntary and mandatory disclosure, accelerate the full coverage of ESG report release for listed companies controlled by central power enterprises, and actively guide small and medium-sized power enterprises to enhance their initiative in ESG information disclosure. Improve the quality and timeliness of ESG information disclosure by conducting internal audits, third-party evaluations, and introducing stakeholder supervision to meet the requirements of substantive issues, comparable data, and complete content.
Build an ESG evaluation system that is in line with Chinese characteristics, industry characteristics, and international standards. Adhere to the overall approach of seeking international unity and preserving local differences, and organically integrate the principles of international consensus with China's distinctive path. Continuously strengthen international exchanges and cooperation, actively participate in the formulation of international rules, standards, and public policies, and gradually enhance China's recognition and discourse power in the field of international ESG evaluation. Explore the establishment of refined and differentiated evaluation standards that meet the needs of the power industry.
Drive the improvement of ESG governance capabilities through ESG investment. Pay attention to attracting ESG investment through high-quality information disclosure, cultivate a good investment philosophy and environment, drive enterprises to improve their business behavior through ESG investment, use the risk avoidance function of the financial market to "shield" the bad behavior of enterprises, identify the hidden risks of bad projects, guide power enterprises to actively improve their business behavior, and form a closed-loop management of the entire ESG process.
This article was published in the first issue of China Electric Power Enterprise Management in 2024. The authors Fu Quanle, Qing Lei, and Bi Xiangwei all work for the China Electric Power Enterprise Federation
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