ESG performance in emerging markets: China at a crossroads

ESG performance in China

By: Janice Endresen
the Great Wall of China surrounded by hills on a foggy morning

By Juan Pablo Borda Kuhlmann, summer 2021 Emerging Markets Institute Intern

Introduction: The potential of ESG in emerging markets

As an intern at the Emerging Markets Institute this summer, I had the opportunity to research the topic of environmental, social, and governance (ESG) performance in companies in East and Southeast Asia. In recent years, companies’ ESG performance has garnered worldwide interest, most prominently in developed economies such as the G7 and EU. This is best illustrated by the rising importance of ESG metrics in finance, such as the advent of various ESG indices listed by S&P Global and other ESG-oriented products in global financial markets. Although ESG investing has been a bigger trend in developed economies, the potential impact of ESG performance in emerging economies should not be underestimated. Several companies across the world have started championing ESG performance, positioning themselves as ESG leaders in their regions. In these countries, ESG investing could become a powerful tool to drive sustainability, promote innovation, and align investment practices with developed economies. I decided to look specifically at the case of China and its policies with regards to ESG.

China and companies’ environmental performance

Given China’s role as one of the biggest greenhouse gas emitters, understanding its plan to mitigate impacts was a key part of my research. China’s most prominent policy in this regard is the “Race to Zero,” an effort to reach net-zero carbon emissions that is laid out in China’s five-year plan announced in March 2021. Among other goals, China aims to reach peak CO2 emissions before 2030 and carbon neutrality by 2060. The People’s Bank of China (PBC) has also put forward measures to enforce mandatory environmental information disclosure. According to SynTao’s China Green Finance Policy Database, more than 700 national and local green finance policies have been issued in China.

Many Chinese companies receive state investments and subsidies to increase their participation in environmental efforts, an example being subsidies for vehicles built by electric car manufacturer NIO, resulting in lower prices and an increase in adoption/sales. The Race to Zero policies benefit many such companies that are involved in clean energy, generating great opportunities for Chinese firms that operate in these industries.

China and companies’ social performance

China has announced a wide variety of social initiatives, one of the most prominent being the recent Corporate Social Credit System (CSCS). The CSCS assigns social credit scores to firms with the intent of better regulating corporate behavior. It does this by collecting data from hundreds of local and regional agencies, with the National Credit Information Sharing Platform (NCISP), serving as its data “backbone.” The Unified Social Credit Code assigned to each company functions as an ID for the data of that company.

Another tool that falls under the ESG social branch is the blacklisting of firms. Blacklists are created for every type of offense, from tax evasion and emissions data falsification to lighter offenses such as failing to file a change in address. There are also “red lists” for the best-performing companies. Firms placed on multiple blacklists may be added to the forthcoming State Administration for Market Regulation (SAMR) “heavily distrusted entities list,” which can be considered a national blacklist. Blacklisted companies face penalties, audits, and higher taxes, while “redlisted” companies receive benefits like lower taxes, interest rates, and service costs. However, this system has generated controversy due to the potential of abuse by the Chinese government, which could unfairly punish companies that do not align with its polices or favor state-owned or -backed companies. 

China and companies’ governance performance

Although the ESG governance component tends to be the hardest to study, I found it to be a particularly interesting exercise, given China’s unique characteristic of having a large amount of state-owned, stakeholder-controlled enterprises. Because of potential conflicts between government and private investors, this model creates ambiguity about whose interests the C-suite really serves. The C-Suite may feel pushed to favor government investors due to their power and influence.

However, an important development in “governance” has been the increased scrutiny under anti-monopoly regulation of Chinese conglomerates like TenCent and the Alibaba Group. Additionally, the U.S. Securities and Exchange Commission (SEC) has taken a keen interest in U.S.-listed Chinese companies such as Didi and Gaotu Techedu, adding the Chinese government’s involvement as a reporting requirement due to the concern that it is exerting too much influence on firms. On the other hand, the Chinese government is concerned with regulating companies that operate in a more global environment, especially those listed in the U.S. stock market, creating a clash of interests. 

Potential for collaboration

 So far, I have explored specific ESG initiatives in China, but my research also considers a regional component, recognizing that the impact of Chinese ESG policies goes far beyond local impacts. China’s importance in the global economy, coupled with the enormous potential of Southeast Asian economies, creates a unique opportunity for collaboration across regions to push ESG implementation even further. Thailand and Indonesia are two leading economies in the region that display a keen interest in promoting ESG performance and can leverage country-specific knowledge to push local ESG agendas. Companies that become leaders in ESG performance will gain a competitive advantage that will allow them to better position themselves to receive foreign investment that is often given to larger economies. China can collaborate with these nations to create a strong regional economy and bolster innovation and growth. 

Company outlook: Ping An

Ping An—one of the biggest global insurance companies—is of special interest because of its role as an ESG advocate in China. The company is implementing extensive ESG-related policies in its own organization, and is looking to improve China’s ESG ecosystem through several new initiatives, including releasing ESG market research. In 2021, Ping An published “ESG Investment in China,” a report in which it analyzed ESG ratings, indices, and funds. Ping An has also become the first Chinese asset-owner signatory to the United Nations Principles for Responsible Investment and is in the process of joining the Climate Action 100+ initiative. As a key supporter and adopter of sustainable policies, Ping An is a prime example of an ESG trailblazer in China. 


China is a key country to watch in all aspects of ESG performance — not just because of its economic importance, but also as a case example of how a heavily centralized government decides to implement ESG policies going forward. Its “Race to Zero” may have a significant impact on environmental outcomes, but much depends on its execution. Similarly, the CSCS, although controversial, may have benefits for society and firms if not abused. As a powerful force in the world economy, China has the potential to significantly influence the use of ESG policies in Asia and beyond. I can’t wait to see how China’s relationship with ESG continues to evolve.

A more detailed analysis will be available in the 2021 Emerging Market Multinationals Report.

About Juan Pablo Borda Kuhlmann

headshot of Juan Pablo Borda Kuhlmann

Juan Pablo Borda Kuhlmann is in his final year at the University of Los Andes, Colombia, studying mechanical engineering and business. During his time at Uniandes, Borda Kuhlman has published several papers while working as an assistant researcher. He most recently worked as a research intern at Cornell’s Emerging Markets Institute, assisting with the 2021 Emerging Market Multinationals Report. He is interested in consulting and in the potential of international collaboration to solve widespread issues and generate positive impact.