Helena Fung：ESG is on the rise in the asia-pacific region

　　Helena Fung joins FTSE Russell as Head of Sustainable Investment, Asia Pacific on February 19, 2020. In this newly created role, Helena will be responsible for FTSE Russell's Sustainable Investment indexes and data services across the Asia Pacific region．

　　Helena has been working as an expert in ESG and Sustainable Investment since 2008, including providing advisory research on stewardship implementation for pension funds and family office clients, drafting responsible investment policies and integrating sustainability policies into both active and passive portfolios．

　　ESG Channel at Sina Finance has interviewed with Helena to discuss topics around ESG and responsible investing．

　　Sina Finance: We would like to congratulate on your latest appointment as Head of Sustainable Investment, APAC at FTSE Russell. We know that you have years of experience in ESG and sustainable investment and have been working with pension fund and family office to integrate ESG into active and passive portfolios. So, want we what to know is how you understand ESG concepts? And what roles is ESG going to play in investing activities?

　　Helena Fung: Sustainable investing remains a relatively new and dynamic area of finance which is constantly evolving to reflect broader societal, environmental and governance shifts. The basic concept of ESG investing involves taking account of a wider spectrum of risks and opportunities which goes beyond the purely financial valuation metrics usually employed by financial analysts. This sounds simple, but developing the expertise to be able to identify and assess emergent risks and opportunities deriving from ESG factors, including the transition to a low carbon economy, requires specialist insight as well as financial knowledge. For sustainable investment to be integrated effectively, it needs to be a core part of the investment process, embedded in investment decision making, rather than a separate activity. ESG integration is about looking beyond short term financial metrics to account for material externalities that have the potential to impact businesses over the longer term.

　　Sina Finance: As a global index and data provider, FTSE Russell announced on 24 December 2019 that it would further expand its sustainable investment capabilities in the Asia-pacific region, including an expansion of its ESG rating for China's a-shares. So why did FTSE Russell make this determination? And can you tell us more about FTSE Russell's planning and deployment on sustainable investment?

　　Helena Fung: Access to the China A share market has become increasingly important for global investors. FTSE Russell began including A shares in its' global index series (FTSE GEIS) in June2019. In line with the requirements of clients globally, we expanded our ESG ratings coverage to around 800 A share companies in December last year. FTSE Russell's ESG ratings are used by investors both in the construction of sustainability-themed index products and as a basis for corporate analysis and engagement; extending our geographic coverage enhances our ability to service clients in both of these areas. Going forward, we will continue to develop our capabilities in response to investor requirements and to lead the market as sustainable investing continues to gather pace. For example, alongside our core ESG data model, we have invested in innovative products which quantify and model for the impact of climate change and the green economy. This is a key focus area for sustainable investors which will materially impact the way business and finance operates as we transition towards a carbon constrained world.

　　Sina Finance: ESG-focused indices tend to outperform broad market indices. This was consistent across multiple regions. Someone said it's because of ESG's outperformance while some think that it was simply an outcome of industry selection in the indexes. So, what's your opinion on that?

　　Helena Fung: ESG indices provide an opportunity to compare the performance of sustainability themed investment products against broader market indices; in some cases these can show out performance against benchmarks. As the question suggests, there may be other factors underlying this, not least a growing investor preference for companies that have better sustainability profiles or ESG scores, resulting in increased allocations. In general, the majority of academic studies show that ESG integration typically has either a positive or neutral impact on investment returns with a small minority pointing towards underperformance. What is more certain, however, is that companies with superior E, S and G practices should be better positioned to create sustainable shareholder value though management of downside risks and capitalizing on emergent opportunities.

　　Sina Finance: ESG indexes tend to exclude fossil fuels and reduce exposure to sin industries. Do you think this will cause investors to miss out on potentially high returns that could be generated by certain industries?

　　Helena Fung: The decision to implement a sustainable investment policy can be driven by a desire to mitigate ESG risks and safeguard long-term returns; or from ethical concerns, or both combined. If ethical concerns or a value judgement are the driver, that may mean diversifying away from certain sectors and seeking alternative sources of returns. However, divestment can be motivated by an investment philosophy which seeks to protect against reputational or strategic downside risks faced by companies operating in controversial sectors. For example, divestment from fossil fuels often derives from material financial risks inherent in sectors exposed to the transition to a low carbon economy. At the same time, divestment is not the only basis for constructing ESG indices. The increasing ability to quantify and model for sustainability related factors has enabled growing innovation in the construction of ESG indexes which go beyond divestment or negative screening.

　　Sina Finance: ESG sceptics point to messy raw data and inconsistency across vendors. And a lack of quality information remains a challenge in digging deeper into ESG-focused investing. How do you think of these obstacles that ESG's development encounters?

　　Helena Fung: Despite inconsistencies in reported data,  focus from investors and regulators on ESG disclosures has placed an emphasis on the need for improved disclosure standards. Transparent and detailed reporting which sets out sustainability risks and opportunities faced by the business, underpinned by robust strategies and clear response plans typically results in a higher ESG rating.

　　Ratings providers have different scoring models which may lead to varying assessment results. For this reason, FTSE Russell's ESG ratings are based ona transparent, objective and rules based methodology with inputs based on public disclosures made by companies. As part of the ratings process we enable companies to review the collected data. This demonstrates to companies the disclosures required by investors for ESG evaluation and sets out clearly where the gaps are and facilitates engagement on both sides.

　　Sina Finance: We noticed that more and more multinational corporations are keenly eager to increase their ESG ratings based on rating methodologies from FTSE Russell, MSCI, Moody's, and other international rating agencies. On the other hand, we have also received feedbacks from companies in China, many of which expressed their concern over the compatibility of international rating methodologies with the local business environment. I guess the core question would be: is there a need for a set of China-specific metrics for ESG ratings in China? We are very curious to hear your thoughts on this issue.

　　Helena Fung: Taking account of regional differences should be an important consideration for using ESG ratings in an investment context. A good example would be the variable ratings thresholds for inclusion of companies in developed and emerging markets within the FTSE4Good index series. In general, practices and implementation vary between markets, for example due to regulation and ownership structures, but the underlying principles of good ESG management are universally relevant. The international norms and standards on which our ESG ratings methodology is based reflect this and are drafted to be applicable across markets. On disclosure reporting, we notice a global trend towards more consistent frameworks that can be used by a range of stakeholders. Investors are looking for market standards to improve over time to the benefit of all market participants. Taking into account different practices and regulations, particularly on corporate governance, over a period of time we expect to see greater convergence of standards.

　　Sina Finance: ESG investing remains less prevalent than in developed markets. According to the Global Sustainable Investment Alliance (GSIA), The U.S. (35%) and Europe (46%) combined account for 85% of global sustainable investment, with Asian capital markets paying far less attention to ESG. However, in markets that are not very efficient (many of them are Asian countries), ESG factors have more potential to generate alpha. Does this mean that more opportunity of ESG investment can be found in the less-efficient emerging markets?

　　Helena Fun: The idea of a‘governance premium'  for well managed companies has been shown to be particularly relevant in Asian markets. Often in emerging economies a number of companies will lead the field in implementing a sustainability and in communicating this to the market. From an investor perspective, stronger ESG fundamentals and a stakeholder-focused approach can signify a sustainable competitive advantage which provides assurance of good management and may provide companies with more favorable access to capital. This can link with operational and financial factors to provide additional insights into how efficiently companies are using their resources. Additionally, strong ESG performance has been observed to correlate well with factors such as quality and low volatility. However, most sustainable investors would agree that adopting an ESG approach is about managing risk and opportunity from a longer term perspective rather than seeking short term returns.

　　Sina Finance: Developed countries like Norway have long been practicing the concepts of sustainable development and responsible investment. Here in China, the ESG-related topics such as environmental protection, social responsibility, and corporate governance are also becoming more and more significant in the business world. From your own observation, have you noticed some of the progress China is making in the field of ESG? And what suggestions would you give to a developing nation, like China, on the subject of sustainable development. 

　　Helena Fung: Consistent with global trends, there has been a clear escalation of interest in ESG across the Asia Pacific region.  Over the past few years, stock exchanges and regulators across the region have adapted listing rules and corporate governance codes to include ESG criteria. Large asset owners have played an important and visible role in their home markets by allocating capital to a sustainable investment approach.  From a policy perspective, China has made progress, particularly in the area of renewable energy and green finance. This should provide a solid foundation for future developments, for example in continual tightening of environmental policy standards and enhancing corporate reporting practices which are a strong step towards improving practices overall. Promoting consistency and transparency through the use of comprehensive and globally aligned sustainability frameworks, including in the area of green finance, will aid implementation and provide assurance to investors. In Asia – and especially in China – the skills and knowledge necessary to embrace new concepts means that capabilities can be escalated rapidly to international levels.

Helena Fung, Head of Sustainable Investment, Asia Pacific, FTSE Russell（Source：FTSE Russell）

　　August 20th marks the official launch date of the ESG Channel at Sina Finance. As the first ESG-focused financial news channel in China, we track ESG headlines, discover latest global ESG trends, and present the exclusive views of experts in the field. Our ESG channel at Sina Finance is dedicated to promote the concept of sustainable development and responsible investment.

责任编辑：鲁晗奕