“Paradigm shift” sees rapid advance of stewardship in China

Despite being the world’s second largest equity market, the perception of risk and the nuances of investing there have meant China has often been avoided by global institutional investors.

Research from RisCura shows that understanding of local corporate engagement practices is poorly understood by most global investors. It also provides a benchmark for local Chinese managers to understand their position relative to their peers on how ESG risks are being managed – or transformed into opportunities – through engagement by Chinese investment managers.

“Although the basic corporate governance framework in China is very similar to the West, capital market regulation and best practices are still developing, especially when it comes to stewardship and ESG,” said Lars Hagenbuch, investment consultant at RisCura.

However, the past five years has seen a paradigm shift according to Hagenbuch, with a considerable shift in the right direction.

“We found that local managers are realistic about their current stewardship activities and were eager to learn from RisCura’s research process about global best practice and what global institutional investors would want to see,” he said.

“It’s also very evident from the research that stewardship and ESG can have a rapid and profound impact on portfolio performance in China, and that this often translates into significant performance differentials for asset managers.”