DUTIES OF CHINESE ASSET MANAGERS IN RELATION TO ESG CONSIDERATIONS

Abstract

The rise of Environmental, Social and Governance (“ESG”) investing brings with it a crucial issue for asset managers: to what extent would applying an ESG focus across mainstream funds be consistent with the asset managers’ duties towards their clients? In the past, asset managers’ duties were conventionally understood as focused on financial returns, and ESG factors were not perceived as financial measures. Today, with the growing significance of climate-related financial risks for example, asset managers increasingly recognise the value of investment opportunities with beneficial ESG qualities. Regrettably, in the interpretation of hard law, there remains significant uncertainty on whether ESG investing is part of an asset manager’s duties because most jurisdictions lack formal requirements to integrate ESG considerations. In China, asset managers are neither expressly required to integrate ESG investing into their investment processes nor to consider the Chinese government’s long-term sustainability goal as encapsulated in the idea of the Ecological Civilisation. In light of this, this paper identifies and proposes a three-pronged approach for Chinese regulators and policymakers to facilitate ESG integration by asset managers: (1) using soft law to encourage asset managers to implement ESG integration by clarifying that ESG integration is consistent with their duties, before relying on hard law to require ESG integration when soft-law mechanisms have encouraged widespread and consistent practice of ESG integration; (2) ensuring effective implementation of soft-law mechanisms by generating awareness across the asset management industry; and (3) going beyond asset managers by involving other stakeholders along the investment chain, namely companies.