Trade frictions with the United States are likely to have led the Chinese government to step on the gas in its long-gestating attempts to improve the competitiveness of the country’s sluggish state sector. State owned enterprise (SOE) reform has unequivocally moved up the policy agenda, with the government trying to capitalise on the progress achieved so far. SOEs across a range of industries have improved their performance by shedding excess capacity, optimising balance sheets through debt reduction, and introducing executive share incentive schemes. We believe the ultimate success of the reform process will be in part determined by the adoption of robust governance practices, particularly in the areas of board effectiveness, transparency and shareholder protection.
ESG – finally sweeping into Asia?
It will take time for policymakers to take decisive action to uncouple economic growth from resource consumption across Asian economies, or implement measures to enhance protection of minority shareholders. In the meantime, financial industry participants can and should play a part in accelerating this transition by helping move capital markets onto a more sustainable basis.
We left the conference encouraged that our ability to play this part, through our ESG research and engagement activities with Asian companies, will improve going forward. Two reasons support this view.
Firstly, regulators and stock exchanges across the region continue to develop and implement stronger ESG reporting standards and ESG practice guidelines. Secondly, there is growing appetite from local investors, including through minority investors associations, to lend their voices to foreign investors’ calls for better ESG practices.
The two forces above, together with the drive to remain relevant as millennials and younger generations rise, are helping mark a turning point in the way Asian companies look at ESG. However, some challenges remain for this turning point to happen more quickly.