An article published in International Adviser on May 11, 2017 examines the “peculiarities” of ESG investing in China.
It cites a recent Morningstar report that analyzes the relative weightings of emerging market countries in MSCI’s ESG-themed indices used by exchange traded funds (ETFs).
According to the article, the “peculiarity” of ESG investing in China is how to weight Chinese companies in a portfolio, given their poor ESG scores compared not only to peers in developed countries, but also to emerging market peers. According to the Morningstar report, “Chinese firms, on average, receive the lowest environmental scores among all emerging market companies. Inadequate labour standards, which result in more frequent on-the-job accidents, bring down the country’s rating on the social scores.” Thus, according to the article, the end result is that the strictest SRI ETFs and indices severely underweight China. Less strict ETFs and SRI indices include Chinese companies more proportionately to China’s weighting in a broader, mainstream universe.
The article investigates other options and alternatives. Although the author does not refer explicitly to common SRI strategies, the approaches used can be matched against familiar strategies such as best-in-class, exclusion, and sustainability-themed.
You may read the article on the International Adviser internet site.