DigitalCFO Newsroom | 12 August 2022
SZSE Issued Evaluation Method of ESG and ESG Indices to Improve SZSE Characteristic Index System and Provide Services to Low-Carbon and Sustainable Development.
On July 25, Shenzhen Securities Information Co., Ltd. (hereinafter referred to as “Shenzhen Securities Information”), a wholly-owned subsidiary of the Shenzhen Stock Exchange (“SZSE”), formally launched the evaluation method of CNI ESG and released the ESG Indices and the ESG Top Indices of the SZSE core indices (namely, the Shenzhen Component Index, the ChiNext Index, and the Shenzhen 100 Index) following such evaluation method. These are the practical measures taken by SZSE to fully implement the new development concept, make full use of the platform functions of the capital market, continuously improve SZSE’s characteristic index system, actively meet the diversified investment needs of the market on ESG, and provide better services for the green, low-carbon, and high-quality development.
The evaluation method of CNI ESG aims to provide the tools for ESG evaluation adapted to the Chinese markets. There are 15 themes, 32 fields, and more than 200 indicators established under three dimensions: environment, social responsibility, and corporate governance. These comprehensively reflect the practice and performance of listed companies regarding their sustainable developments and provide a solid foundation for further promotion of the development and innovation of the ESG indices and index products of SZSE. The evaluation method followed four principles: acting locally, learning from international experience, showing distinctive characteristics, and improving dynamically. It focuses on carbon neutrality, innovation-driven development, rural revitalization, common prosperity, and other national strategic targets. It also combines the international ESG evaluation practices with the long-term research experience of Shenzhen Securities Information to explore and construct a characteristic index system. The index data cover all A-share companies, the index scores are based on the objective rules and public information, and the evaluation results are updated quarterly. According to the latest results, the ESG performance of A-share companies has been improving. The ESG performance of bottom-ranked companies has enhanced significantly as well. These reflect that China’s capital markets have achieved good results in serving sustainable development.
The ESG Indices are positioned as the performance benchmarks of ESG investment. Regarding the selection of the ESG Indices’ sample stocks, the Shenzhen Component ESG Index (“SZI ESG”), the ChiNext ESG Index (“CNT ESG”), and the Shenzhen 100 ESG Index (“100 ESG”) take the Shenzhen Component Index, the ChiNext Index, and the Shenzhen 100 Index as their parent indices, respectively. The constituents of their parent indices are sorted according to the primary industries of CNI to which they belong and are ranked from high to low according to their scores of CNI ESG. Those stocks whose ESG scores fall in the bottom 20% of the industries to which they belong are excluded, and the remaining stocks are selected to constitute the sample stocks of respective ESG Indices.
The ESG Top Indices are positioned as high-quality ESG investment targets and highlight the return performance of the ESG factors. Regarding the selection of the sample stocks of the Shenzhen Component ESG Top Index (“SZI ESG TOP”), the ChiNext ESG Top Index (“CNT ESG TOP”), and the Shenzhen 100 ESG Top Index (“100 ESG TOP”), the constituents of their corresponding core indices are ranked from high to low according to their scores of ESG. SZI ESG TOP takes the respective top 200 stocks as its sample stocks, while CNT ESG TOP and 100 ESG TOP each take the respective top 50 stocks as their sample stocks.
According to estimates, from the benchmark date of 29 June 2018 to 30 June 2022, the annualized returns of SZI ESG, CNT ESG, and 100 ESG are 9.4%, 17.0%, and 11.7%, respectively. Their characteristics of movements are consistent with their parent indices, as the correlation coefficients of their daily returns exceed 0.99. They demonstrate relatively slight advantages in their return performance over their parent indices. The annualized returns of SZI ESG TOP, CNT ESG TOP, and 100 ESG TOP are 9.8%, 17.5%, and 14.0%, respectively, and are significantly better than those of their parent indices. In addition, their annualized excess returns are 1.5%, 2.5% and 2.5%, respectively.
With the continuous and in-depth advancement of the dual carbon strategy, the ESG investment in China has shown a rapid development trend, the concept of ESG investment is beginning to take root, and the ecosystem of ESG investment has become increasingly sound. In the future, SZSE will continue to, in accordance with the deployment requirements of the China Securities Regulatory Commission, thoroughly, accurately, and comprehensively implement the new development concept, and promote and improve the sustainable system of financial rules, to build a low-carbon sustainable allocation platform for investment and financing products, to serve the needs of diversified allocation of medium and long-term funds. Comprehensively leveraging on its function of the market organization, SZSE will expand the application of ESG evaluation results, guide financial resources to gather in low-carbon fields, commit to building itself as a sustainable exchange, and help promote high-quality development of the economy.