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Where the government goes, companies follow. So goes conventional wisdom on doing business in China. But when it comes to improving ESG, that assumption may be due for an update. This week’s Chart Room shows that investors and consumers are having a bigger sway over companies’ decisions on sustainability strategy -- in some cases, more so than the carrot-and-stick combo of policy incentives and punitive regulation.

That is a key finding from a recent Fidelity International survey of 262 C-suite and director-level corporate executives based in China. When asked what their top-three motivations are, almost half of those developing an ESG strategy say they are responding to customers’ expectations, while 44 per cent aim to address investors’ concerns. This pattern holds across the public and private sectors. More central state-owned enterprises (SOEs) and private-owned enterprises name these two as their top-three reasons than those who claim they do it for better operational efficiency, financial performance, or third party ESG ratings.

Policy still has a big part to play. Over half of local SOEs cite “respond to policy initiatives” as their rationale, and “comply with regulation” captures 29 to 37 per cent across all three categories. But the fact that they come lower down the list suggests investors have more influence over Chinese companies’ ESG trajectory than proponents of exclusion -- who steer clear of poor ESG performers -- would have us believe. Only by engaging can investors gain more insight into companies’ plans, track their progress, and deliver meaningful changes that create value. It is a value play hidden in plain sight, and this survey sums up why.

Flora Wang

Flora Wang

Director, Sustainable Investing

Noah Sin

Noah Sin

​Investment Writer