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Following years of localisation, ‘stewardship’ is no longer a strange concept to investors and listed firms in China. Participation in shareholder voting has been on the rise, and company managements are becoming more responsive to engagement by investors. These positive developments go hand-in-hand with the rising awareness in China over environmental, social and governance (ESG) investing, which has gained traction in the wake of the Covid-19 pandemic. Moreover, in September 2020, the popularity of sustainable investing received a significant boost from China’s announcement of a 2060 national target for reaching net zero greenhouse gas emissions.
Investment stewardship refers to the fiduciary duty of professional money managers to provide responsible oversight of capital on behalf of clients. Voting at a company’s shareholder meetings and directly engaging with its management are key tools for investors to encourage sustainable business behaviour and enhance client returns.
Policy support has played a key role in driving China’s ESG and stewardship development over the last few years. The government has introduced a series of policies aimed at fostering high-quality disclosure and responsible investing.
For instance, the Shenzhen Stock Exchange issued guidelines in January of this year requiring listed firms to disclose their ESG performance and making such disclosure a key focus of regulatory review. In June, the China Banking and Insurance Regulatory Commission (CBIRC) asked banks and insurers to incorporate ESG standards in their investment processes and to enhance their stewardship practices.
These guidelines followed a directive from the State Council, China’s cabinet, in September 2020 calling for greater information transparency and more active institutional participation in corporate governance.
Institutional participation in the A-share market continues to rise while the dominance of controlling shareholders is easing somewhat, creating more room for asset managers like Fidelity to deepen their stewardship practices. At the same time, 2021 saw a significant increase in the number of onshore Chinese signatories for the United Nations Principals for Responsible Investing (PRI) programme, with 25 new asset managers joining last year versus 13 in 2020. And while many minority investors have yet to be convinced of the power of voting in shareholder meetings to challenge controlling interests, some are starting to at least express themselves through dissenting votes. The proportion of minority shareholders casting “against” ballots has jumped in recent years, albeit from a low base.
On the other hand, companies have actively increased shareholder communication, with the proportion of listed companies in the A-share market discussing earnings results with investors rising from 55 per cent in 2020 to 94 per cent in the third quarter of this year. The number of firms within the study publishing ESG reports (excluding corporate social responsibility, or CSR, reports) has also increased dramatically, rising to 262 as of the first three quarters of 2022, a threefold increase from the same period a year earlier.
While we’ve seen incremental progress, there is still meaningful room for further improvement in active stewardship. At shareholder meetings, plans floated by minority investors remain insignificant in number, despite an overall increase in proposals. We need greater enthusiasm for voting among A-share investors; holders of Hong Kong-listed H-shares, led by foreign institutions, remain the more active group of voters. Moreover, proposals on environmental and social issues are conspicuously scarce, although governance-related initiatives have been rising steadily.
The full report consists of three main sections: 1) an overview of trends in shareholder resolutions and voting; 2) responsible voting case studies; and 3) engagement case studies.
Click here to view and download the full Fidelity International China Stewardship Report 2022 as a PDF document.
Or click here to revisit the inaugural 2020 edition of the report.