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ESG

Section 1: Introduction to ESG

In this section, we aim to help students and learners enhance their understanding of ESG and prepare them to join the ESG professional field in their future career pursuit. Academics can also obtain some teaching ideas and additional learning resources to develop their ESG subjects. 

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Readers will acquire basic concepts of ESG and understand the importance of ESG integration. They will recognize the relationship between ESG development and corporate performance in terms of business sustainability, financial return and ESG reporting in Hong Kong or in Mainland China. There are proposed topics for ESG integration in different disciplines (Economics, Finance, Accounting, Marketing, Management, Supply Chain, Communication and Social Science). Practical real-life examples are shared on how to apply ESG in asset management and some industries. The PPTs conclude with key observations of ESG Integration Development in Asia (drivers, barriers, the ESG landscape for ESG stakeholders of two maturity levels) and ideas for the way ahead. 

Section 2: Views on ESG by Professor Louis Cheng

Section 2A: Industry Report on ESG Integration and Reporting (2019-2020)

Professor Louis Cheng believes the sustainability for the society can be achieved by ESG integration which advocates the explicit and systematic incorporation of E, S and G into investment analysis and investment decisions. G is most concerned in Hong Kong, followed by E, while S is always out of concern which may be due to the difficulties of measurement. This observation is consistent with the result of an article published by BCG on the digital building blocks of corporate sustainability. Yet, it is difficult to take forward the promotion of ESG integration because of the following barriers:

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  • Limited understanding of the ESG issues and/or ESG integration

  • Lack of comparable and historical ESG data

  • Concerns about negative returns, tracking error and underperforming a benchmark

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The above barriers even negatively affect the quality of ESG reporting (For ESG reporting, please refer to Section 2 ). Indeed, in the early stages, Hong Kong focused on the disclosure of relevant information by adopting box checking methodology rather than the quality of the disclosure. Therefore, in 2019-20 my team examined ESG reports by Hong Kong listed firms and found the below concerns:

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  • Concerns about misunderstanding of stakeholder engagement

  • Concerns about environmental data collection

  • Concerns about environmental data calculations

  • Concerns about misunderstandings in social aspects

  • Concerns about misalignment between HKEx guidelines and content

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Among the above concerns, concerns in environmental aspect (i.e. Concerns about environmental data collection and Concerns about environmental data calculations) contained the highest number of errors.

For more detailed views by Professor Louis Cheng, please read the below documents.

Section 2B: ESG integration for Business

In the PPT titled Driving Profit with Purpose: Integrate ESG Concepts into Business Decisions, the PPT illustrates the concepts of materiality. Taking airline as an example. Readers can see how ESG materiality analysis helps the sustainability performance of a company. Readers will be introduced to the ESG integration life cycle (with different developmental stages) and understand how ESG integration is realized finally. Through an analytical framework about ESG pillars and major issues, readers are ready to know the directions of the ESG developmental areas. Examples are shown about how ESG integration affects the investment return. There are suggestions of various business areas for ESG integration and the knowledge of the different drivers and barriers in leading to different ESG landscapes. For the way ahead, companies can develop through 1) improving quality of ESG information, 2) producing various ESG performance benchmarks and KPIs, and 3) enhancing the scope and depth of ESG products and services. It is true that this use of alternative data is on the rise and such industry is expected to grow 30% annually in the coming years. New datasets are now available and traders can seek support more easily to apply the alternative data for improving the company performance. 

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For overcoming the time issue of annual reporting and the daily occurrence of ESG events, Prof. Cheng further introduces the project of using machine learning to measure ESG sentiment through media. Using ESG performance rating and sentiment data to measure ESG intelligence, the visualization reflects i-Score universe as the z axis with RavenPack sustainability sentiment score (RP Sustain Net Senti) as the x axis, and the Youjivest net ESG score (YJV ESG Net Senti) as the y axis. Different i-Score 3-D diagrams are shown to help illustrate the different i-Score performance.

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In the second PPT, Prof. Cheng introduces some details of a collaborative project between the research centre for ESG at HSUHK and the World Green Organization. SMEs are the major pillar of employment and GDP for many Asian countries. The SMExESG initiative is expected to produce an ESG framework for SMEs in Asia, specially to support the SMEs in practicing ESG guidelines to obtain better financing, business opportunities, and eventually to benefit the society as a whole. Readers can refer to some practical examples on how to achieve the 3 pillars of ESG performances as well as the action plan for developing the SMExESG framework.    

Section 2C: ESG Data and Its Applications

From the following four PPTs, readers will learn the different kinds of ESG data and how they can be applied for research in industries to reveal corporate performance. Representatives from commercial data providers, CSMAR, SynTao Green Finance (STGF) and YoujiVest will introduce their available databases and how industries can apply them to evaluate their ESG performance.

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Prof. Cheng introduces an i-Score (intelligence score) for ESG rating which is used to show the overall ESG performance of organizations. The i-Score serves as a divergence-adjusted rating system regarding an investment portfolio (https://www.myesgi.com/our-philosophy) and which helps present the sentiment performance of an organization. Several 3-D diagrams help readers to visualize the ESG performance in terms of i-Score Universe (z-axis), RavenPack sustainability sentiment score (x-axis) and YoujiVest net ESG Score (y-axis). The i-Score facilitates the comparison of sentiment performances among organizations and the decision-making process of investors.

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With the PPT slides from CSMAR, SynTao Green Finance (STGF) and YoujiVest, readers are introduced to different commercial databases and how the data collected help researchers in industries. CSMAR briefly introduces their 19 series and 212 databases in specific E.S.G. areas. Readers can have an overview of the different ESG performance items and the current hot topics of discussions. In addition to the services and products available in STGF, it presents the ESG Rating Framework and its data processing approach. Some ESG data applications are illustrated with examples that include ESG and factor-investing, ESG single-factor investment strategy and mutual fund ESG evaluation. YoujiVest believes that positive ESG performance contributes to corporate performance and economic well-being and social sustainability. Its mission is to provide the most trusted, bias-free, and innovative data solutions tailored to China’s ESG and climate applications for investors, corporates and policy makers.

Section 3: External Presentation Materials (2019-2020)

This section contains a collection of presentation materials related to ESG integration for investments, ESG data analytics, as well as ESG reporting during 2019-20. Ms. Victoria Mio gives information about methodologies of pursuing and achieving ESG integration by Robeco. Ms. Gloria Lu, former Senior Director, Corporate & Infrastructure Ratings from S&P Global Ratings provides information on ESG evaluation of companies and challenges in ESG investing. Mr. Robert Milners from PwC shares challenges in the collection of non-financial data.

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