On 26 November, WeCarbon was invited to attend the 2023 Sustainability Forum and Shenzhen International Low Carbon City Forum, hosted by the Shenzhen Municipal People's Government and co-organised by the Shenzhen Municipal Development and Reform Commission, the Shenzhen Municipal Ecology and Environment Bureau and the Longgang District People's Government. During the forum, a Chinese ESG due diligence service standard, jointly drafted by WeCarbon with official bodies including the China Investment and Development Promotion Association (CIDPA), the Hong Kong Quality Assurance Agency (HKQAA), the China Quality Certification Centre (CQC) and the Hangzhou Venture Capital Association, was released as a major outcome.
WeCarbon drafted the main content of the standard. Drawing on years of hands-on ESG due diligence work in China and abroad, WeCarbon made the standard practical, applicable and international, so that it gives investment institutions and service providers workable guidance. Going forward, WeCarbon will promote the standard among central and state-owned enterprises and private investment institutions, and will continue to provide investors with ESG investment advisory services, including ESG due diligence, helping all kinds of investment institutions identify environmental, social and governance risks and opportunities and fully integrate ESG into their investment processes.
ESG due diligence is an important business practice for ensuring that ESG principles are fully integrated into investment, and a primary means for investment institutions to avoid environmental, social and governance risks. Outside China, ESG due diligence has become a required part of investment due diligence. According to statistics, in Europe more than 95% of investment institutions and more than 80% of investment and M&A deals involve ESG due diligence. As ESG principles are put into practice in China, ESG due diligence is set to become an important safeguard for building a modern capital market with Chinese characteristics and for advancing climate investment and financing, green finance, the sustainability strategy and sustainable development.
Green Leadership, Exploring a Low-Carbon Future
Figure 1: Poster of the Shenzhen International Low Carbon City Forum
Under the theme "Green Leadership, Exploring a Low-Carbon Future", this year's forum followed a "1+1+8+N" format: the forum opening, the 2023 China International Green and Low-Carbon Industry Expo (CCAE 2023), and eight thematic conferences and forums. It focused on strategies for optimising urban low-carbon industries and on integrating green, intelligent manufacturing and emerging technologies with low-carbon industries. This year the forum again held a series of major-outcome launch events showcasing Shenzhen's practical progress in green, low-carbon development. A highlight of the event, the launch series used releases and project roadshows to give new products, technologies, business models and services in the green, low-carbon field a platform for their debut, driving technological innovation and setting the direction for the green, low-carbon industry. On the opening day of the major-outcome releases, the group standard "Enterprise ESG Due Diligence Service Specification", led by CIDPA and co-drafted by WeCarbon, was officially unveiled.
Figure 2: A CIDPA representative presents the standard
Background to the Standard
In response to national policy calling for strong support for environmental, social and governance (ESG) evaluation systems, government departments are actively promoting ESG due diligence standards. The aim is to guide companies to pay more attention to non-financial factors, improve governance, regulate investment behaviour and advance sustainable investment. Article 10 of the "Opinions on Further Improving the Policy Environment and Stepping Up Support for the Development of Private Investment", issued by the National Development and Reform Commission on 28 October 2022, explicitly calls for exploring ESG evaluation of investment projects to improve the investment system that supports green development.
In recent years, ESG has drawn wide attention in global investment and financing markets, and investors increasingly look at non-financial factors such as ESG. Although these factors are not directly reflected in a company's financial reporting, they often indicate its ability to maintain sound governance, avoid potential risks and operate sustainably, and they are closely linked to risks such as labour relations, environmental compliance and carbon emissions. ESG due diligence is an important way to identify ESG risks and opportunities in a timely and effective manner. In China, ESG investment is booming, but there are no clear norms for ESG due diligence yet, and compared with overseas markets this important step is clearly missing. Establishing a standardised ESG due diligence standard suited to China's conditions has therefore become especially urgent.
Against this backdrop, the group standard "Enterprise ESG Due Diligence Service Specification" aims to provide a practical, clear and dependable set of rules and standardised tools. The release and implementation of the Standard will, to begin with, help investment institutions, funds, banks and others fully identify and effectively avoid the ESG risks of their targets, better assess companies' risks and opportunities and obtain more comprehensive and reliable information for investment decisions. It can also guide companies towards high-quality development, drive sustainable social progress and increase long-term investment returns. In addition, it will help spread ESG thinking across the industry, support the healthy development and transformation of the industry's ESG ecosystem, and advance the building of a modern capital market with Chinese characteristics.
Key Features of the Standard
The enterprise ESG due diligence series of standards comprises a general standard, investment-type standards and target-company industry standards. ESG due diligence should start from the general standard and, depending on the type of investment and the target company's industry, also to one investment-type standard and one target-company industry standard.
Figure 3: Features of the Standard
The standard has four core highlights: clear grading of conclusions, qualification requirements for service providers, process and operational guidance, and data security and confidentiality.
Figure 4: Highlights of the Standard
The standard document has seven chapters, establishing a complete system for ESG due diligence that helps companies and investors build a sound ESG framework and clarify their management approach.
Figure 5: Structure of the Standard
Conclusion
Going forward, WeCarbon will help put the Standard into practice and spread ESG thinking in the investment process, helping investors and companies understand potential ESG risks and opportunities more fully and quantify the impact of ESG factors on investment portfolios more accurately, so that economic returns and social responsibility go hand in hand.
Drafting Organisations
WeCarbon is one of the drafting organisations of the standard. The others include the China Quality Certification Centre, the Hong Kong Quality Assurance Agency, the Hangzhou Venture Capital Association, the Hangzhou Zhijiang Venture Capital Research Institute, Zhejiang Zheda Science and Technology Innovation Group, Anfeng Venture Capital, AllBright Law Offices (Beijing) and the School of Finance of Zhejiang Gongshang University.
Figure 6: Drafting team of the enterprise ESG due diligence series of standards