Aside from its occasional lip service to Western environmental policies, China isn't the first country you'd name if you were asked to describe a nation with a glowing track record for ecological care.
In almost every known report or study, the Chinese Communist Party (CCP) has taken a blasé approach toward environmental policy in a nationwide, decades-long effort to bolster its industrial might into a modern economic superpower that's become a continually mounting headache for the United States and its Western military alliances.
A powerful and populous behemoth on the world stage that's piled up a raft of accusations of human rights violations and has been conspicuously resistant towards Western efforts to steer compliance with international climate treaties and agreements.
The Council on Foreign Relations (CFR) even put the Chinese government’s environmental promises under scrutiny, including its pledge to slash carbon emissions under the Paris Agreement, reduce coal use, and invest in renewable energy.
It's a big problem because its ambitious industrialisation has resulted in an enormous exhaust of air pollution, water scarcity and soil contamination, threatening the health and livelihood of Chinese people, which the CFR feels is festering greater dissatisfaction with the government.
But Mingshi Investment Management (MINGSHIIM), a prominent firm with significant investments in the Chinese market, has tabled a surprising set of statistics on investor enthusiasm for green stocks within its borders.
The firm’s head of factor research, Jianan Liu, who is presently visiting Australia, said green stocks have significantly outperformed less environmentally friendly stocks in China over the past five years by around 18.7 per cent per annum from January 2016 to December 2020.
Aside from the “greater desire of investors to hold green shares”, Professor Liu feels a “key source of outperformance is the better-than-expected earnings performance of the green firms”.
“As the world grows increasingly conscious about firms’ environmental impact, greenness and sustainability of a firm becomes a component that must be factored in. As a result, green firms’ market prices trend upwards,” Professor Liu said.
And although the ESG push in China and other Asian markets has lagged behind Europe and the US, according to Mingshi’s estimation for green capacity, the China-A market is in the “early stage of the green trend”.
Professor Liu’s findings indicate that Chinese customers are increasingly switching from the dirtier producers to the greener ones.
What’s motivating the cultural change?
She believes it’s the growth of green firms’ earnings, where “smart investors… have figured out the positive relationship between greenness and earnings, [and] can profit from the positive earnings surprises”.
Although Professor Liu’s comments didn’t indicate how the Chinese government feels about these big investment shifts, it’s becoming increasingly clear that President Xi Jinping’s regime will be coming under enormous pressure to review its internal climate and environmental policies to bring it on track with the rest of the world.
