ESG — short for "Environmental, Social, and Governance" — has been the buzzword for the last decade among the investment community, especially in developed markets. But in China, the general investing public still may not fully understand the value in having ESG.

Today, people worldwide have become even more conscious of how their actions might affect the future of the planet. The investment strategy underpinned by ESG — seeks both financial return and social good.

And the numbers are impressive. Data from the Global Sustainable Investment Alliance showed that at the end of 2018, socially responsible investments grew by 34 percent to 30.7 trillion U.S. dollars compared to 2016.

The situation in China may rapidly change even as Chinese regulators, listed companies, and the investment community ramp up their focus on ESG investments. As of 2018, over 80 percent of CSI300 companies were disclosing ESG data voluntarily, compared to less than 50 percent in 2010, according to data from consultancy firm SynTao Green Finance.

Wendy Cheong, head of Asia Pacific at Moody's Investors Service, told CGTN that ESG demand from the mainstream investment community is rapidly accelerating. "Financial market participants are seeking ways to integrate ESG components into their asset allocation and risk management practices to generate value, minimize risks and create impact," she said.

Chinese financial regulators facilitating ESG growth

Since 2006, Chinese financial regulators have been increasingly placing more weight on encouraging listed companies to disclose ESG information, in a move that seeks to improve companies' operations and protect investor interests. This ESG push has accelerated even more recently, as the China Securities Regulatory Commission (CSRC) in collaboration with China's Ministry of Environmental Protection, introduced new requirements that mandates all listed companies and bond issuers to disclose ESG risks associated with their operations, by 2020. The market is now highly anticipating CSRC's launch of its unified information disclosure standard.

"We are hopeful that the expected regulatory initiative in China will help remove some remaining barriers, and will be helpful to incentivize firms and issuers to improve their ESG performance and increase ESG transparency, while also allowing price differentiation based on a standardized reporting system." Wendy said.

The ESG issue becomes more vital for Chinese listed companies as A-Shares have been included in the MSCI benchmark indexes — which has its own ESG rating. The latest statistics showed that 11 percent of issuers in the MSCI China Index gained an ESG rating update since their ratings were last reviewed by MSCI over the last 12 months.

Wendy says the MSCI inclusion will incentivize China-listed firms to adopt and implement globally recognized ESG standards, and consequently boost the development of China's ESG markets. In return, a market with a higher level of ESG execution and information disclosure by listed firms becomes more attractive to global investors, who often already incorporate ESG factors into their investment considerations.

Among the key questions have always been these: Does it make sense for investors to use ESG criteria when evaluating their investment decisions? Are companies with better ESG capacities actually have stronger performance, especially in the long term?

Richard Pan, head of International Business from China Asset Management —  a leading player in both China's asset management and ESG investment —  has an answer in the positive.

"Our research shows the companies (that) have better ESG scores have better performance in three year horizon. Because the companies who have better ESG scores normally have high standard of corporate governance which can eliminate tail risk, and have better scores in environmental protection and social responsibility. Basically they can achieve more sustainable growth in the long turn. That's why we focus on ESG investment and embedded ESG into portfolio management and risk management process," Pan said.