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Divergence persists in China's corporate ESG progress amid overall enhancement

Some 6.4%of listed companies in Greater China led a faster adaptation to the rise in sustainability awareness.

Fay Wu, Jiaye Pan2023-03-03Updated at2023-04-28
ESGRatingScoreChina A

The year 2022 witnessed significant turbulence in the global capital market, characterized by regional conflicts, energy security concerns, inflation, and looming fears of an economic downturn.

In 2022, global stock markets faced collective declines, with the US Nasdaq plummeting by 33.1% and the S&P 500 falling by 19.4%, marking some of the largest annual declines in history. Concurrently, the A-share market in Greater China also experienced substantial setbacks, as evidenced by the SZSE Component Index and the SSE Composite Index plunging by 25.9% and 15.1%, respectively, along with the CSI 300 declining by 21.6%. Similarly, Taiwan's weighted index and Hong Kong's Hang Seng Index recorded full-year declines of 22.4% and 15.5%, respectively.

Chart: Global Stock Market Indices Sink Collectively in 2022

Global Stock Market Indices Sink Collectively in 2022

Source: Refinitiv, MioTech Research

ESG Ratings in Greater China

MioTech's ESG ratings data for companies in the Greater China market revealed an average score of 40.39 (out of 100) by the end of 2022, reflecting a slight decrease compared to previous periods. Notably, 6.4% of listed companies attained an ESG rating of BBB or higher, indicating a proactive stance towards sustainability, while a significant 45% received ratings of C, DDD, or DD, highlighting room for improvement.

Divergence persists

About 6.4% of listed companies in Greater China have achieved an ESG rating of BBB or better, a likely result of their faster adaptation to the rise of sustainability awareness, but at the same time, a whopping 45% of them have an ESG rating of C, DDD, or DD.

Chart: ESG Ratings Distribution for Greater China Listed Companies

ESG Ratings Distribution for Greater China Listed Companies

Source: MioTech Research

High inter-correlation

Spearman's rank correlation coefficients revealed strong interconnections between environmental, social, and governance scores, suggesting that companies excelling in one aspect tend to perform well across the board. Notably, environmental and social scores exhibited the highest correlation.

Table: Correlation between different performance factors and market value

Correlation Coefficients Between Esg Scores and Company Market Capitalization for Greater China Listed Companies

Source: MioTech AMI

The analysis showed a weak positive correlation between companies' market capitalization and ESG performance, with social scores demonstrating a slightly stronger link to market value, indicating the growing importance of social factors in investors' assessments.

Our findings underscore the evolving dynamics of global capital markets and the nuanced ESG landscape within the Greater China region in 2022. These insights provide valuable perspectives for investors, policymakers, and businesses navigating the intersection of financial performance and sustainability considerations in the contemporary market environment.