Introduction

On July 16, themed as "New Development with Sustainability”, the 2021 International Forum for China Impact Investment (IFCII) was successfully held in Shanghai. The 2021IFCII was sponsored by Chinese Academy of Financial Inclusion (CAFI) and co-organized by YICAI Research Institute and Shanghai Advanced Institute of Finance of Shanghai Jiao Tong University. Jiaqing Wu, MSCI Managing Director and Head of Greater China Client Coverage, participated in the parallel symposium on "Impact Investing in the Capital Market".

What is the mission of MSCI? How to leverage ESG to facilitate listed companies and better serve investors? How can MSCI's development drive sustainable investment development in Chinese market?

1

MSCI flourished after the inclusion of A- shares in 2018. People usually take MSCI as an index company, MSCI's goal, however, is to assist investors in generating sustainable financial returns. By achieving this, it remains to be the international standard of these investors. Its goal is as straightforward as that.

MSCI is positioned to provide investors an international standard from an ecological perspective, which is also its fundamental starting point.

At present, MSCI has funds worth 100 trillion around the world that follow it as the standard. Basically, all major asset managers in China, including financial companies, use our analysis tools when doing assets allocation and risk control.

2

We are the world's number one index share provider, with 230,000 indexes in operation on daily basis.

3

ESG is the fastest growing one. Climate change has accelerated its growth since last year. We then pulled the "climate" out of ESG and handled it as a separate line.

ESG rating system provides global standards for Chinese financial institutions and enterprises to help them achieve sustainable development.

We started ESG rating 15 years ago. A wide range of institutions worldwide are rated by us. We are honored that over the years, after more than dozens rounds of practice, investors at billion level now adopt our ESG rating, tools and index as a benchmark.  We are also very honored to have the opportunity to cooperate with China Universal Asset Management and  Hwabao WP Fund Management, who are also present today.

When our ESG rating entered China, the market response experienced three phases. The first phase is that market has no knowledge of rating. When overseas investors claimed that they would reduce their holdings, listed companies got a little nervous; it happened often that it was investors who brought Chinese listed companies to us. Investors would consider reducing their holdings because of the rating, whilst listed companies claimed that they had no opportunity to disclose. Such dilemma was the first trigger to consider MSCI rating by many domestic listed companies.

As of today, all listed company set a target for MSCI ratings, usually from 3B to A, as they believe it can attract more funds. Such pushback on the market was unexpected. We devote a great deal of time to communicating with listed companies, and urging them to do voluntary disclosure. Please look the following two sets of data:

First, we started rating Chinese A-share listed companies in 2018. At that time, our rating report was offered free of charge to those companies, yet the response was near to zero. Now 30% of the listed companies will respond, and even more voluntarily request a rating from us.

Second, when the rating improves, listed companies will now take the initiative to make announcements and publicize their achievement. It seems they also learnt to use MSCI rating for better publicity and we are delighted to see such change. As many overseas investors regard Chinese market investment as a major allocation, we have received many inquiries from overseas investors to make allocations related to Chinese market, we observed that low-carbon and ESG have become a must for such investment. Let me rephrase, the yield is expected to be satisfying if they make such investments.

In the morning session, some panelist discussed whether ESG has Alpha or not. After 10 years practice, we all agree that ESG does have Alpha, and we have experience that companies with higher ESG rating do have higher return comparing to companies with lower rating. Therefore, the ESG rating is not just about sentiment and ideal, or government requirement, but also because it can generate returns by promoting sustainable development.

As for the overall concept, great changes have taken place among international investors. We have made another 1500 ESG indexes, four of which have been published in China; Hwabao was among the first ones, again thanks for your trust.

On April 22, we called on global investors to commit their portfolios to net emissions by 2050.

MSCI promises that its operation will achieve net emissions in 2040. Each time I travel, my carbon emissions are carefully calculated. Only being forced the capital market can we speed up the net emission process. The data we have is shocking. To limit rising temperature to 2 degrees by 2050, only 16% of the companies are able to achieve the goal. The gap within our index range is alarmingly large. Therefore, if we can leverage an index to push capital which then forces companies for a low-carbon goal, such as investing only in low-carbon companies, or increasing willingness to use clean energy, which helps the realization of the temperaturel goal. In addition, it is my impression that many domestic listed companies still feel that "I have no choice but to do it, as it is the call of the government".

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