Global asset managers not afraid of voting against proposals they disagree with in China is increasing stewardship and engagement in the region – and it’s catching on with local managers.
According to a report Moving the Needle – Stewardship in China by global investment firm RisCura, global managers who manage Chinese portfolios are leading the way in terms of stewardship practice, but domestic fund managers in China that normally resist going public or voting against resolutions or management, are starting to follow suit.
Lars Hagenbuch, investment consultant at RisCura, explained: “Although the basic corporate governance framework in China is very similar to the West, capital market regulation and best practices are still developing, especially when it comes to stewardship and ESG, but over the past five years there has been a paradigm shift in the right direction.
“Local managers are realistic about their current stewardship activities and… what global institutional investors would want to see.”
The research surveyed 41 domestic and global asset managers in China serving both foreign and local clients, aiming to assess the understanding of stewardship practices in China.
It found the Asian culture of conflict avoidance has impacted engagement practices in China, and managers fear future company access could be compromised if they act aggressively. RisCura said ‘friendly’ engagement out of the public eye is preferred.
“We realised that the understanding of local corporate engagement practices was poorly understood by most global investors,” said Malcolm Fair, managing director of RisCura.
However, as global ESG managers have become more active in the region in terms of investment and engagement, local managers are taking note.
The report said: “There is a growing realisation among managers in China that finding a ‘middle ground’ by collaborating with other investors, particularly from overseas, can drive positive corporate change for the benefit of all stakeholders, and many managers are exploring this.”
RisCura also found asset managers in China are increasingly addressing environmental and social issues, with the former particularly driven by the Chinese government’s climate goals to achieve net zero by 2060.
“Misjudging the ‘E’ risk of a company can have a swift and direct negative bearing on performance, and conversely spotting ‘E’ trends early can lead to significant positive performance,” the RisCura said.
