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More Chinese companies disclose ESG performance

Even though ESG disclosure is not yet mandatory in the country, according to a Fidelity study.
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Editor’s note: This article was first published on ESG Clarity Asia.

As investors globally increase their allocations to China A-shares, voting participation has also been slowly but steadily rising in China’s onshore market, according to a proprietary survey conducted for Fidelity by ZD Proxy.

Excluding controlling interests, the average voting turnout has risen to 26.2% of non-controlling shares last year, up marginally from 25.5% in 2017. The change has been more pronounced at companies without a controlling shareholder, where the average voting participation rate has jumped to 36.5% from 33.1% over the same period, according to survey findings.

Another notable change is that more shareholders are casting votes against resolutions they dislike. The number of resolutions receiving more than 10% “against” votes has jumped to 385 last year, an increase of around 20% in 2017. Looking only at dissent among minority shareholders, the number of such resolutions rose to more than 1,600 last year.

Among the measures seeing greater opposition, the most common ones involved board elections, loan guarantees and related-party transactions.

“As investors around the world increase their allocations to Chinese A-shares, a current and detailed understanding of the state of voting and engagement in China’s onshore markets is increasingly important,” Flora Wang, director for sustainable investing at Fidelity, said in a statement.

“The rising trend of participation in shareholder votes suggests that more shareholders and asset managers active in China are taking the responsibility of ownership more seriously and exercising their ballots instead of simply voting with their feet and divesting, as they may have done in the past,” she added.

Companies have also become better with ESG disclosures, according to Fidelity’s study. Although ESG disclosure is not yet mandatory in China, a growing number of listed companies are making voluntary filings.

Last year, 945 onshore firms disclosed their ESG performance in the so-called Corporate Social Responsibility reports, accounting for more than a quarter of A-share companies. That is up 18% from 801 firms in 2017.

“Companies and managements are responding to rising participation among investors by making it easier to take part in voting and to initiate ESG engagement,” Wang said.

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