Shanghai-based Wind Information has won the Best ESG Solution award at SRP’s China Awards 2022 with its Wind ESG Rating solution.
Developed by Wind Information, a financial service provider founded in 2005, the Wind ESG Rating aims to provide underlying data and scores that enables users to integrate environmental, social and governance (ESG) with fundamental and quantitative analysis, risk management and indexing.
It currently covers all China A-shares, Hong Kong-listed companies, issuers of public debentures and approximately 8,000 domestic mutual funds.
The application of ESG investing mainly focuses on the Chinese equity and bond markets - Casey Ge, Wind Information
"The application of ESG investing mainly focuses on the Chinese equity and bond markets," Casey Ge (pictured), group vice president, chief strategy officer at Wind Information, told SRP. "The Wind ESG rating and data can be applied to underlie assets of structured investment products, mainly on equity and bonds."
She added that solid data is the “key foundation of ESG investments of any kind".
The ESG rating and index provider is looking to gain market share in the Chinese structured products markets with a dataset that is increasingly used in the fund and wealth management sector.
"For structured products, we will continue engaging with our clients and to issue more products such as indices and traded products tracking the indices," said Ge.
In an interview with SRP, Ge shared the company’s outlook on ESG investment developments in China and how Wind is capturing growth opportunities arising from the market.
How has the Wind ESG Rating evolved since its debut in China in June 2021?
Casey Ge: In terms of data coverage, we launched the ESG database for major bond issuers of public offering debenture in May 2022. Our ESG ratings for Hong Kong-listed companies was published in September 2022. Currently, the Wind ESG database covers over 9,500 companies.
Methodology-wise, the ratings were upgraded in September 2022. Compared to the previous quarterly update mechanism, the new methodology of the Wind ESG Rating improved its responsiveness by adopting the form of chain update. Specifically, the underlying ESG data is monitored and updated on an ongoing basis. Any new ESG disclosure from corporates will be captured in two weeks, and this will trigger an update in scores, improving the sensitivity and timeliness of the scores. The mechanism can also provide clients with more accurate and detailed point-in-time data.
Besides the ESG rating, we introduced a greenhouse gas emissions database in April 2022 in response to the ever-growing demand in carbon data and more stringent regulation China. In addition, we offer a portfolio carbon accounting tool, which calculates the carbon footprint and carbon emission of clients’ portfolio, enabling comparison with benchmarks.
What firms are using Wind’s ESG Rating? What are the typical user scenarios?
Casey Ge: Every month, the ESG module on the Wind Financial Terminal is visited by tens of thousands of users. We have partnered with various types of clients, including fund managers, banks, brokers, academia and companies. We have also undertaken and participated in various ESG research projects.
The typical user scenario for our ESG underlying data include construction of the internal rating framework and fundamental ESG analysis. For ESG rating and scores, users typically use it in ESG screening and quantitative analysis to explore or screen ESG factors for excess returns. For ESG controversies, the typical scenario is where users monitor ESG negative events and identify companies with serious ESG tail risk levels.
Another typical user scenarios would be reporting, such as portfolio ESG and carbon emissions reporting for fund managers and green financing projects reporting for banks.
Is there any development in the financial products space?
Casey Ge: Yes, we've launched a fund ESG rating and the first domestic carbon footprint rating to provide a comprehensive and traceable fund ESG score and carbon accounting data in terms of ESG funds. This helps investors analyse fund ESG and carbon emission and avoid the risk of greenwashing by identifying fund products with high ESG performance level and low carbon emissions, optimising investment strategies by managing ESG and carbon emission risks and monitoring controversial event risks at the investment underlying and etc.
We have also introduced fund ESG classification, fund ESG labels and fund ESG factor series products, assisting clients with fund research, risk management and reporting on fund ESG performance and other various needs.
Similarly, for bonds, Wind has established ESG bond classification system by incorporating relevant guidance in international and domestic markets, including the Green Bond Principles issued by the International Capital Market Association (ICMA), the Climate Bonds Standard and Scheme by Climate Bonds Initiative (CBI), the Green Bond Endorsed Project Catalogue (2021 Edition) by People's Bank of China, China Green Bond Principles by the China Green Bond Standard Committee. We also analyse the issuance and balance of ESG bonds.
How has Wind ESG Rating been applied to financial products?
Casey Ge: A number of fund managers and banks in China have integrated Wind ESG data into the investment process, such as through equity or bond screening, or by constructing an internal ESG assessment framework using Wind ESG data.
Through interfaces and tools on the Wind Financial Terminal, a Wind ESG Rating can be integrated into investment decisions. For instance, in one of our stock analysis tools, Equity Backtester (EQBT), users can set ESG indicators as criteria to screen stocks. Other than this, Wind ESG data is integrated with multiple financial solutions, including asset management systems, to provide customers with one-stop solutions through software-as-a-service services.
By deeply integrating Wind ESG data (including ESG and carbon data), different business scenario systems provide users with ESG value-added services throughout the pre-investment, order execution and post-investment periods. Users can access a range of solutions such as asset linkage, penetration, portfolio attribution, and reporting. In addition, users can also calculate carbon emissions for their portfolio against their benchmark through the portfolio carbon accounting tool on the terminal.
How does Wind’s products differ from other ESG rating and index providers?
Casey Ge: The Wind ESG database is offered through the Wind Financial Terminal and data feed. One of our competitive advantages is the global perspective with a focus on Chinese characteristics. Wind combines the policies and status quo of ESG disclosures of Chinese companies and leverages its strong data collection, analysis and processing capabilities to build a unique ESG rating framework for companies in Greater China region.
What is your observation on the use of ESG elements in the Chinese structured product market?
Casey Ge: The application of ESG investment mainly focuses on the equity and bond markets in China. The number of ESG investment funds steadily increased from 2015-2019, and the number of ESG funds issued each year continued to rise significantly from 2020 onwards.
Data is the foundation of the ESG-linked investment product market. One of the biggest challenges is poor ESG data quality, as there are still no mandatory ESG disclosure requirements or a unified disclosure framework, the ESG disclosure rate remains relatively low in Chinese market, and the disclosures are mainly qualitative descriptions. Since that ESG data is also not required to be audited, the authenticity and accuracy of the ESG data disclosed by companies can also be in doubt.
However, we're seeing many new policies and guidance improving data quality and encouraging the flow of funds into ESG relevant field, providing a great environment for ESG investing in general.
What challenges is ESG investing facing in markets like China?
Casey Ge: Wind ESG Rating is working to solve data challenges. We apply AI and big data technology to collect data from a wide range of sources, including not only companies’ self-disclosures but also more than 20,000 diversified data sources such as regulatory agencies, media, industry association, non-profit organisations.
Another commonly recognised challenge in the Chinese financial market is that although several international ESG indicator systems have a wide global reach and published ESG index products accordingly, they are all unable to enter the Chinese market.
Due to the inadequate knowledge of China's context and its ESG development, as well as the lack of China-specific indicators, it has led to several shortcomings in accurately measuring the ESG performance of Chinese companies, which in turn results in incomparable horizontal ESG rating results in the globe and possible underestimation of the ESG performance of Chinese companies.
Wind has published five indices based on Wind ESG Rating, namely the Wind Large-Cap ESG Trend Index (866601.WI); Wind Mid-Cap ESG Trend Index (866602.WI); Wind Small-Cap ESG Trend Index(866603.WI); Wind A50 ESG Leading Index (CNY) (888104.WI); and Wind All China ESG Leaders Index(CNY) (888105.WI).