世界经济论坛（World Economic Forum）发布的《2020年全球风险报告》显示，ESG相关风险或将对未来产生严重影响。资本也越来越多地将ESG纳入投资分析与决策过程之中。ESG风险管理对任何组织的长远发展都极为关键。
除了专门的工作组，大成还在网站推出了中英文版“ESG全球解决方案（ESG global solution）”专区，并推出“ESG 中心（ESG Hub）”，由区域负责人对本地重点ESG问题、法规提供跟进解读。
CHINESE COMPANIES RAMPING UP ESG PRACTICE
The 26th United Nations Climate Change Conference (COP26), which ended in Glasgow in mid-November and produced the first-ever resolution to reduce fossil fuel use, has once again brought into sharp focus Environmental, Social, & Governance (ESG) issues. As the world's second largest economy, China has also begun to accelerate its takeup of ESG concepts and practices.
According to the Global Risks Report 2020 released by the World Economic Forum, ESG-related risks are expected to have a significant impact on mankind's future, and capital is also increasingly incorporating ESG into investment analysis and decision-making. Therefore, ESG risk management is critical to the long-term development of any organization.
Initially focusing on climate and environmental protection, ESG now encompasses social influence and corporate governance, increasingly affecting the decision-making by countries, businesses, and individuals. Whether it is the COP15 of the UN Convention on Biological Diversity held in Yunnan, China this October, or the just-concluded COP26, the public has never paid so much attention to ESG issues, which has, to some extent, increased the pressure on governments and businesses to address relevant problems.
“The number of ESG legislations in the next two years may exceed the total of the past two decades… Despite its wide scope, ESG does not require companies to ensure compliance in all areas. Companies can select ESG compliance indicators that are most relevant to them."
- Gary Yang, Dentons China
Gary Yang, China leader of Dentons’ global ESG solutions, says that different levels of understanding of ESG exist around the world. In his view, the financial sector has a much higher awareness of ESG than other fields at the moment. "In terms of project selection criteria, ESG has already become a generally recognized tool." Yang says, “Because whether it is private equity or national sovereign fund, its professional manager needs to coordinate investors at one end and projects at the other end.”
However, despite its wide scope, ESG does not require companies to ensure compliance in all areas, he says. “Companies can select ESG compliance indicators that are most relevant to them," notes Yang. "At present, ESG risks that may cause significant social impact on enterprises are mainly about the environment and human rights."
Global capital keep flowing into ESG. According to Yang, from 2020 to 2021, 84 percent of the funds raised by global investors have gone into ESG. Last year, investment and insurance firm Scottish Widows also announced that it would divest nearly 500 million pounds ($664 million) from companies who fail to meet ESG standards. Experts predict that by 2030, global ESG investment will top $1 trillion.
With the increasing importance of Chinese assets around the world, Yang notices that investors' attention to ESG has begun to affect Chinese companies as well. "Offshore funds are also generally concerned about carbon emission, for example, some of our clients are acquired by Middle East equity funds which require 5 to 10 percent of a company's global management KPIs to be ESG-related," he says.
How to interpret standards is also a potential minefield of ESG, such as the Xinjiang cotton issue hotly debated at the beginning of the year and the orders to prohibit import from China's fishery and photovoltaic industries issued by U.S. Customs and Border Protection in the middle of 2021.
The rising awareness of the international community is accompanied by the tightening of regulation in related fields, with the number of laws and regulations growing exponentially. Dentons predicts that the number of ESG legislation in the next two years may exceed the total of the past two decades.
Although Chinese companies are still generally unfamiliar with the concept of ESG, Yang points out that "because of the inconsistent international standards of ESG, ESG legislation in various countries is still in its infancy. Therefore, Chinese companies are not particularly pressured at the moment."
Especially in the field of environmental protection, as "China's environmental law requirements and enforcement efforts are already among the world's most stringent," there is no big gap between Chinese and international ESG standards. Yang also expects Chinese companies to play an active role in the ESG field in the future.
OPPORTUNITIES FOR LAW FIRMS
With ESG receiving widespread global attention, law firms are also investing a lot in bolstering their ESG credentials. Yang shares with ALB that ESG was the only global marketing project for Dentons in 2021.
"Dentons established a global ESG leadership team this year, led by various regional heads of environmental law and compliance.” He adds, “The three leaders of the Asian ESG team are based in Mainland China, Hong Kong SAR and Singapore, providing targeted ESG advisory services for capital markets, supply chain and other sectors."
In addition to a dedicated working group, Dentons also launched am "ESG global solution" section on its website and created an "ESG Hub" where regional leaders provide updates on key local ESG issues and regulations.
Apart from providing conceptual support to clients, Yang shares that Dentons is already working on actual projects. "Currently, many global projects we work on concern companies' mineral investments in Africa. Such projects pose greater challenges in terms of the environment and human rights," he says.
In addition, Dentons is also assisting clients with declarations under ESG that their products meet the requirements of green and sustainable development. The firm has also begun to provide clients with wider and deeper due diligence in the field of investment and mergers and acquisitions.
Yang gives two examples. The first is the environmental compliance investigation of a company. "In the past, as long as the company has all the required licenses, it can be considered environmentally-compliant. But now we will investigate whether the company has actually fulfilled the environmental protection obligations required by the licenses."
In terms of labor law, "there are already lawyers who focus on in-depth labor law due diligence...Actually, we have found out that the production environment of some companies is prone to cause certain types of occupational hazards. Therefore, it is necessary to investigate whether such companies regularly assess working environment conditions and whether they have actually implemented the job rotation system."
In the globalization era, an enterprise usually has production activities in multiple locations. Therefore, law firms with a larger number of offices can better help clients with cross-border investigations. "Some top international law firms have a small number of offices. If their clients need global ESG compliance, these law firm will assign some projects to Dentons," Yang says frankly.
"Going forward, we will focus on global carbon emission mandatory reporting obligations, biodiversity, corporate responsibility for end-of-life products, workplace welfare and peace, and modern slavery," Yang adds.
SUGGESTIONS FOR CHINESE COMPANIES
Adaptability and quick response times, being two major characteristics of Chinese companies, will undoubtedly help them better achieve the appropriate self-transformation in the ESG era.
Given the haphazardness of ESG awareness globally, Yang suggests that companies should first determine the standards they wish to refer to. "For example, there are now the Global Reporting Initiative (GRI) standards, the Equator Principles (EP), the Sustainability Accounting Standards Board (SASB) standards, etc., each defining ESG from a different angle. An enterprise should first decide which standards best suit it."
However, there are coordination problems between international ESG standards and domestic laws. Although Chinese companies should always follow domestic laws in China, when they invest overseas, should the companies follow Chinese laws, the laws of the host countries or other standards? This is where the difficulty lies.
Yang suggests that for now, "international treaties are more appropriate references for Chinese companies." In addition to international conventions such as the Paris Agreement, the Sustainable Development Goals, the Principles for Responsible Investment and the Convention on Biological Diversity, some non-governmental organizations have also formulated ESG standards as well.
In Yang’s view, the ESG standards of these organizations "also have great potential of being gradually recognized by law." Therefore, companies may choose to make proactive commitments based on their industries and products. For example, among the 400 global companies who have committed to operating according to the Principles for Responsible Investment, 60 are Chinese companies and the number keeps growing every year.
The next step is to pay attention to strict compliance in business scenarios. According to Yang, when making investment or going through mergers and acquisitions, a company needs to check the ESG and supply chain compliant of the invested company.
"Chinese companies occupy a vital position in the global supply chain." Yang points out, "For example, Germany promulgated the Supply Chain Law this year, meaning first- and second-tier Chinese suppliers that work with German companies must be ESG-compliant going forward. In the future, I believe more multinational companies that procure in China, and Chinese companies that procure internationally will require suppliers to achieve ESG compliance...This will be a key area that needs lawyers' support."