ESG – The rules of alpha engagement in China | ASI

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Today, China A-share companies engage with shareholders, which was not the case 10 years ago. Investor engagement used to be solely about dividend policies. Analysts only needed to get their assumptions right on revenues, profits and valuation to determine whether to invest.

Now that’s not enough. In a market where information is increasingly available, investors need to find an edge. ESG (environmental, social and governance) engagement is how to find sustainable alpha.

Of course, engagement means different things to different people. In practice, there are two types: proactive suggestions around ESG issues; and remedial efforts to get a company back on track in response to a negative event.

In proactive engagement, investors typically focus on ensuring the foundations for growth are in place, particularly around a company’s internal risk controls and the strength of its capital position. Remedial engagement efforts only happen once something has gone wrong.

Although the latter often garners more public recognition, we think investors should focus on the former. Better to be a considered driver than an accident-prone one.

To find out what this looks like in practice – how it can help investors find an edge – you can read our full article here.

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