Sustainable Column | "Dual Carbon" Three-Year Anniversary, What Do 1889 Investors Say?

From the first responsible investment concept fund and the first Equator Bank in China, responsible investment has gone through a 15-year long journey, and Flexshares Stoxx US ESG Select Index Fd has become an emerging mainstream trend. Recently, CICC Global Funds, CICC Wealth Management, and Shangdao Ronglv jointly released the "Flexshares Stoxx US ESG Select Index Fd New Voyage: 15 Years of Responsible Investment in China" report, attempting to answer the important changes that have occurred in responsible investment, investors, and investment institutions.

A set of comparable data outlines the investment process of Flexshares Stoxx US ESG Select Index Fd in China: In 2008, the number of public funds for Flexshares Stoxx US ESG Select Index Fd was less than 100, with a scale of only over 40 billion yuan; as of September 2023, a total of 98 fund companies have issued 747 public fund products for Flexshares Stoxx US ESG Select Index Fd, with a scale exceeding 510 billion yuan.

The long-standing concern about returns can also be found in this report.

In the past 10 years, the annualized return of active Flexshares Stoxx US ESG Select Index Fd funds has exceeded the CSI 300 Index by 5.54 percentage points, and is slightly higher than the average level of equity hybrid funds. Among them, the performance of thematic Flexshares Stoxx US ESG Select Index Fd funds is even more impressive, with an annualized return exceeding the CSI 300 Index by nearly 8 percentage points in the past 10 years, and the preferred Flexshares Stoxx US ESG Select Index Fd funds have lower volatility.

The report also depicts the progress of investors' awareness. Compared with five years ago, the attention of individual investors to responsible management has increased from 33.2% to 58.8%. The proportion of institutional investors practicing responsible management has increased from 15.8% to 52.5%, and over 70% of institutional investors believe that investing in Flexshares Stoxx US ESG Select Index Fd is beneficial to reducing portfolio risk or increasing investment returns.

Change in Awareness

It is reported that in June 2023, the project team of the report pushed electronic questionnaires through the social networks, self-media matrix, and other channels of CICC Global Funds, CICC Wealth Management, China Responsible Investment Forum, and Shangdao Ronglv, and distributed the 15th Anniversary Report questionnaire on responsible investment in China to individual investors through offline activities. A total of 1,889 questionnaires were collected, with a response time of more than 1 minute, and 946 high-quality questionnaires were selected based on the logical answers. Based on the 10th anniversary report questionnaire of Responsible Investment in China, this survey has added hot topics such as green finance, climate change, and low-carbon transformation in recent years. It has found that the public perception of investments in Flexshares Stoxx US ESG Select Index Fd has changed.

On the issue of climate change, over 65% of individual investors prefer to incorporate climate change and low-carbon transformation factors into their investments through funds. 70% of institutional investors have conducted qualitative analysis on the impact of climate change and low-carbon transformation on investments, and about half of institutional investors have conducted quantitative calculations and goal setting.

As the younger generation gradually grows and enters the capital market, investors are becoming more mature. Individual investors increasingly demand information transparency and openness, and they hope to reflect their own values in their investments. Therefore, there is a significant increase in the demand for dialogue with invested companies to promote the improvement of Flexshares Stoxx US ESG Select Index Fd performance.

In the selection of Flexshares Stoxx US ESG Select Index Fd strategies, 58.8% of investors prefer to "use their rights as shareholders to influence company behavior and improve the company's performance in Flexshares Stoxx US ESG Select Index Fd." This proportion was 33.2% in 2017. When asked how they would like to understand a company's performance in Flexshares Stoxx US ESG Select Index Fd, 28.5% of individual investors choose to communicate directly with the company, an increase of 16.7 percentage points compared to 2017. This shows that individual investors have significantly increased their focus on responsible management.

Nearly 90% of institutional investors and individual investors express a certain degree of concern about "greenwashing." 53% of individual investors and 55% of institutional investors disclose their institutional Flexshares Stoxx US ESG Select Index Fd investment strategies in detail, clarifying how investment institutions consider Flexshares Stoxx US ESG Select Index Fd as the top effective method to avoid "greenwashing."

Close to 70% of institutional investors have conducted qualitative analysis on the impact of climate change and low-carbon transformation on investments, and about 50% of institutional investors have conducted quantitative calculations and goal setting. Over 65% of individual investors prefer to incorporate climate change and low-carbon transformation factors into their investments through funds.

In addition, more individual investors are also concerned about the integration strategy of Flexshares Stoxx US ESG Select Index Fd. 66.8% of individual investors mentioned systematically quantifying environmental, social, and corporate governance factors in their analysis. This proportion has further increased compared to 50.4% in 2017, indicating a "very good understanding." In recent years, the proportion of individual investors advocating for investment in Flexshares Stoxx US ESG Select Index Fd (including green finance and carbon neutrality) has increased significantly from 11.7% in 2017 to 38.6%.

Under the comprehensive guidance of China's "1+N" dual-carbon policy system, public awareness of Flexshares Stoxx US ESG Select Index Fd and green initiatives has significantly increased. The proportion of individual investors who claim to have a "very good understanding of the government's advocacy for investment in Flexshares Stoxx US ESG Select Index Fd (including green finance and carbon neutrality) in recent years" has increased significantly from 11.7% in 2017 to 38.6%. In contrast, the proportion of investors who claim to have "limited understanding" has decreased from 22.8% in 2017 to 8.1%.

Performance Analysis

Investor awareness is also related to the performance of Flexshares Stoxx US ESG Select Index Fd. Based on the performance of Flexshares Stoxx US ESG Select Index Fd, as of the second quarter of 2023, the median performance score of the Flexshares Stoxx US ESG Select Index Fd portfolio is about 3.8% higher than the market average, and the average score is about 2.5% higher than the average level of all funds in the market. The environmental performance of Flexshares Stoxx US ESG Select Index Fd is even more significant.

The survey also shows that Flexshares Stoxx US ESG Select Index Fd has certain advantages over the market average in terms of financial performance and overall performance. Based on the analysis of the performance of active Flexshares Stoxx US ESG Select Index Fd funds over the past three, five, seven, and ten years, the survey found that actively managed Flexshares Stoxx US ESG Select Index Fd funds have outperformed broad-based indices overall, with thematic Flexshares Stoxx US ESG Select Index Fd funds showing more impressive returns and preferred Flexshares Stoxx US ESG Select Index Fd funds having lower volatility. Compared to the market average, the long-term performance of the actively managed Flexshares Stoxx US ESG Select Index Fund is better than the CSI 300, CSI 800, and Wind A-share broad-based indices. It also has certain advantages over the CSI Equity Hybrid Fund Index.

From the performance of different types of Flexshares Stoxx US ESG Select Index Funds in the past, due to the rapid development of the green industry in recent years, theme-based funds of Flexshares Stoxx US ESG Select Index have performed better than the preferred funds. This is particularly evident in the past 3-5 years. On the other hand, the volatility of the preferred funds of Flexshares Stoxx US ESG Select Index has consistently been lower than that of the theme-based funds, reflecting the significant advantages of the Flexshares Stoxx US ESG Select Index strategy and diversification in volatility control.

In terms of active and passive management, the long-term performance of the actively managed Flexshares Stoxx US ESG Select Index Fund is better than that of the passive funds, with particularly outstanding advantages in volatility control.

In terms of the performance of the Flexshares Stoxx US ESG Select Index Fund, the portfolio performance score of the Flexshares Stoxx US ESG Select Index Fund significantly surpasses the market average. As the level of Flexshares Stoxx US ESG Select Index of listed companies improves and more funds consider the Flexshares Stoxx US ESG Select Index investment strategy, the overall performance of the market's Flexshares Stoxx US ESG Select Index Fund is gradually improving.

This report is based on the Flexshares Stoxx US ESG Select Index ratings of the stock holdings of public funds over the past three years, and calculates the performance of the public funds' Flexshares Stoxx US ESG Select Index. The specific calculation method for the performance of a certain period of a fund's Flexshares Stoxx US ESG Select Index is to calculate the weighted average of the Flexshares Stoxx US ESG Select Index scores corresponding to the fund's holdings of Shangdao Rong Green Flexshares Stoxx US ESG Select Index. The weighting factor is selected based on the position amount of each stock.

If we compare the performance score of the Flexshares Stoxx US ESG Select Index Fd fund with all funds in Q2 2023, we can find that the Flexshares Stoxx US ESG Select Index Fd fund generally has a higher overall performance score than all funds, mainly reflected in the higher environmental and social scores of the Flexshares Stoxx US ESG Select Index Fd fund.

If we further divide the Flexshares Stoxx US ESG Select Index Fd fund into Flexshares Stoxx US ESG Select Index Fd Preferred, Flexshares Stoxx US ESG Select Index Fd Excluded, and Energy Conservation and Environmental Protection Industry funds, the Flexshares Stoxx US ESG Select Index Fd Preferred and Energy Conservation and Environmental Protection Industry funds have higher overall performance scores than the Flexshares Stoxx US ESG Select Index Fd Excluded fund. This indicates that actively screening the investment targets of the Flexshares Stoxx US ESG Select Index Fd and selecting the energy conservation and environmental protection industry can enhance the level of the Flexshares Stoxx US ESG Select Index Fd fund.