China might have some catching up to do with respect to ESG investing, but as it advances forward, the KraneShares MSCI China ESG Leaders ETF (KESG) may be worth a look.

Europe was one of the first nations to really bring ESG investing to the spotlight. Now, the U.S. is starting to catch on, but coming up in the rearview mirror could be China.

KESG seeks to track the MSCI China ESG Leaders 10/40 Index, designed to provide exposure to companies with high Environmental, Social, and Governance (ESG) ratings relative to their sector peers. The Index consists of large- and mid-cap companies in China. In order to ensure diversification, the Index limits individual constituent weights to 10% and sector weights to 40% of its composition.

KESG:

  • Has a track record of effectively identifying growth companies within China’s new economy.
  • Has proven to consistently outperform its peers in China, where investors do not necessarily have to compromise returns for investing based on beliefs.
  • Is benchmarked to an MSCI ESG Index. MSCI is the #1 index provider for ESG, Socially Responsible Investment (SRI), and Corporate governance indices according to a 2018 survey of 1,300 participants conducted by SRI Connect and Extel.

KESG Chart

An ESG-Filled 2021

With the backing of the government, China is getting off to a strong first half of 2021. Regulatory initiatives are giving companies the necessary incentives to appeal to their investors clamoring for more ESG benchmarks.

“China seems to be taking its 14th Five-Year Plan (released at the end of 2020) seriously, kicking off 2021 with a series of steps aimed at reducing the country’s carbon dioxide emissions by at least 65% by 2030 and achieving carbon neutrality by 2060,” a Global Finance report noted.

According to the article, “State Grid International Leasing Company issued asset-backed commercial paper (ABCP), China’s first asset securitization product designed to facilitate carbon neutrality” in March. The funds raised through the commercial paper are helping to fund renewable energy projects utilizing wind, hydro, and photovoltaic sources.

The move toward renewable energy sources is also bearing fruit. According to the KraneShares website for KESG, China is already a world leader when it comes to total renewable energy capacity, according to REN21’s Renewables 2019 Global Status Report (GSR).

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