What are the sustainable options for investors in Chinese stocks?

The emergence of green in China

China has experienced unprecedented economic and financial expansion over recent years. Between 1990 and 2019 the average growth of its GDP was 9.3%, increasing from USD 360.9 billion to USD 14.3 trillion while their share of global GDP has swelled from less than 2% to 16%¹. During this rise to prominence the economy has become increasingly liberalized, and its capital markets have undergone far reaching changes with progressively improving access to foreign sources of capital.

Clearly the Chinese stock market is important for asset allocation, and the MSCI China ESG Universal Index forms a core building block for gaining ESG-filtered access to the Chinese economy. The objective of the MSCI China ESG Universal 5% Issuer Capped Index is to increase exposure to those companies demonstrating a certain minimum ESG profile as well as a visible trend of profile improvement. This is combined with seeking to exclude companies which are subject to severe controversies, or those involved in the manufacturing of controversial weapons.

The MSCI ESG Universal Index is a subset of the parent index MSCI China. The MSCI ESG Universal Methodology imposes a fairly light ESG screening, and remains highly correlated to the parent index which makes it a suitable replacement as a core allocation to Chinese stocks.