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'ESG Alpha' in China

'ESG Alpha' in China. Michael L. Barnett a ; Xing Chen b ; Andreas G. F. Hoepner bc & Qian Li b a Said Business School, University of Oxford, Park End Street, Oxford, OX1 1HP, UK; b Centre for Responsible Banking & Finance, School of Management, University of St

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'ESG Alpha' in China

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  1. 'ESG Alpha' in China Michael L. Barnetta; Xing Chenb; Andreas G. F. Hoepnerbc & QianLib a Said Business School, University of Oxford, Park End Street, Oxford, OX1 1HP, UK; b Centre for Responsible Banking & Finance, School of Management, University of St Andrews, The Gateway, North Haugh, St Andrews, KY16 9RJ, UK; c Principles for Responsible Investment, PRI Secretariat, c/o UN Global Compact, DC2-612, United Nations,New York, NY 10017, USA

  2. We study the effect of ESG issues on the stock performance of Chinese firms based on RepRisk ESG news data, which is available since 2007 • China is a special case, as firms listed in China have mainly Chinese investors while many Chinese firms are (also) listed outside China to attract western money • Preliminary findings: • Western investors react to some western ESG issues of Chinese companies listed in China • Knowing this can lead to abnormal returns of more than 10% p.a. • Chinese investors react strongly to Chinese ESG issues of Chinese companies listed in China • Knowing this can lead to abnormal returns of more than 15% p.a. • Investors do not react to western of chinese ESG issues of Chinese companies listed outside China www.themegallery.com Summary

  3. Background • Current Research Outline • The first research of ESG media coverage and financial performance in Chinese stock markets. • RepRisk data makes this possible. • 1806 Chinese companies on local and international listings over the period from 2006 to 2011. • 143 Chinese companies involved in 1219 issues matched with stock return data.

  4. Chinese Stock Market

  5. All Share types of Chinese firms • Chinese All Shares View

  6. Only non-A shares • Chinese Other Shares View

  7. Data: RepRisk Data

  8. Data Analysis Research Questions In comparison with other countries, howESG issues are perceived in China? Literature Review Data Analysis • How do westernESG • criteria affect Chinese A share companies? • How do ChineseESG • criteria affect Chinese A share companies? • How do westernESG • criteria affect Chinese non-A share companies? • How do ChineseESG • criteria affect Chinese non-A share companies?

  9. Model • Extended Carhart (1997) Four-Factor Model rxp,t = portfolio’s excess return αp = Jensen’s (1968) alpha βnat,p, βreg,p, βglo,p= portfolio’s systematic exposure to the broad market portfolio on national, regional and global level, repectively. rnat,t= market benchmark’s excess return on national level γ, δ ,λ = the exposure of a portfolio to the small cap, value, and momentum investment styles. SMB, HML, MOM= thereturnof a portfolioinvestinglong in smallstocks and shortselling large stocks, investinghigh booktomarketvaluestocks and shortsellinglowbooktomarketvaluestocks, and investinglong in winnerstocks and shortsellinglooserstocks, respectively This 3-level Carhart four-factor model captures the designated portfolios’ exposures to regional and global equity markets (if any).

  10. Results: Chinese A share Note: ***, ** and * indicate statistical significance at 1%, 5% and 10% levels, respectively.

  11. Results: Chinese non-A share Note: ***, ** and * indicate statistical significance at 1%, 5% and 10% levels, respectively.

  12. Conclusions(1)

  13. The End. Thank you for your attention!

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