Deepening ESG management practices and promoting sustainable development of Sanhua

Sanhua Holdings Group
ESG project kickoff meeting held

Recently, the ESG project kickoff meeting of Sanhua Holdings Group was held, with 18 project team members attending the meeting. At the same time, ESG consultants were invited to provide guidance and training for the working group members.

ESG, also known as Environmental, Social, and Governance, is a framework and indicator system that evaluates the comprehensive sustainable development performance of enterprises through three dimensions: environmental, social, and corporate governance. Its concept originated from Social Responsibility Investment (SRI) in the 1960s and 1970s. In 2004, the United Nations Environment Programme first clarified the concept of ESG, aiming to internalize the external environmental and social costs in economic development, and incorporate them into a measurable value evaluation system to comprehensively and scientifically measure the true value and cost of enterprises and their outputs. Over the past 20 years, ESG has gradually shifted from being driven by intergovernmental leadership to being driven by investment value evaluation in the capital market, and then extended to being driven by leading companies in the industry. It has now become an important reference for investors to evaluate the investment value of enterprises.

Sanhua attaches great importance to ESG evaluation and its guiding and promoting role in corporate governance system and sustainable development. Combining regulatory environment and external attention, especially the MSCI ESG rating requirements of investors and the rating requirements of strategic clients for EcoVadis (a third-party rating agency in Europe), Sanhua has recently launched a systematic work project and established the Sanhua Holdings Group Strategic Management and ESG Committee and the Sanhua Holdings Group ESG Project Working Group.
Among them, the Strategic Management and ESG Committee is responsible for the organization, implementation, and effective management of the company's strategic development plan, leading and promoting the construction of the company's ESG governance system, and promoting the long-term sustainable operation of the company. The ESG project working group is led by Tao Chunxing, the Director of Human Resources of the group, and Xu Weidong, the Deputy Director of Strategic Procurement, respectively. It is composed of 16 departments and 18 members from the headquarters of Sanhua Holdings, the intelligent control department, and various business units. It is responsible for promoting the sustainable development rating of the company's ESG, participating in the formulation of work plans and action points for the company's ESG and sustainable development, and implementing daily ESG work, And regularly report to the Strategic Management and ESG Committee.

The ESG project kickoff meeting is the first meeting of the company's ESG special leadership and working organization since its establishment. It covers three aspects: ESG development and regulatory requirements, deepening ESG management practices, and ESG follow-up cooperation work. Through sharing practical cases, it aims to deepen everyone's understanding of ESG. Focusing on the current mainstream MSCI rating system, the working group members jointly explore the key issues, rating logic, and analysis of key issues in the environmental and social aspects of MSCI ESG rating, as well as benchmarking analysis of industry ESG practices. The meeting analyzed and sorted out the main work and project progress arrangements that the working group members need to participate in and cooperate with in the future.

Vice group leader Xu Weidong gave a concluding speech

Mr. Xu emphasized that the ESG project aligns with Sanhua's vision. In terms of product development and market positioning, Sanhua has always been committed to promoting green development and emission reduction in the industry. Currently, more and more excellent enterprises are incorporating factors such as environment, society, and governance into their daily management and operation requirements. They hope that team members can work together to promote the implementation of the Sanhua ESG project and the high-quality development of the enterprise.

Next, the ESG special working group will take the lead in planning ESG information disclosure, ESG sustainable development rating enhancement, and other work to more effectively evaluate, enhance, and showcase Sanhua's sustainable development ability and social responsibility, continuously strive to improve the competitiveness and brand image of the enterprise, and promote the achievement of corporate strategic goals and sustainable development.

ESG Introduction

The impact of enterprises on the external natural environment mainly includes environmental related issues such as climate change, natural resources, environmental protection, pollution prevention and control, biodiversity, and sustainability.
two Social

The relationship between enterprises and employees, customers, suppliers, and communities mainly covers basic factors that affect human life, including occupational health and safety production, development and training, consumer health and safety, human rights protection, social contributions, and other social issues.
three Governance
The governance structure, strategy, corporate culture, and risk management of enterprises involve factors related to national and jurisdictional levels, as well as the interests of a wider range of stakeholders, mainly including corporate governance, business ethics, innovation and intellectual property, sustainable procurement, risk management, and other corporate governance issues.

The origin of ESG concept began with Social Responsibility Investment (SRI) in the 1960s and 1970s. Since the 1950s, global economic development has accelerated significantly, with exponential growth in population, GDP, large-scale infrastructure, resource consumption, and pollutant emissions. The traditional economic development model externalizes environmental and social costs, which are borne by the entire international community. Low income countries and populations disproportionately bear greater costs, resulting in an increasingly serious crisis of sustainable social development. The proposal of SRI concept and system is to call on enterprises to pay attention to the global social responsibility of sustainable development, and to promote an environmentally friendly and balanced development model with a more responsible attitude.

In 2004, the United Nations Environment Programme first clarified the concept of ESG, which requires enterprises to pay attention to environmental protection responsibilities, fulfill social responsibilities, and improve corporate governance in the development process. In 2006, the United Nations launched the Social Responsibility Investment Initiative, which further promoted the rise of global ESG investment. The 2015 Paris Agreement was officially reached, providing a strong driving force for ESG investment and practice. In September 2020, GRI (Global Reporting Initiative), SASB (Sustainable Development Accounting Standards Board Foundation), CDP (Carbon Disclosure Project), CDSB (Climate Change Disclosure Standards Committee), and IIRC (International Integrated Reporting Committee) jointly released a unified ESG disclosure plan and became a highly influential ESG standard setting body. On June 26, 2023, the International Sustainable Standards Board (ISSB) officially released International Financial Reporting Sustainability Disclosure Standard 1- General Requirements for Sustainability Related Financial Information Disclosure and International Financial Reporting Sustainability Disclosure Standard 2- Climate Related Disclosures, which will take effect in annual reporting periods after January 1, 2024. This means that the development of ESG will enter a new stage of building a common platform and using a common language.

Currently, ESG has become an important reference for investors to evaluate corporate investments. According to Morningstar statistics, the total size of global sustainable fund assets reached $2.74 trillion by the end of 2021, with a year-on-year growth of up to 53%. These types of assets are dedicated to investing in companies with excellent ESG performance. At the same time, regulatory authorities in many countries/regions have continuously raised their requirements for ESG and introduced relevant policies.

For example, all A-share companies included in the MSCI ACWI index must accept ESG ratings, and GDR requires all companies to release ESG reports (investor inquiries); The Hong Kong Stock Exchange continues to strengthen its ESG reporting requirements, elevating the disclosure of ESG information by listed companies to a mandatory disclosure requirement, and requiring listed applicants to disclose "environmental and social matters" during the application stage in the Hong Kong Stock Exchange's guidance letter; The Shenzhen and Shanghai stock exchanges are expected to issue guidance on the disclosure of environmental, social, and governance reports for A-share listed companies. External customers are also very concerned about ESG. Against the backdrop of the European carbon tariff release and the strengthening of ESG investment, customers are increasingly demanding ESG from their suppliers.

According to research conducted jointly by McKinsey and Wharton School of Business, companies addressing environmental, social, and governance (ESG) issues can bring better value returns to businesses; And ESG will be linked to corporate cash flow in at least five important ways, including promoting revenue growth, reducing costs, reducing regulatory and legal interference, improving employee productivity, optimizing investment and capital output.