Private enterprises are actively embracing the transformative era
The term 'ESG' first officially appeared in the report by the United Nations in 2004, titled 'Who Cares Wins.' It represents an investment philosophy and corporate evaluation standard. ESG focuses on a company's performance in environmental (E), social (S), and governance (G) aspects, rather than just financial performance.
In specific terms, the environmental aspect primarily encompasses issues related to environmental protection and sustainability. The social aspect involves matters concerning social responsibility, while governance mainly pertains to topics such as corporate management structure, compensation, and compliance. ESG is gradually becoming a new standard for measuring brand governance, sustainable development, and long-term profitability. Major corporations are also considering it as one of their core focus areas. Particularly in the secondary market, many publicly traded companies have started disclosing ESG reports as a 'second financial report.'
From 2017 to 2022, the number of ESG reports disclosed by A-share listed companies increased from 851 to 1,812, with an annual growth rate of 16%. The disclosure rate rose from 24.55% to 35.76%. And private enterprises played a significant role in this trend. They are a vital driver of the market's dynamism. From a macro perspective, private enterprises contributed over 50% of tax revenue and more than 60% of the domestic GDP. They also accounted for over 70% of technological innovations and more than 80% of urban employment. Moreover, they constituted over 90% of the total number of enterprises.
Recently, ZePing Macro released a comprehensive market assessment of ESG performance among private enterprises in China. The evaluation covered eight major industries, including electric equipment, electronic semiconductors, non-banking financials, household appliances, machinery equipment, beauty and healthcare, pharmaceuticals and biotechnology, and non-ferrous metals. It selected the top 20 companies with the highest composite evaluation index.
Notably, more than half of the selected companies belonged to the electric equipment and pharmaceuticals and biotechnology sectors, with 13 of them concentrated in the Yangtze River Delta, the Pearl River Delta, and the Beijing-Tianjin region. Prominent companies such as Longi Green Energy(601012:SH), Haier(600690:SH, 6690:HK), Midea(000333:SZ), Sany Heavy Industry(600031:SH), and CATL(300750:SZ)were among the selected enterprises.
In our effort to provide a comprehensive analysis of the foundational profiles and advancements in the ESG domain for the companies featured in the aforementioned shortlist, we have initiated a series of review articles.
In the previous article, we provided an in-depth analysis of eight leading companies in the electric equipment sector. In this part, we will shift our focus to five prominent companies operating in the fields of electronic semiconductors, non-banking financial services, household appliances, and mechanary equipment, and provide descriptions of their respective profiles.
Will Semiconductor Co., Ltd. Shanghai (603501:SH) is a leading semiconductor design company in China with a global ranking. With its headquarters in Shanghai, the company has research and development centers and business networks spread across the world, shipping over 12.3 billion units annually. The company maintains close collaborations with major global semiconductor suppliers, domestic module manufacturers, and end customers. In the first half of 2023, Will Semiconductor reported a revenue of CNY 88.58 billion, a year-on-year decrease of 19.99%; and a net profit of CNY 1.48 billion in the second quarter.
Will Semiconductor integrates ESG related content into its supplier introduction and evaluation processes to monitor sustainability-related risks within its supply chain. During the new supplier onboarding phase, suppliers are required to sign documents such as the 'Environmental Agreement' and 'Environmental Supplementary Agreement.' They are also audited based on 64 criteria covering social responsibility management systems, labor standards, occupational health and safety, environmental management, and business ethics. In terms of regular supplier evaluations, suppliers are graded into three categories based on their scores: 'Qualified,' 'Basically Qualified, Needs Improvement,' and 'Unqualified.' The evaluation includes content related to the supplier's environmental and social responsibility management. If a supplier is found to have even one environmental incident, they are directly deemed 'Unqualified.'
Orient Securities Company Limited (3958:HK) is a comprehensive securities firm authorized by the China Securities Regulatory Commission (CSRC) to provide a full range of one-stop financial services, including securities, futures, asset management, investment banking, investment consulting, and securities research.
As of the end of 2022, the group's total assets amounted to CNY 3,680.67 billion, marking a 12.70% increase from the previous year. The equity attributable to the company's shareholders stood at CNY 773.86 billion, up by 20.68% from the end of the previous year, while the parent company's net capital was CNY 473.77 billion, reflecting a 28.41% growth from the year-end figure of the prior year. During the first six months of 2023, Orient Securities posted revenues amounting to CNY 86.95 billion and a net profit of CNY 19.01 billion. This represented a staggering 193.80% year-on-year increase in net profit. Additionally, the revenue for the second quarter grew by 2.12% compared to the same period the previous year.
At the end of 2021, Orient Securities formally unveiled its sustainability development plan, setting forth targets in governance, economic, environmental, and social sectors for the '14th Five-Year' period. Between 2021 and 2022, the company successfully channeled over CNY 200 billion into sustainable development sectors. The group contributed CNY 64.36 million to social public welfare initiatives. Compared to 2021, the parent company's greenhouse gas emissions decreased by 12%. In 2022, the volunteer service coverage rate among the parent company's employees reached 26.87%.
Orient Securities has been vigorously promoting green finance to support the 'dual carbon' goals. The company underwrote 43 green bonds with a total scale of CNY 85.4 billion and assisted 8 equity financing projects, with the cumulative scale of green and low-carbon equity financing reaching CNY 159.9 billion. In 2022, the company maintained an 'A' rating in the MSCI ESG evaluation, the highest rating achieved by any publicly-rated securities company in China by the end of 2022. Additionally, for two consecutive years, it has been included in the Hang Seng Sustainable Development Enterprise Index series.
Haier Smart Home Co., Ltd. (600690:SH, 6690:HK) originated in the 1980s and is headquartered in Qingdao, China. The company offers a comprehensive range of home appliances and household solutions to global consumers. Haier Smart Home has achieved a global presence with seven world-class brands: Haier, Casarte, Leader, GE Appliances, Fisher & Paykel, AQUA, and Candy. In 2019, it was reported that 47% of the company's revenue came from overseas operations, spanning five continents including Asia, Europe, North America, Australia, and Africa. Impressively, almost 100% of this revenue was generated through the company's own brands. During the initial half of 2023, Haier recorded revenues of CNY 1316.27 billion with a net profit reaching CNY 89.64 billion. Year-on-year, the net profit surged by 12.93%, and the revenue for the second quarter witnessed an uptick of 8.39% compared to the same timeframe in the prior year.
During the 2023 Haier Smart Building Achievements and New Product Launch event, Haier Smart Home unveiled its three-pronged approach to energy-saving and emission reduction for smart buildings. Firstly, by leveraging magnetic levitation technology for intelligent energy-saving to achieve 'carbon reduction;' secondly, through photovoltaic energy storage solutions to achieve 'zero carbon;' and finally, by utilizing heat energy recovery and gas expansion power generation to achieve 'negative carbon.'
As a pioneer in domestic ESG, Haier Smart Home has established a '6-Green' strategy encompassing green design, green manufacturing, green marketing, green recycling, green disposal, and green procurement. This strategy integrates low-carbon and energy-saving measures throughout the product's entire lifecycle, focusing on areas such as R&D, raw materials, production, and product recycling, thereby promoting green development across the entire industry chain both domestically and internationally.
Midea (000333:SZ) started its venture in 1968 and has since grown into a global technology conglomerate encompassing five major sectors: smart home, building technology, industrial technology, robotics and automation, and innovative business. Its portfolio includes consumer electronics, HVAC, robotics and automation systems and Andlink. Midea's offerings reach approximately 500 million users across more than 200 countries and regions. Presently, Midea boasts 35 R&D centers and 35 primary production bases worldwide, with a workforce of around 160,000, nearly 40,000 of whom are based overseas. Over the past five years, the company has channeled more than CNY 50 billion into R&D. In the first half of 2023, Midea achieved a revenue of CNY 1969.88 billion and a net profit of CNY 182.32 billion, with a year-on-year net profit growth of 14.93%. The revenue for the second quarter increased by 9.15% compared to the same period last year.
In 2021, Midea Group unveiled its green strategy for the first time, pledging to peak its carbon emissions by 2030 and achieve carbon neutrality by 2060. In May 2022, Midea formally established its ESG Committee, responsible for advancing the group's ESG-related initiatives. The committee has incorporated ESG matters into the annual work plans of various departments, demonstrating a steadfast commitment to sustainable development. In 2022, Midea Group issued its inaugural green bond worth USD 450 million. As of December 31, 2022, 20.5% of the net proceeds from the USD 450 million green bond had been allocated to qualified green assets as defined in Midea's green financing framework. Additionally, Midea has taken the lead in, or participated in, the formulation of 110 green standards at both national and industry levels, covering areas such as carbon emissions, ESG, and green product evaluations. Building upon national and industry benchmarks, Midea has also established enterprise standards for green products across 16 categories, leveraging these standards to drive the industry's green transformation.
Sany Heavy Industry
Founded in 1994, Sany Heavy Industry (600031:SH) is one of the global leader in the equipment manufacturing industry, offering a diverse range of products, including concrete machinery. The company has invested in establishing industrial clusters in regions such as the United States, Europe, India, Brazil, and Putzmeister. It has also progressively invested in R&D and manufacturing bases in other regions. On May 13, 2021, Sany Heavy Industry was listed on the Forbes Global 2000, ranking 468th, marking its debut among the top 500 global companies. It ranked first among Chinese companies and second globally in the engineering machinery sector on the list. During the first six months of 2023, Sany Heavy Industry posted a revenue amounting to CNY 394.97 billion with a net profit of CNY 34 billion. This represents a 28% rise in net profit year-on-year, and the second quarter's revenue experienced a growth of 10.93% from the same period in the prior year.
Currently, Sany is implementing three major strategies on globalization, digitalization, and decarbonization. The bigwig has consistently adhered to the principles of ecological priority, green development, and green manufacturing. Through its influence on employees, supply chains, local communities, and the broader public, the company is at the forefront of ushering in a new era of collective participation in green and low-carbon emission initiatives. In 2021, Sany's pile driver factory in Beijing became the first in the global heavy industry sector to be certified as a 'Lighthouse Factory.' Under the dual carbon goals, the company, in conjunction with its digital and intelligent transformation and sustainable development objectives, will intensify its efforts in the corporate "carbon neutrality" plan, promoting green development.