Client’s Challenge
A leading domestic asset manager in China is committed to incorporate ESG considerations into its investment risk management process by combining company ESG ratings with traditional fundamental financial metrics, but found most mainstream ESG data providers’ ratings lack company coverage, frequent updates, and meaningful risk signals.
Objective
Find an ESG data provider with comprehensive ESG rating coverage on China listed companies and whose ratings contain high signal-to-noise ratios for red flag alerts or portfolio exclusion.
Solution
YoujiVest’s China ESG Risk Scores (CERS) offers the most comprehensive ESG rating coverage on China public companies, including 5000+ large, mid-, and small caps A-shares securities and ADRs. In addition, CERS are updated on a weekly basis through the application of NLP/Machine Learning techniques on over 10,000+ information sources, such as mainstream news, company filings, NGO reports, regulatory disclosures and more. CERS is normalized to a rating scale of 0 to 100, where a rating > 50 is considered High Risk and > 75 Very High Risk.
The client has found CERS’ company coverage and rating update frequency to be more than sufficient, and most importantly the ESG ratings showed strong evidence of predictive signal allowing for early detection of risky companies.
For example, in April 2020, trading in Luckin Coffee was halted due to CSRC (China regulator) investigating Luckin’s engagement in financial fraud. Three months earlier in January 2020, CERS already had a rating of 54 on Luckin indicating its high ESG risk (particularly governance risk) while other mainstream ESG rating providers either had no coverage of Luckin or did not change its rating to high risk until after the fraud investigation news were announced.
