ERA - China A-share Environmental Risk Assessment

ERA-China A-share Environmental Risk Assessment—— Quantitative analysis on financially material environmental risk with objective geographical and industrial data.

Sustainable investment has experienced remarkable growth in the last decade. As the proportion of China A-Shares in key international emerging market benchmarks continues to multiply, so does the need for the accuracy of ESG data on China A-Shares. Most of the prevailing ESG evaluation methods underlying ESG data in the market show limited compatibility with Chinese firms as Chinese local factors are not sufficiently considered.A set of ESG data products are now being developed for Chinese listed companies, including the Environmental Risk Assessment("ERA"), the Social Risk Assessment("SRA"), and the Governance Risk Assessment("GRA"), which reflects the three aspects of ESG.

	ERA	SRA	GRA
Coverage	Database now covers all CSI 300 indies constituents since 2015 and all MSCI China index constituents since 2018 (other coverage available on request), including listed companies of 19 categories and 90 industries.
Features	Compatibility Local methodology used is aligned with international standard. Credibility Raw data comes from credible sources, including official sources, public sources, as well as authoritative databases, and is integrated with corporates’ reports. Granularity The final ESG score presents a higher level of granularity than most mainstream ESG ratings based on letter grading system，enabling a better application of ESG data into financial products.
Methodology	The ERA Model examines companies’ environmental risk from three dimensions: Natural resources and other physical environmental stress determined by geographical location(s) of the corporate operations. The sectoral sensitivity to physical environmental factors. The company’s ability in environmental risk management.	First-level indices include Employee Management, Supply Chain, Product Responsibility, and Community Relations Develop second-level indices and third-level indices.	First-level indices include the Board, Supervision, Ownership, Accounting, Pay, and Business Ethics with second-level indices and third-level indices. Coefficients used could be adjusted based on the two factors, Corruption and Auditors
Application	Assess Environmental Risks The ERA scores can be used as a measurement of exposure to the environmental risk of a certain company. Enhance Stock Selection ERA can be factored into the valuation model where appropriate and enhance stock selection as a result
Example of ERA Back Testing	ERA Industrial Leader Index Outperformed the CSI 300 Index (Period:2019/06/30 - 2019/09/27) We selected the top 1/3 ERA performers in each sector of the CSI 300 as a portfolio to construct the preliminary ERA Industrial Leader Index. Comparing the ERA Industrial Leader Index with the CSI 300 Index, we found that the index still outperformed the baseline benchmark by 5.21% after a full stock cycle since July 2015, during which the market experienced periodic fluctuation.