Beyond the Bottom Line: Why ESG is a Business Imperative, Not a Box to Check

The scene of the 2024 Fortune China 500 Summit. From left to right: Xie Jingwei, Executive Editor of Fortune China New Media; Zheng Hongfei, Global Vice President of Cargill Animal Nutrition and Health and President of Asia Pacific; Yan Yan, Academic Vice Dean of Shanghai Advanced Institute of Finance, Shanghai Jiao Tong University and Director of the Sustainable Investment Research Center Hong, Li Ling, vice president of Anta Group, and Sun Jie, chief sustainability officer of Envision Technology Group.

The development of ESG theory has become increasingly mature, but there is still a huge gap in the transformation process from theory to practice. Companies need to combine sustainable development goals with actual business logic, so that ESG is not just a “show” or an extra “tax” that companies pay for it, but a rational and sustainable approach. business practices.

At the 2024 Fortune China 500 Summit held in Shanghai this month, during the roundtable discussion on ESG, the guests focused on practical and practical methodologies: How to better practice ESG through technological innovation? How to influence and drive more companies upstream and downstream of the supply chain through ESG practices? And how to evaluate the real returns that companies can obtain at the commercial level by practicing ESG? Business returns include but are not limited to financial performance, brand value, market competitiveness and customer and investor satisfaction, and also cover short-, medium- and long-term returns. How do companies in different industries and development stages understand the relationship between investment and return?

The guests participating in this discussion are: Zheng Hongfei, Global Vice President of Cargill Animal Nutrition and Health and President of Asia Pacific, Yan Hong, Academic Vice Dean of Shanghai Advanced Institute of Finance, Shanghai Jiao Tong University and Director of the Sustainable Investment Research Center, Li Ling, Vice President of Anta Group, Sun Jie, chief sustainability officer of Envision Technology Group.

The following is an edited transcript of the conversation.

Xie Jingwei: Cargill is the world’s largest private enterprise, and its business is closely related to the “food” in our “food, clothing, housing and transportation”. What technological innovations does Cargill use to effectively promote sustainable development?

Zheng Hongfei:In terms of ESG, we mainly make breakthroughs and innovations in two directions. One is digitalization. We have two large digital platforms that track all sustainable development data throughout the process. One of the platforms is the raw material and formula platform of Cargill’s animal nutrition and health business. This platform covers data accumulated over more than 70 years and tracks the digestion status of various nutrients from various animals and plants around the world in the animal body, as well as during the digestive process. The carbon emissions produced in the process; at the same time, the carbon emissions and carbon emission reduction footprint of all raw materials are tracked throughout the process. After the entire system has been updated and upgraded, it can now also automatically predict the carbon emissions that animals will produce after eating different foods.

There is also a platform used to track all the life trajectories of animals, including farm management, environmental conditions, etc. The entire life of the animal, including its carbon footprint, is recorded.

Another area of ​​our innovation is developing new additives, including postbiotic and plant-based solutions, to help animals reduce carbon emissions during the digestion and absorption of nutrients. For example, we can reduce the carbon emissions of ruminants during the digestion process by 5%-10%, and at the same time increase production efficiency.

Xie Jingwei: In addition to the research and development of new technologies, application is also crucial. In terms of promoting the application of environmentally friendly materials and sustainable production technologies, what measures does Anta have worth sharing?

Li Ling:As a consumer-oriented sporting goods group, one of Anta’s most important ESG initiatives is to produce environmentally friendly and renewable products and use its products to promote the implementation of ESG within the organization. Anta sells 200 million pieces of sportswear and 100 million pairs of sports shoes every year, covering 200 million consumers around the world. Our overall goal is to achieve carbon neutrality across the entire group by 2050. Among the segmentation goals, it is hoped that the proportion of sustainable products will increase to 50%.

Give a few examples. This year’s Paris Olympics Chinese sports delegation’s award-winning clothing is China’s first “carbon-neutral” award-winning clothing certified by an authoritative organization. About a year ago, Anta called on consumers across the country to participate in the “Shanhe Project” to collect a large number of plastic water bottles, turn them into silk thread through environmentally friendly and renewable technology, and weave them into Olympic medal uniforms. From fabrics, production, logistics, packaging, to supply chain management, the award-winning uniforms all reflect the management goal of carbon neutrality.

For the second product, we used Celes polyester fiber to produce a product that returns to nature in 6 months. This kind of sports equipment can be degraded in 6 months after the product life cycle ends, with a degradation rate of over 95%. Such materials are used in many of our equipment.

Third, “from cradle to grave.” Mr. Zheng of Cargill also talked about carbon footprint tracking just now. For some products, we track the carbon footprint during the entire life cycle from fabric to product exit, and take effective carbon reduction measures to reduce the impact on the environment throughout the entire chain.

Fourth, another key link is packaging. We strive to replace some existing materials with environmentally friendly and renewable packaging materials in the future. Now 20% of Anta’s packaging materials are sustainable.

The application of ESG from technology to commodities is a very important transformation. Through the development and application of sustainable products, we not only achieve all-round management of carbon emissions, but also achieve consumer education. The research and development of renewable and environmentally friendly materials is a very significant investment and difficult problem to overcome, but we are constantly advancing. In this regard, the group will further increase investment in the future.

Xie Jingwei: As a new energy system company, Envision’s business is closely related to ESG, especially in the aspect of E (environment). Please introduce to us how a green technology company innovates and what is the effect?

Sun Jie:Envision’s products are not directly used by the public, but our wind turbines, energy storage systems, power batteries, etc. are all providing a steady stream of green power to thousands of industries. As a green technology company, we continue to innovate in science and technology. We were recently selected once again into Fortune’s list of 50 companies that are changing the world.

In terms of product and technological innovation, we have done three aspects of work. The first is green energy technology. Companies in all industries here are now pursuing green and low-carbon transformation, and the use of green electricity is definitely one of the most important topics. We are practitioners and technology leaders in this field, and we continue to use renewable energy sources such as wind, light, and biomass to produce and store electricity at a lower cost.

Second, in recent years we have been talking about carbon-related technologies, including carbon measurement technology, carbon accounting technology, and carbon certification technology, and we have also spent a lot of effort investing in these aspects.

Third, digital intelligence technology, including intelligent IoT technology. Simple IT systems and technologies cannot meet the increasingly complex energy world. The Internet world is more about information connectivity and is virtual, but the energy world is physically connected. How to use IoT or AIoT technology to allow devices and machines in different energy worlds to communicate? How to use AI combined with algorithm and large model technology to better predict weather conditions, wind power generation conditions, and energy storage in the next 24 hours, 4 hours, and 20 minutes? These require a lot of technical investment.

Therefore, we innovate technology around these aspects, and at the same time apply technology to products to provide corresponding green and low-carbon services for the entire industry.

Xie Jingwei: Several business representatives just shared ESG-related technological innovations and applications. From a scholar’s perspective, I would like to ask Professor Yan to give an observation beyond the industry: How to use market-oriented incentives to encourage companies to proactively innovate ESG-related technologies? What is the most critical part of the incentive measures?

Yan Hong:ESG technological innovation requires the investment of a lot of funds and resources. How to achieve our goals through the investment of resources and obtain market rewards through the investment of resources requires a market-oriented mechanism.

On the one hand, the carbon market is a very important market-oriented mechanism that can help companies obtain corresponding benefits through the trading of carbon emissions trading rights. At present, this market is still in its infancy and its scale is not very large, but it is gradually developing.

On the other hand, it is still very important to integrate the entire ESG goal into the blueprint of corporate development, including the incentive mechanism for senior executives. Because our ESG investment is a long-term goal, and long-term goals produce long-term performance. In the short term, we only see investment, but in the long term, the market-based returns will be huge.

Xie Jingwei: We just talked about “investment”, which is a very realistic topic. At this stage, can practicing ESG bring real business returns to enterprises? In other words, our companies are basically still in the investment stage and paying the so-called “ESG tax”?

Zheng Hongfei:Sustainability is a long-term concept for Cargill. But at the same time, we have always believed that through the practice of ESG, we can truly bring differentiated solutions to customers and create value for customers, while also creating short-term, mid-term and long-term economic value for ourselves.

Give an example. In July 2020, China launched a policy of “antibiotic-free” and “antibiotic-free” in feed to reduce antibiotic residues in human food. And this goes back to whether the intake of antibiotics is controlled during the growth of animals. This policy was launched in 2020, but Cargill has been preparing antibiotic-free feed solutions in the Chinese market since 2017 because we have seen this trend in other countries.

We launched a feed antibiotic-free solution for the Chinese market in 2020. This solution is not just about taking antibiotics away from products. It cannot be as simple and crude as taking them away will have many side effects, such as animals being prone to illness and farm efficiency being reduced. We have to help our customers cope with these side effects or their economics will be reduced. Our solution integrates product nutrition, feed safety, environmental safety, and animal intestinal health, and is a combination of products and services. Through this plan, the economic benefits of customers have increased instead of falling. For our company, the real benefit is that our substantial performance growth that year was due to this anti-resistant solution, which is an economic value that can be seen in the short term.

Xie Jingwei: This example just ties together the three topics of today’s discussion: using technological innovation to influence upstream and downstream partners in the supply chain to achieve business returns. How does Anta consider the relationship between ESG investment and business-level returns?

Li Ling:Anta Group currently has considerable investment in ESG. In terms of product research and development, we have invested nearly 10 billion yuan in total, and have defined the ESG strategic goals of “1+3+5” and the overall goal of achieving carbon neutrality by 2050.

Our investment in ESG is also reflected in the adjustment of organizational structure. First, build an ESG management system at the group level and establish a sustainable development committee, chaired by the group’s co-CEO and executive director of the board of directors, and all brand CEOs and heads of important departments serving as members. All departments are responsible for the overall goal of carbon neutrality in 2050 and the backward KPI indicators, which is also a real investment.

In addition, in April this year, Anta opened its first ANTA ZERO zero-carbon mission store on Wukang Road, Shanghai. You can visit it when you have time. The store is committed to achieving carbon reduction goals from product manufacturing to end operations, while embodying consumer education, and the store itself has achieved 30% carbon neutrality.

Anta has also invested heavily in the S (social) aspect of ESG. So far, the group’s total donations have exceeded 2.4 billion yuan. In the past seven or eight years, the group has also implemented the “ANTA Thrive Charity Plan” to carry out sports and education equity practices for teenagers in the central and western regions. At the same time, we cooperate with the World Wildlife Fund to protect biodiversity. The founding family of the group has also invested tens of billions to establish the Hemin Foundation, which will continue to promote medical progress, community care, and sports throughout the country in the future.

Looking at it now, our investment is far greater than the short-term economic return. How do you view the relationship between the two? We believe that the biggest return from investing in ESG is to gain more respect for the company from investors, consumers and the public. In the long run, it should become the driving force for the growth and development of our company, so we are not in a hurry to pursue short-term financial gains. Target.

Xie Jingwei: I believe that practicing ESG will have a real and visible positive impact on Envision’s business development and financial performance.

Sun Jie:Today, I would like to take this opportunity to correct some of the wrong views that you have always held. Everyone seems to think that doing ESG only increases costs, or is more for corporate promotion. I would like to share a few views.

First, about green electricity. Nowadays, green electricity is no longer the era where the cost was high and it was called “garbage electricity” more than ten years ago. Nowadays, the cost of green electricity is lower than that of thermal power. Why not use cheap and clean electricity? In Inner Mongolia, the cost of generating electricity through wind and solar power is only over 20 cents. In comparison, the average electricity price for factories in the Yangtze River Delta and Pearl River Delta is 7-8 cents. Green electricity is no longer a luxury.

Second, we cannot look at ESG from the perspective of cost alone. On the other hand, you have to think about what will be the punishment for not doing it? Especially for companies like us, including export-oriented companies, if they don’t do ESG now, they will feel more and more “painful”. If ESG does not meet the standards and is exported to Europe and the United States, you will face a higher carbon tax, and the carbon tax is settled in euros, which is 100 euros per ton.

We are a product-oriented company. When exporting, overseas customers have carbon requirements for us, but this requirement is not just for Vision itself, but for us and our supply chain. Therefore, we will also put forward requirements for the supply chain and empower them, including providing them with cheaper green electricity to help them save energy and reduce carbon emissions. While they reduce their carbon footprint, they also help our products improve their competitiveness and exports. advantages, so that we can get more orders and market share. So this is a common goal, not something that one or a few companies have to do.

Xie Jingwei: Yes, ESG investment and returns cannot be limited to just one company, but the entire supply chain must be considered together. Professor Yan, what is the current situation between Chinese companies’ investment in ESG and their returns? Is there any data to support a conclusion?

Yan Hong:I want to emphasize that addressing climate change and promoting social progress are things we must do for human development. This cannot be reflected in short-term financial returns, but investors in sustainable investments or ESG investments, especially European institutional investments Investors, when they look at investment objects, the first criterion is to look at ESG indicators. If the standards are not met, no matter how good the financial situation is, they will not pay attention to it. Therefore, from the perspective of long-term investment, we pay attention to the ESG development of enterprises and the progress of enterprises in sustainability, which will actually be beneficial to them in obtaining more investment in the future. At the same time, the further development of such enterprises will actually promote the development of society and the economy as a whole.

On the other hand, research has found that companies with relatively good ESG indicators generally have better financial statements and more complete information disclosures. Investors are more assured of them and are willing to pay higher prices to buy their stocks. Therefore, in The performance of the stock market is also relatively good. This point has relevant evidence from both overseas markets and domestic markets. Of course, the domestic market is not very long and there is not a lot of data. The evidence is not very obvious and sufficient, but this trend is still relatively obvious. (Fortune Chinese)