I am deeply honored to have been invited to participate in the Global Sovereign Wealth Fund Forum, which focuses on “Investing for a Sustainable and Inclusive Future” – a theme of great significance in today’s world. The global challenges in 2022, including the COVID-19 pandemic, geopolitical tensions, economic slowdowns, and ecological damage, require us to work together and establish new rules to overcome them.
As the National Council of Social Security Fund (NCSSF) established in 2000, we have the responsibility of preserving and increasing the value and scale of the fund through investment and operation. Our ultimate goal is to enhance China’s multi-level social security system, especially the financial sustainability of pension security. After more than 20 years of dedicated efforts, our Social Security Fund has evolved into a diversified asset management pattern, which consists of three asset types, namely, the National Social Security Fund (NSSF), equity of transferred central enterprises, and the basic pension insurance fund. By the end of 2021, we had assets under management worth nearly RMB 6 trillion. Among them, the National Social Security Fund, as a strategic reserve, has reached nearly RMB 2.7 trillion; the equity of transferred central enterprises is RMB 1.8 trillion, and the entrusted and managed basic pension insurance fund amounts to nearly RMB 1.5 trillion.
The forum’s theme aligns with the NSSF’s investment objective, which aims to achieve sustainable development in China’s social security system and help the entire society achieve sustainable development goals. Therefore, I am excited to share our experience in practicing the new development concept and promoting sustainable investment, considering the practical aspects of fund investment and operation.
As China enters a new stage of development, sustainable investment is ushering in a new historical opportunity
Following 40 years of rapid development through reform and opening up, the primary contradiction of Chinese society has shifted to the tension between people’s growing aspirations for a better life and the imbalanced and insufficient development. The former model of development relying on factor inputs like capital, energy, and labor is no longer sustainable, and challenges such as insufficient independent innovation capacity and declining population growth rates must be addressed. In light of the new era’s new challenges, General Secretary Xi Jinping has clearly proposed to “build a new development pattern based on the new development stage, implement the new development concept, and promote high-quality development.” Additionally, in 2020, China made a solemn promise to strive for carbon peaking by 2030 and carbon neutrality by 2060.
In line with China’s current economic development stage, sustainable investment is an investment approach and concept that integrates environmental protection, social responsibility, and corporate governance. It emphasizes economic and social benefits and is a practical manifestation of the new development concept “innovation, coordination, green, openness, and sharing” in investment practices. Sustainable investment is a powerful tool for promoting economic transformation and upgrading to achieve high-quality development and has broad development prospects. International experience shows that sustainable investment strategies can optimize the risk-return characteristics of investment portfolios, have better performance in risk prevention and income generation, and offer investment opportunities aligned with the concept of sustainable development. For institutional investors, sustainable investment can guide social capital to gather in fields, industries, and enterprises aligned with sustainable development, enabling them to gain excess investment returns and achieve the “Double Harvest” of economic and social benefits from the “Carbon Peaking and Carbon Neutrality” target.
The new development stage provides an unprecedented opportunity for long-term funds, represented by the National Social Security Fund, to make sustainable investments and promote the asset management industry’s development. To better seize this opportunity, NSSF is strengthening its research and pursuing sustainable investment as a practitioner. As an important player in China’s capital market, NSSF is taking on a more proactive and leading role in promoting the concept of sustainable investment and practicing sustainable investment to achieve economic and social benefits.
NSSF has made useful exploration in the field of sustainable investment and accumulated initial experience.
Ever since its inception, the National Social Security Fund has been committed to exploring an investment management approach that is in line with the fund’s unique characteristics and China’s national conditions while drawing from international experience. This pursuit has led to the development of an investment philosophy that emphasizes long-term investment, value investment, and responsible investment. Among these, responsible investment has a greater social significance as it builds upon the foundation of long-term and value investments. Over the last two decades, NSSF has served as a responsible institutional investor, contributing significantly to the implementation of major national strategies, promoting the healthy development of the real economy, and facilitating stable and orderly capital market operations, providing strong support for the sustainable development of society at large.
Recently, NSSF released its 2021 annual report, which has garnered widespread attention and praise. The annualized investment return rate of NSSF since its establishment has reached 8.30%, which is 6.05 percentage points higher than the inflation rate during the same period. While achieving a high rate of investment return, NSSF has consistently adhered to the principles of responsible investment, and has made valuable explorations and gained initial experience in the field of sustainable investment.
Initially, the Social Security Fund has focused on environmental friendliness, implementing negative screening of investment targets in direct equity investment and excluding industries with severe environmental pollution. The Fund actively seizes investment opportunities in various asset classes of green areas and has a long-term focus on clean energy and renewable energy fields such as hydropower, wind power, and nuclear power. Investing direct equity in nearly 60 billion yuan to energy-saving wind power, national electricity, national pipe network, CGN wind power, and other projects. It has also made extensive investments in more than 300 projects to clean energy, new energy vehicles, energy conservation, and environmental protection through private equity funds. By the end of 2021, the investment in domestic green bonds will have a total scale of nearly RMB 20 billion.
Secondly, NSSF focuses on social responsibility and considers it an important goal to serve major national strategies, fulfill its social responsibility, and benefit the people. It participates in significant national infrastructure construction projects such as the Beijing-Shanghai high-speed railway, promoting the modernization of railroad transportation and management system reform. It has seized the opportunity of national energy system reform, invested in energy infrastructure projects such as the China national petroleum pipeline and the national pipeline network, making significant contributions to the comprehensive coverage of reliable and sustainable modern energy and ensuring energy security. The NSSF also increases its investment in special bonds serving national strategies, holding over RMB 100 billion worth of special bonds for poverty alleviation, epidemic prevention and control, poverty relief, and special financial bonds for three rural areas. The NSSF has also held the investment focus of trust loans such as infrastructure construction and housing construction, with a cumulative investment scale of over RMB 100 billion.
Thirdly, the Fund focuses on institutional governance, promoting the optimization of the internal governance structure of investment targets by implementing strategies such as negative exclusion and active shareholderism in domestic stocks, domestic bonds, bank deposits, and other investment varieties. The Fund continues to play a leading role in the capital market by including the examination of sustainable investment factors in the selection and evaluation of investment managers and other partner institutions. In the 2021 domestic securities entrustment investment appraisal, the Fund has set up new sustainable investment-related appraisal indicators under both the manager fundamental appraisal and investment manager appraisal, actively encouraging investment managers to practice the new development philosophy and explore the establishment of an investment decision-making system that incorporates environmental, social, governance, and other sustainable factors.
In line with the trend of the times, explore research to deepen sustainable investment practices
To capitalize on the significant opportunity for sustainable investment, the Social Security Fund has established a dedicated research group to conduct a comprehensive investigation into sustainable investment. This initiative is a major undertaking for the fund in its effort to implement the philosophy of “grasping the new development stage, implementing the new development concept, and building a new development pattern,” to support and serve the “Carbon Peaking and Carbon Neutrality” strategic goals, and to promote the high-quality development of the fund. Furthermore, the fund has invited experts in the field of sustainable investment to participate in a symposium in June 2022. The purpose of the symposium was to seek expert opinions and recommendations, and to enrich and refine the fund’s ideas and initiatives related to sustainable investment. Through the examination of special topics, the entire organization has achieved a greater level of consensus and enhanced its practical vision for promoting sustainable investment by reviewing past investment practices and drawing on domestic and international experiences. Moving forward, the fund will continue to explore and advance its work in the following areas.
Firstly, we will further enrich the new connotation of responsible investment. We plan to prioritize achieving the strategic goals of “Carbon Peaking and Carbon Neutrality” with respect to environmental responsibility. This will involve gradually reducing the carbon footprint of the fund’s total portfolio and striving to attain carbon peak by 2030 and carbon neutrality by 2060. Additionally, we will utilize the fund’s unique advantages to support scientific and technological innovation, optimize industrial upgrading, and complete the shortcomings of the industrial value chain in order to attain a high level of self-sufficiency and self-improvement, promote the construction of new infrastructure around major national strategies, and establish a solid foundation for accelerating the construction of a new development pattern. We will also continue to strengthen system construction and the construction of the fund investment risk prevention and control system, improve internal governance and risk management, deepen the practice of active shareholderism, actively communicate concerns and pressure to investee companies through the assignment of full-time directors, and help improve the internal governance structure of enterprises in order to fulfill our governance responsibilities.
Secondly, we will explore the construction of a systematic and comprehensive sustainable investment management system. Our focus will be on integrating environmental, social, and governance factors considered in sustainable investment into all processes of fund investment management in an optimal manner. We will study the establishment of sustainable investment benchmarks based on the characteristics of each asset class and play a crucial role in investment management. Moreover, we will explore the establishment of a sustainable investment risk management and performance evaluation system, identify risks beyond traditional financial indicators, and regularly evaluate the fund’s important non-financial performance, especially the fund’s carbon emissions. We will continuously encourage and advocate investment managers and other business partners to practice the new development concept and engage in sustainable investment.
Thirdly, we aim to actively pursue market opportunities and further deepen our sustainable investment practices. With regards to public market investments, we will investigate the creation of a range of sustainable investment strategy products, particularly in the areas of green low-carbon and climate change sub-strategies, which align with the strategic goal of achieving “Carbon Peaking and Carbon Neutrality”. Currently, the Social Security Fund is conducting thorough research and demonstrations of sustainable investment strategy products for both domestic and overseas stocks and bonds in an organized and active manner. In non-public market investments, we will emphasize our efforts towards scientific and technological innovation, industrial upgrading, and new infrastructure construction in line with the requirements of the 14th Five-Year Plan and the 2035 Vision, all aimed at helping achieve the strategic goals of “Carbon Peaking and Carbon Neutrality”. We will establish sustainable investment directions, explore projects and expedite our layout.
Fourthly, we intend to strengthen our exchange and cooperation in sustainable investment practices. Sustainable investment has a longer history and more mature experiences overseas than it does in China, where it is still in its early stages. The international institutions and organizations that have participated in this conference are the pioneers of sustainable investment worldwide. We genuinely aspire to continue our communication and exchange with them to offer experience for the development of sustainable investment in China. While sustainable investment in China holds a broad and promising future, we acknowledge that there is still a long path ahead of us. It is essential that we proceed in a stable and gradual manner. We hope to maintain close collaboration with our participating partners and work together to accelerate the advancement of sustainable investment practices, contributing to the promotion of high-quality investment and real economy development, and promoting sustainable and inclusive economic and social development!
Vice Chairman and Member of the Party Leadership Group National Council for Social Security Fund
