China Investment Corporation and Responsible Investment

We are looking at clean energy and environmentally-friendly investment (…) everything cross-border except for casinos, tobacco companies or machine-gun companies

Gao Xiqing, China Investment Corporation’s (CIC) President, announced the fund’s intentions to consider responsible and sustainable investment policies at a conference in Beijing on June 13th

Chinese Investment Corporation

This announcement follows another recent speech the CIC President made at an OECD conference earlier this month stressing the SWF’s commitment to transparency. He assured delegates that CIC will be “as transparent as required by any law in any country” but continued with words of caution about expectations of rapid changes,

Our government has never been transparent for 5,000 years (…) we are trying.

As China based the structure of CIC ($200bn) on Singapore’s Temasek Holdings ($159bn) it will not be inconceivable that it has looked at Norway’s Government Pension Fund (NBIM), widely acknowledged as one of the most transparent SWFs, for guidance in improving its practices.

NBIM

Some of NBIM’s guidelines might prove a challenge for a country with China’s (less than stellar) ethical record to put into practice.

NBIM utilises negative screening to exclude investments that pose a reasonable risk of the fund contributing to:

  • Serious or systematic human rights violations
  • Serious violations of individuals’ rights in situations of war or conflict
  • Severe environmental damages
  • Gross corruption
  • Other particularly serious violations of fundamental ethical norms

The good news is that the CIC’s $90bn foreign investment mandate precludes it from investing these funds in the Chinese government.

[Note: Norway has received some attention in the press for applying these principal's harshly on its foreign investment candidates while turning a practically blind eye to Norwegian corporations that engage in activity abroad that would violate those very same principals.]

If adopting Norway’s ethical guidelines seems like too much of a stretch for the CIC in the near future, perhaps it could turn back to Temasek, after all, even without any clearly published policies regarding responsible or sustainable investment, they might have decided that all you need is a great team of graphic designers (meritocratically chosen of course).

For a Sustainable Future

or go on 60 minutes.

Hostility?

Still young (CIC only began operations in September 2007), but already attracting much attention with its high profile investments in Blackstone ($3bn) and Morgan Stanley ($5bn). During its negotations to take a stake in Citigroup, as Wall Street turned to Sovereign Wealth Funds (SWFs) as sources of capital during the subprime saga, however, some of this attention was (in the United States at least) unapologetically negative and protectionist.

Why is it good for a foreign government to have 10% stock of Citigroup when we don’t want to have the US government have 10%? At least the US government would be responsible to US taxpayers.

Edwin Truman, Senior Fellow at the Peterson Institute for International Economics and former US Treasury Department Official.

This hostility could hurt the United States, China has previously highlighted that it could easily abandon its push to invest in US assets and focus on countries that do welcome its large pool of capital, like the United Kingdom.

[Note: Citigroup went on to acquire capital not from CIC but from the Abu Dhabi Investment Authority (ADIA), the Government of Singapore Investment Corporation (GIC) and the Kuwait Investment Authority (KIA)]

15 Responses to “China Investment Corporation and Responsible Investment”


  1. 1 Allen Taylor 17 June, 2008 at 6:00 pm

    Nice writing. You are on my RSS reader now so I can read more from you down the road.

    Allen Taylor

  2. 2 Darren Willman 9 November, 2008 at 11:14 pm

    Hi guys,

    Great blog. I’m working with Sovereign Wealth Funds as part of my research at IMD and while I can’t say much until the research is released, I can tell you that they do not really care about responsible investment after all. They are very focused on their own objectives of growing the $ billions in their funds as security for if their country gets into trouble. In that sense it should be up to companies to manage a way to be successful and growing while being sustainable and ethical.

    Cheers
    Darren

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  1. 1 BHP Billiton Head now Leads Temasek Holdings « Evolving Choice Trackback on 8 February, 2009 at 1:08 pm

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