The ESG concept has become an investment hotspot, with green investments experiencing rapid growth. How can Chinese enterprises successfully navigate the ESG landscape in the midst of the globalization wave?
On the evening of November 2, 2023, at 8:00 PM, EqualOcean's "Globalization Lounge" live streaming event hosted a profound discussion on the theme of "Globalization 3.0 Era: ESG as the Lifeline for Expanding Businesses Globally." This in-depth interview provided numerous viewers with fresh insights into China's outbound business strategies, green investments, and the evolving ESG landscape, sparking new considerations.
The interviewee for this discussion is Wei Zhou, the Founding Manager Partner of CCV. He has 11 years of successful entrepreneurship experience and 16 years of venture investment experience. In 2007, Wei joined KPCB as a founding member of KPCB China. He then served as a Managing Partner of KPCB and led the technology investment team in Greater China. In 2017, Wei founded CCV where he adheres to a visionary investment strategy. CCV focuses on early-stage investments in artificial intelligence, robotics, autonomous driving, and green tech. He has maintained a unicorn rate of 35% in the first ten years of operations and continues to yield at least one unicorn each year.
Presented below is a meticulously edited live conversation transcript, curated with precision by EqualOcean.
Previously in the first section of this article, Mr. Zhou Wei shared his insightful observations in the realm of green investments, as well as his perspective on the standards that companies should uphold during their journey in implementing sustainable practices.
In this part, he would dive into the concept of ESG and how far it impact the enterprises going global.
ESG Governance: An Essential Mandate for Chinese Enterprises Going Global
EqualOcean: As our economy shifts its emphasis towards "quality", the significance of ESG factors in the investment landscape is undeniable. How would you assess the importance of ESG or sustainability-related keywords in the investment field? Are there any new opportunities in the future that can be integrated with ESG?
Wei Zhou: After many years of rapid development, China has evolved from exchanging one shirt for an airplane seat to becoming the global leader in electric vehicle exports. While some verticals of Chinese exports have shifted overseas, with certain production capabilities being lost, there has been a substantial increase in the weight of high-tech and high-value-added products in China's export mix. From this perspective, in addition to domestic market growth, companies must expand globally.
Before 2020, almost all startups were competing within China, with very few achieving success overseas. The domestic competition was intense. However, now China exports a significant number of high-tech, new energy, and green technology products, marking a turning point. Yet, expanding globally necessitates a comprehensive consideration of ESG because real profits lie in relatively developed countries. Regardless of whether these developed countries prioritize ESG due to moral responsibility or as a barrier to entry, they generally focus on whether companies meet ESG standards, fulfill social responsibilities, protect the environment, and address issues related to employees, human rights, and more. These will be challenges that companies must face. If they can address these challenges, the process of going global will be smoother. If they can not, even if they initially make rapid progress, they might suddenly encounter restrictions at some point, making it too late to start implementing ESG. Therefore, regardless of whether companies are currently going global, they should be prepared for ESG.
EqualOcean: "Dual carbon" is also a very hot investment trend. In terms of China's carbon market, the CCER (China Certified Emission Reduction) program was launched in 2012 and temporarily suspended in 2017, remaining inactive for six years. However, in March of this year, the Ministry of Ecology and Environment revealed signals of restarting CCER, and on October 20, the "CCER Management Measures" were officially published on the Ministry's website. Despite some uncertainties, the relaunch of CCER by the year-end seems almost certain, bringing new momentum and opportunities to the carbon market. In the context of the global carbon market, how do you evaluate the development of the Chinese carbon market?
Wei Zhou: The carbon trading and carbon market concepts have been hot topics since the previous wave of green technology trends. I believe this platform will undoubtedly be essential. Recently, discussions have resurfaced in Europe regarding carbon taxes, especially concerning Chinese products. However, China has made significant investments in green technologies over the past few years. From a global perspective, we have made substantial contributions to the world of green technology, not just in terms of emissions. If carbon market calculations are scientifically fair, they may not necessarily work against China; in fact, they could be advantageous. As leaders in the global green technology sector, we should consider participating in the process of standard development. If we, as a significant contributor to these products, are involved in setting the standards, such as how carbon trading is calculated, taking into account not only the production or transportation process but also the green benefits, we can benefit from it. Therefore, it is essential to think about this issue more intelligently and get involved early.
On the other hand, such a platform may largely require government leadership. Therefore, we are also closely monitoring the development, and there are entrepreneurs working on this. However, it might require proactive efforts from the government or influential mega-corporations to establish a more equitable and robust standard framework.
EqualOcean: Beyond the investment side, ESG is crucial for companies as well. Especially for European and American consumers, their purchasing decisions are significantly influenced by ESG factors due to their consumption habits and long-standing principles. Consequently, enhancing ESG governance has become another mandatory course for Chinese companies going global. From your perspective, how are Chinese companies progressing in the field of ESG when expanding globally? What are their main focus areas regarding ESG, and what are some exemplary ESG practices?
Wei Zhou: Chinese companies are still in the early stages of ESG development in this regard. For example, Tmall is often reported to lack ESG-related improvements when operating overseas. Therefore, Chinese companies are still in the learning process.
I believe that organizations like EqualOcean and investment firms like CCV can play a significant role in guiding these companies. We have joined many organizations that allow us to exchange information and gain insights into ESG, which we can then provide to our portfolio companies.
There are three main themes to consider. First, a focus on the environment, which encompasses product materials, production processes, transportation, post-purchase services, and recycling. Second, attention to social responsibility, including both product-related social responsibilities and internal corporate responsibilities. This includes responsibilities toward employees, raw material suppliers, and upstream and downstream partners. In some cases, it may even extend to ensuring fairness with the producers of fundamental raw materials. These aspects have traditionally been areas of concern for Chinese companies.
Third, a special emphasis on corporate governance. Particularly in the past few years, many Chinese companies have experienced governance issues, such as the Luckin Coffee accounting scandal. These events have had a significant impact on Chinese companies' international listings. Companies expanding overseas must align with the local ESG landscape and not just publish reports. They must identify the specific areas of concern in the local market and allocate resources accordingly. Overall, if a company neglects ESG, it might gain short-term benefits but will undoubtedly suffer in the long run.
EqualOcean: ESG is a long-term issue. It is not a mere PR exercise, nor is it a cost center; rather, it is a critical factor in value creation. Looking ahead to 2024, what are your expectations for the integration of ESG in the globalization of Chinese companies? What role will CCV play in this?
Wei Zhou: China has reached a turning point where entrepreneurial capabilities, technological innovation, and product definition capabilities are all in place. Chinese companies now have significant global advantages, particularly in complex, intelligent product systems. For example, some verticals have shifted to Vietnam and Indonesia, but they are unable to complete complex, intelligent, and systemic product implementations. China's current advantage lies in the complexity and intelligence of the final product systems, which is a substantial advantage.
At this point in time, all the factors, including timing, entrepreneurial capabilities, and technological accumulations, are ready. Chinese companies should seize this opportunity and not limit themselves to internal consumption. Chinese companies need to bravely expand globally. While there is currently a trend of deglobalization, China has industrial chain advantages, including in the field of green technology, where it has an absolute leading position in most verticals. In this context, it is essential to work with us, so companies should seize the opportunity to achieve relative localization.
From the perspective of CCV, we are dedicating significant resources, including the resources inherited from KPCB and the network we have established overseas. We hope to help more companies expand globally and continue to grow and strengthen.
CCV will continue to play a critical role in facilitating the globalization of Chinese companies by providing support and guidance. We work to ensure that companies understand the benefits of practicing responsible investment principles, and we actively invest in companies that are committed to ESG. This is a collective effort to empower Chinese companies to compete on the global stage, where adherence to ESG principles serves as a valuable passport and a symbol of commitment to sustainable and responsible business practices.