(Yicai) Sept. 25 -- Environmental, social, and governance investing is becoming increasingly influential worldwide. According to experts, China needs the experience of long-term institutional investors in this field.

The biggest challenge for China in terms of ESG investment is how to foster more experienced international institutional investors, as it is hard for public open-end funds to achieve a balance between short- and long-turn returns and between corporate and social values, Zhang Weiguo, former chief accountant of the China Securities Regulatory Commission, said during the fifth Bund Summit that ended yesterday in Shanghai.

ESG funds have generally high long-term returns but bad short-term ones, Founder Securities said in a report. The returns of ESG funds, environmental protection funds, social responsibility funds, and corporate governance funds are usually above 60 percent after five years, between 17 percent and minus 5.3 percent after three years, and generally negative within one year.

It is not easy for China’s public funds to invest in ESG because they are open-ended, meaning that investors can redeem their investment in case of bad short-term performance, noted Zhang, who is also a former member of the International Accounting Standards Board.

“You can’t rely on social responsibility and corporate values when investing in ESG,” said Sun Mingchun, vice chairman of the Chinese Financial Association of Hong Kong. “There should be a good incentive mechanism instead.”

It may take 10, 20, or even 30 years to foster institutional investors, Zhang noted, adding that a reform of the individual endowment insurance system should be implemented to create a source for long-term funds.

The major challenge for localizing ESG investment in China and other Asian countries is not having unified classification standards, which is an issue that needs a prompt solution, said Cecile Bartenieff, chief executive officer of Societe Generale Asia Pacific.

The Bund Summit, hosted by the China Finance 40 Forum, focuses on green finance, finance opening-up, assets management, and financial technology.

Editor: Futura Costaglione