Currently, ESG investment is rapidly becoming mainstream on a global scale. Whether it is the growing concern of investors about environmental and social risks, more and more companies exploring the path of technological transformation or inclusiveness, or the continued inclination of global asset allocation strategies, to the continuous improvement of the policy system and system, especially after the “dual carbon” strategy was proposed, it is rapidly gaining “momentum”.
The ESG strategy pandemic is also not a whim. It is essentially based on a long-term balance of interests or value standards under the new situation. For enterprises/investors, it conveys the concept of responsible management/investment. By incorporating the three dimensions of environmental indicators, social responsibility, and corporate governance into corporate KPIs, it forms a new standard for judging the quality of business operations and the ability to operate sustainably, breaking the two-dimensional world of chasing returns and risks in the investment field in the past.
Similarly, starting from ESG's non-financial indicators, it can also be used not only to “clear mines”, but also to select “long-term activists” that are truly high-quality and sustainable.
In Search of Real “Long-termists”: Unifying ESG Performance with Financial Performance
However, at a time when corporate “responsibility cards” and ESG “new business cards” are being bombarded indiscriminately,How should investors choose? Or how can we seize such a promising opportunity?
Munger once said he wants to go fishing where there are fish. But where do they have the most fish? The author believes that only when an enterprise's ESG performance and commercial performance achieve each other, that is, when social responsibility and shareholders' interests are highly consistent, can an enterprise achieve “true” sustainable growth without sacrificing the interests of one party.
Judging from this logic, there is no doubt that environmental protection is a very favorable racetrack. Whether it's investment opportunities in the direction of new energy or materials under “carbon neutrality”, the bottom layer is driven by environmental values.
2021 marks the beginning of the 14th Five-Year Plan, and it is also a big year for environmental protection. Not only have policies been introduced intensively, but the wave of environmental IPO listings has also been repeated. According to incomplete statistics, 43 new listed companies involved in environmental protection business were added in 2021.
As far as segmentation is concerned, solid waste involving keywords such as “turning waste into treasure” and “renewable resources” has become a favorite. Since the introduction of the “14th Five-Year Plan” and the Outline of Long-term Targets for 2035 in March 2021, a series of major policies in the field of heavy solid waste disposal have been intensively released. At the same time, according to information, out of the 43 newly listed companies last year, the largest number were companies engaged in solid waste disposal, reaching 17.
Hongcheng Environmental Protection: Leading domestic gold mine hazardous waste treatment, with both social benefits and commercial value
Among the few Hong Kong-stock environmental IPO companies last year, Hongcheng Environmental Technology (2265.HK, hereinafter “Hongcheng Environmental Protection”) can be said to be a very unique hazardous waste treatment enterprise — based on the gold industry chain and backed by the wealth of gold mines in Laizhou, Shandong, to engage in gold tailings treatment and resource recycling.
Simply put, Hongcheng Environmental Protection is a company specialized in helping miners dispose of hazardous waste such as cyanide tailings during gold production. The main approach is to, on the one hand, break down toxic substances in cyanide tailings to extract gold; on the other hand, extract valuable metal resources from the collected cyanide tailings, such as sulphur concentrates and gold-sulfur concentrates, and then sell them to downstream chemical enterprises, thereby diversifying operations.
Gold mine hazardous waste treatment value chain
The domestic gold production industry has always faced the double dilemma of environmental protection and operation. As can be seen from the changes in the regulatory attitude towards cyanide tailings, from being characterized as hazardous waste in 2016 to being granted an exemption “pass” at the end of 2020. However, cyanide gold extraction is regarded as a mature, low-cost, and high-recovery process. It is the most widely used process in gold production in China and around the world. Currently, more than 80% of finished gold manufacturers in the country use this process, and a large amount of cyanide tailings is also produced as a result. This also provides a reliable niche market for professional companies like Hongcheng Environmental Protection.
First, getting a license plate is not an easy task. Generally speaking, a hazardous waste management license takes 3-5 years from application to implementation, and 2-3 years at the earliest. However, with environmental protection requirements becoming more stringent in recent years, such as the introduction of the new solid waste law in 2020, the “strictest version in history” was sealed. In particular, the regulations and requirements for industrial solid waste and hazardous waste have clearly improved, which means that it is likely that it will only be more difficult to obtain a license. Furthermore, professional technical personnel and production capacity investment are also barriers to new entrants.
It is also because of these thresholds, combined with Hongcheng Environmental's leading position in the industry, that the company can maintain excellent profitability even in the current fragmented industry pattern. According to the data, the company's gross profit margin has exceeded 60% in the past two years, and the net profit margin has remained above 30% all year round, all of which are significantly higher than other environmental protection sub-sectors.
Although cyanide tailings have received a “green pass”, this is not a harmless endorsement, but rather places their impact within a manageable range. This is probably also an expedient measure to balance the development of the industry and the environment at this stage. In fact, harmless treatment of cyanide tailings has been achieved in some countries. This means that as environmental protection policies become stricter, and in the context of industry transformation and upgrading, low-cyanide or even cyanide-free gold extraction processes have become a trend and direction.
In terms of resource recycling, Hongcheng Environmental Protection is also contributing its part and has been recognized by the industry one after another. For example, last year, the company's research project “Golden Tailings Iron Sulphate Resources Recycling Project” was recognized as a scientific and technological achievement by the China High-tech Industrialization Research Association, and the project also received the second prize of the China Environmental Protection Federation Science and Technology Progress Award from the China Environmental Protection Federation. This is undoubtedly a high recognition of the company's exploration of the path of circular economy to achieve economic, environmental and social benefits.
Epilogue
Whether it's investment or operation, the ESG trend is unstoppable. Behind this is a reshaping of the value scale and a rebalancing of the interests of many parties. For enterprises, this is more of a kind of “long-term principle”. Business goals are no longer limited to short-term financial performance, but also the pursuit of long-term sustainable development, including non-financial indicators.
In the current context, long-term attention to and improvement of ESG performance is undoubtedly critical to the future growth of enterprises. However, as the trend gradually unfolds, superficial packaging and publicity will also spread excessively, becoming a fog of influence judgment. By returning to the origin of business operations and searching for enterprises that have achieved an excellent balance between economic benefits and social benefits, it may be possible to truly achieve simultaneous growth in social value and commercial value and achieve long-term sustainable development.