APAC asset managers ignoring ESG policies of institutions
The ESG policies of APAC institutional investors are being ignored by their asset managers and banks to an alarming degree, according to a global survey of 150 financial institutions that will be published on February 5.
Only 57% of asset managers and banks in APAC said they said they often or always considered their clients’ climate targets when evaluating an investment, and 18% said they never or rarely considered this.
The survey, conducted by Market Forces, an affiliate of Friends of the Earth Australia, was provided exclusively to AsianInvestor will be published later today.
Market Forces
“Our research found that executives at many of the world's largest investment firms are more concerned about their reputation than climate risk,” said Rose Tehan, who conducted the survey and accompanying report for Market Forces, adding that this trend was particularly pronounced in the Asia Pacific.
Respondents come from across the USA, UK, Singapore, Japan, Australia and Hong Kong, and include 62 asset managers, 74 banks and 8 pension funds.
REPUTATION OVER CLIMATE RISK
About 82% of APAC respondents said reputational risk had a high or very high level of influence on investment decision making, while only 39% said that investee’s environmental performance had a high or very high level of influence. In the US, the corresponding figures were 73% and 47%; in the UK.
The survey also revealed a widespread disregard for scope 3 emissions – those that a company is indirectly responsible for up and down its value chain – that was particularly pronounced in Asia.
Only 18% of those in APAC said they consider scope 3 emissions often or always when making investment decisions, with 42% of those in the US and 44% in the UK sharing that sentiment.
“Scope three emissions are a key indicator of regulatory, market, reputational and financial risk for fossil fuel companies, so this is a major concern for the clients who entrust their money to [asset managers and banks], as well as for the climate,” said Tehan.
Andrew Thompson, head of private equity, at KPMG Asia Pacific in Singapore told AsianInvestor that where regulations did not require investors to enforce better ESG standards and there was not a clear financial reason, investors remain slow to act.
KPMG Singapore
“In general, private market investors, while ensuring investments are compliant from an ESG point of view, are hesitant about making major changes to their portfolio investments if there is not a clear benefit in terms of financial return,” he said.
The Market Forces survey revealed the high dependence of progress around climate change on regulatory enforcement, rather than investor pressure.
REGULATORY PRESSURE LEADS
Globally, 75% of respondents said they often or always considered regulation when evaluating an investment, compared with only 38% for scope 3 emissions, which are generally excluded from regulatory requirements.
Worryingly, in a region where regulators have expressed increasing concerns around greenwashing by asset managers and asset owners, only 68% of respondents said they often or always considered government regulations when making an investment, compared to 93% in the UK.
The survey detailed the extent to which APAC asset managers and banks trail those in the US and UK in their consideration of climate change risks.
About 18% of respondents considered plans by investee companies for new fossil fuel developments to pose a high climate risk to the investment, compared to 21% of those in the US and 29% of those in the UK.
Asian asset managers and banks pay less attention to metrics, targets and climate risk management strategies than those in other regions. Only 46% considered omission of these details as indicative of a high climate risk, compared to 54% of those in the US and the UK.
“Asset managers and banks in Asia as well as in markets world-wide must make better choices to fall in line with investors’ increasing focus on environmental, social and governance concerns,” said Tehan.