Asian institutions seen lagging on climate allocations

Asian institutional investors continue to trail their emerging market peers in central and South America when it comes to sustainable investing, according to a new survey of investor intentions.

About 61% of Asia Pacific investors said they were currently invested ‘in the energy transition’, compared to 66% in Europe, Middle East and Africa (EMEA), and 64% in Central and South America, according to Schroders’ Global Investor Insights Survey, published on October 17.

The region continues to trail on net-zero commitments, too. 39% of APAC respondents reported no net- zero commitment in place, including 27% who had no intention of creating one.

That's compared to 31% of respondents who had no net-zero goals in EMEA and 27% in the UK and 33% in Central and South America.

IDENTIFIABLE SHIFT

One leading consultant in the region, who asked not to be named, said that it was rare for APAC investors to engage in climate-related investments without a clear investment case.

“I’ve heard mega-scale investors say we don’t even use the term ESG [environment, social and governance] - they talk about energy transition and decarbonisation because those are specific areas where they can see a clear case of an [investment] trend driven by consumers," the consultant told AsianInvestor.

'The logic is: if I’m investing in the energy transition, I’m investing with a valid return."

Kathryn Saklatvala, head of investment content at London’s investment consultancy bfinance, said the outperformance of energy stocks in 2022 and underperformance of clean-tech versus major tech stocks in 2023 and 2024, had increased the onus on asset owners to steer managers towards sustainable mandates, rather than taking sustainability for granted.

“The performance picture has helped to drive what is now an identifiable shift in tone among some of the largest asset managers in the world, where messages are migrating: ESG is to be framed as a ‘client choice,’ rather than promoted as an intrinsic firm-level philosophy,” she told AsianInvestor.

In October, NZ Super restated their commitment to active ESG voting strategies to AsianInvestor in the wake of falling rates of support for environmental and social shareholder proposals by BlackRock and Vanguard, the world’s two largest asset managers.

The stepback by asset managers comes against a backdrop of US lawmakers’ criticism of “woke capitalism”, and concerns over such voting actions clashing with fiduciary duties.

“It is good governance for boards to promote good practice in managing employee, environmental and social issues,” Anne-Maree O’Connor, head of sustainable investment at NZ Super, told AsianInvestor at the time.

PRIVATE MARKETS AND RENEWABLES 

Where investors are targeting the energy transition, traditional renewable energy sources like wind and solar are taking second place to emerging sectors and energy infrastructure.

“Both power grid infrastructure and emergent technologies such as hydrogen, carbon capture, and batteries are viewed as the best opportunities in the energy transition over the next one-two years... This is particularly felt by institutional investors,” the report noted.

Despite APAC investors’ long-established appetite for private markets, significantly fewer are planning to add to renewables allocations, when compared to emerging market peers.

The survey found that 48% of investors plan to add to renewable infrastructure private equity allocations over the next year or two, according to financial advisors who serve them.

In Central and South America, the proportion was 66%.

Investors in Central and South America are also adding to private equity (58%) and multi-private asset solutions (59%) at a faster rate than those in APAC (51% and 50%, respectively).

The regional consultant said that either regulation or a clear investment case was now a pre-requisite for sustainable investing by Asian institutions in most cases.

“It comes back to either to a regulatory push, or a common-sense reason due to changing consumer demands. Asia is good at talking the talk but generally investors here have not walked the walk, unless there has been government intervention,” the consultant said.

Investors in North America and Bermuda, where much of North America’s fund industry is based, reported the lowest level of climate-related allocations, with 48% currently invested in the energy transition, 61% with no net-zero commitment in place and 52% with no plans to create one.

795 of the 2,830 respondents to the Schroders survey were from Asia, accounting for $18.6 trillion of the total $74.5 trillion of assets under management.

They included pension funds, insurance companies, family offices, and endowments as well as intermediaries and financial advisors.