AsianInvestor Insights: Asset owners keen on higher ESG exposure
Asian asset owners are looking to increase their portfolios’ exposure to environmental, social, and corporate governance (ESG) factors in their investment decisions and strategies, according to a recent survey by AsianInvestor's investment intelligence data platform, Asset Owner Insights.
A total 85% of survey participants plan to increase their portfolio exposure to ESG investments either moderately or significantly in the next six to 12 months.
74% of respondents plan to moderately increase (by less than 5%) their portfolio exposure to ESG investments in the next six to 12 months.
“Among these 74%, 38% intend to increase allocation in fixed Income, 29% in equities, 24% in infrastructure, and 10% in private equity, and all of them are Asia-focused,” Kebelyn Lee, research manager at AsianInvestor, said.
A further 11% plan to increase significantly (by over 5%), while 15% plan to remain unchanged. Nobody surveyed plans to decrease ESG allocations.
Vivian Tang, head of institutional in Asia Pacific at abrdn, also sees a growing interest in sustainable investments from institutions across APAC, in line with trends the asset manager has observed in the UK and EU.
“They want to understand how to achieve a net-zero target without compromising their risk/return profile and are looking to invest in assets with green revenues and improving carbon emissions trajectories,” Tang told AsianInvestor.
Some of the asset owners in Asia Pacific rely on external fund houses to manage their ESG and sustainable investments due to a lack of in-house data, knowledge, and investment capabilities.
“For example, we see insurers in Asia Pacific have expressed high interest in outsourcing their ESG integration, investment execution, and hedging strategies,” Tang said.
In Q4 2023, AsianInvestor’s Asset Owner Insights team surveyed 29 regional asset owners to learn about the key drivers and challenges they face as part of their ESG investment strategy. Nearly half of the respondents (48%) are from insurance companies, with close to one-third (31%) are from single family offices and private wealth management.
Most respondents are based in Hong Kong (28%), Singapore (28%), and South Korea (10%).
The total AUM of all survey respondents is $1.13 trillion.
ENERGY TRANSITION
“Most institutional clients consider climate and energy transition as a secular theme with financially material risks and opportunities for portfolio,” Alexander Chan, head of ESG client strategy in Asia Pacific at Invesco, told AsianInvestor.
CHINA POTENTIAL
The surveyed asset owners ranked Malaysia and Singapore as the preferred market-specific destinations for ESG investments in the next five years.
“Some of these investors are currently up to 5% invested in ESG-related equities in Australia and the Philippines. Their plans for the next five years are to increase their ESG allocation to 5-10%, targeting the Singapore and Malaysia markets,” Lee added.
Tang pointed out that Asia overall will only meet the United Nations’ Sustainable Development Goals (SDG) by 2065, but China and India have made progress in their commitment towards ESG.
“China, in particular, has demonstrated progress both on the ground and around disclosure, and Chinese companies are global leaders in the technology that will address global problems,” Tang said.
For example, China has made enormous strides in increasing its installed solar and wind power capacity. ESG investment opportunities, therefore, in China are largely around renewables and batteries, she elaborated.
ELSEWHERE IN ASIA
In India, financial inclusion has been a major push in recent years, with the rollout of a real-time payment system, UPI, about six years ago, Tang said. That creates investment opportunities around financial inclusion in India, but also around renewables, given the country’s commitment and push towards cleaner alternatives to fossil fuel.
“Government focus on infrastructure and electrification will also create corresponding opportunities relating to transition in India,” Invesco’s Chan said.
Beyond India and China, he also mentioned Japan, where corporate governance reforms will continue to be a driver of return on equity.
Another major theme for ESG is the ASEAN region overall. In these markets, transition financing continues to be a key focus as economies transition away from coal, supported by developments like the ASEAN or Singapore-Asia taxonomies that include transition activities.
“The region is also more vulnerable to physical risks, and adaptation financing in areas like agriculture, food, and water security would see growing demand. The growth in family offices and foundations in Singapore has also seen a rising interest in impact investing,” Chan said.
For more information on our in-house research insights and for a demonstration of our asset owner intelligence platform, please reach out to Kebelyn Lee at [email protected] and Tim Cresner at [email protected].