Client demand the driving force behind ESG investment in APAC: survey
Integrating environmental, social and governance (ESG) issues is a megatrend that is reshaping the global investment landscape, and clients appear to be driving the agenda forward in Asia Pacific, according to a new survey.
Capital Group’s ESG Global Study 2021 found that 44% of Asia Pacific investors strongly agreed that their approach to ESG was driven by the expectations of clients and reputational concerns rather than deeply held beliefs.
This compared to 40% in both Europe and North America, according to the study which surveyed 1,040 global institutional and wholesale investors including pension funds, family offices and insurance companies.
About 29% of these investors were based in Asia Pacific including Hong Kong, Singapore, Japan, South Korea and Australia.
“It is now not only an ethical duty to demonstrate sustainable investing to clients, but also a commercial one, as clients are themselves full stakeholders in this “post COP-21 world”, and increasingly expert in this field.
"(They are also) anxious to work with partners that can enhance their capacities,” Olivier Trecco, co-head ESG solutions at Natixis Investment Managers told AsianInvestor.
“Of course, the quest for yield is still a priority; but in a largely low-yield environment, clients also expect to be supported in the transition through a very uncertain world,” he added.
PERFORMANCE CONCERNS AND LACK OF DATA
Asia Pacific investors see the potential for lower performance as the biggest barrier to ESG adoption in the region, with 51% of organisations surveyed worried they may incur lower returns. This compares with 55% of North American investors and a considerably lower 45% in Europe, according to the study.
Another key obstacle for Asia Pacific investors was the lack of robust ESG data (45%). This concern was felt at a similar level by global respondents.
“Third party ESG data coverage for the Asian issuer universe is incomplete at around 60-70%, although this continues to improve. At times, the cookie-cutter approach towards the collection of ESG data from providers could result in inaccurate data produced, and sanity checks have to be done,” Rong Ren Goh, portfolio manager, fixed income at Eastspring Investments told AsianInvestor.
More than a quarter of respondents in Asia Pacific (29%) and globally (27%) also ranked difficulties accessing the information they need as the leading challenge they face when implementing ESG investments, according to the survey.
“Even in instances where good, accurate data is available, assessment outcomes can see a significant dispersion amongst reputable ESG data providers,” said Goh. “This occurs because there is no standardised approach towards the assessment of ESG risks.”
Nearly two-thirds of Asia-Pacific investors (64%) believed that more transparent fund reporting was also the best way to tackle greenwashing, with around six in 10 institutional investors in the region viewing greenwashing as prevalent within the asset management industry.
This acts as a further barrier for some pension funds and sovereign wealth funds entering into ESG as they would rather not take the reputational risk, the research found.
ESG NOT A PASSING FAD
Although the global onset Covid-19 has been an accelerator of investor focus on sustainability in Southeast Asia, the findings from Capital Group show that investors do not think momentum will slow down when the pandemic ends.
Some 75% of all investors surveyed globally rejected the idea that interest in ESG was a passing fad that would eventually go out of fashion, said the survey.
“To some degree the pandemic has accelerated the focus on the importance of sustainability issues for investors, in particular in developing this now universally shared perception that all risks are interconnected, and that we are entering a period of crisis for which urgent solutions are needed,” said Trecco.
“However it would be wise not to rely too much on this causal explanation: the current rush towards sustainability investments is also and foremost the result of years of regulatory work and international collaboration.”