How one Canadian pension manager copes with scarce ESG data in EMs
A lack of environmental, social and governance (ESG) data in emerging markets (EMs) can be challenging for asset owners, who have to come up with ways and means to work around these issues.
One Canadian pension manager, British Columbia Investment Management Corporation, believes spending more time on the ground in these markets and collaborating with other like-minded investors are key to investing in these markets.
“BCI has a globally aligned approach to ESG,” said Caglar Somek, director, global emerging markets – public markets at BCI.
“Emerging markets are at the forefront of systemic ESG issues like climate change but have not yet reached developed markets in terms of regulation, disclosure, corporate governance, and other considerations. ESG data is also more scarce and less reliable,” he told AsianInvestor.
BCI
BCI manages investments on behalf of British Columbia’s public sector. It manages public sector pension plans, insurance funds and special purpose funds for the British Columbia government.
It had C$250 billion ($183 billion) in gross assets under management at the end of March 2024.
MORE ESG DATA NEEDED
That ESG data is scarce is a fact that other asset owners have also raised over the past few years.
Asset owners need to receive better and more comprehensive data on ESG factors to improve monitoring of investment outcomes, Takeshi Kimura, special advisor to the board at Nippon Life Insurance, said at an AsianInvestor event in May 2023.
To account for this, the Canadian pension manager embeds ESG principles into its investment approach for the internally managed emerging equities strategy.
“We integrate ESG considerations into each stage of the investment process, from asset allocation to individual investment decisions and asset management,” said Somek.
“Our investment teams collaborate closely with our dedicated ESG professionals to ensure we have fully considered ESG at the company, sector, and country levels. We exchange insights, discuss engagement strategies, and leverage tailored analytical tools."
In the past 12 months, it has taken further steps, moving to fully embed ESG into corporate reporting, including alignment with the IFRS sustainability disclosure standards, and began development of an internal ESG data platform, according to its 2024 annual report released on June 27.
That’s another noticeable trend: leading institutional investors in Asia and Europe are stepping up efforts to collect their own ESG information rather than relying exclusively on third party data providers, as reputational risks of collecting inaccurate information increase.
BCI has a combination of internally and externally managed strategies for emerging markets.
Emerging markets account for 10.4% of BCI’s total assets (private and public), while 3.4% is allocated to Asia Pacific. It also has an office in Mumbai, India.
The emerging markets equities portfolio posted an annualised return of 10.1% at the end of March 2024 (inclusive of externally and internally managed strategies).
TIME ON THE GROUND
BCI also regularly conducts ESG reviews of the portfolio and openly discusses risks and opportunities.
“Time on the ground is an important factor for ESG due diligence where transparency and access to management are critical to evaluating the integrity and performance of a company,” said Somek.
To address systemic ESG factors like climate change, direct and collaborative engagement with like-minded investors is another important part of BCI’s approach.
“For example, as one of the largest and fastest-growing energy markets in the world, Asia is critical to the global energy transition. BCI is actively involved in Asia Research & Engagement’s Asia Transition Platform, Climate Action 100+, and CDP’s Science-Based Targets Campaign,” Somek said.
Transition finance is rapidly gaining momentum in the region as more asset owners announce decarbonisation goals, although questions swirl around the extent of how much some institutions can get involved in helping polluting industries to transition.
Investable opportunities that can be monetised and have an impact are emerging in Southeast Asia's decarbonisation journey, a report co-authored by Temasek and released earlier this year noted.
The report identified 13 decarbonisation ideas for Southeast Asia regenerative and precision agriculture, utility-scale solar and wind power, forest, and peatland conservation
These ideas represent economic opportunities of up to $150 billion, the report said.