The momentum to mitigate the effects of climate change has never been stronger – and asset owners are playing an ever-bigger part in the process.
This is evident by the numbers. According to Morningstar, for example, AUM in sustainable mutual funds and environmental, social and governance (ESG) focused exchange traded funds rose globally by 53% in 2021, to $2.7 trillion. This was even despite the introduction of stricter rules in Europe around what can be labeled as ‘sustainable’.
Greater ESG engagement is underway generally, such as the move at the start of 2022 by 70 firms, including global investors, to sign up to a UN treaty advocating a robust policy on plastic pollution.
In Asia, this shift is reflected by heightened considerations about sustainability as part of asset allocation, as well as in the planned exposure to climate investments over the next 12 months.
Environmental themes such as clean energy and renewables are front of mind. And instead of efforts to improve returns or outperform the benchmark as the primary focus, long-term portfolio resilience is the main goal. Further, the ESG principles and commitments of external fund managers are almost on par with fund performance when investors select sustainable funds today.
These and other trends, which show the extent that asset owners in Asia now embrace climate-aligned investing, have been thrust into the spotlight by a regional AsianInvestor survey. Conducted between December 2021 and February 2022, it gathered responses from 100 senior investment executives from insurers, pension funds, government entities, sovereign wealth funds, family offices and other institutions across Greater China, South-east Asia, South Korea and India.
Key takeaways from the survey
- The environment is still a dominant theme among E, S and G investments
- Climate change is material for asset allocation decisions among 52% of respondents
- Longer-term portfolio resilience is the most common objective when investing in green assets
- ESG principles of external managers are almost as important as fund performance when selecting ESG/sustainable funds
- 31% of respondents prefer passive strategies for climate exposure, while 55% are active
- Clean energy, renewables and storage are overwhelmingly the top climate-related themes
- 70% will boost exposure to climate-related investments over the next 12 months
- More standardised and accurate data on climate-related issues would make the biggest difference in driving more allocations to climate investments – followed by factors such as a wider range of asset choice, and better-defined investment approaches internally