Nippon Life sees urgency in fixing ESG data gaps
Asset owners need to receive better and more comprehensive data on environmental, social and governance (ESG) factors to improve monitoring of investment outcomes, according to Takeshi Kimura, special advisor to the board at Nippon Life Insurance, who spoke to delegates at AsianInvestor’s Asia Investment Summit in Hong Kong on May 18.
Other speakers pointed out that improvements are happening along with an increased demand for an ESG focus from the asset owners.
“Data gaps, including outcomes measurement, stand in our way. There is an urgent need to develop data, not only in the environment areas such as greenhouse gas emissions, but also in the social areas such as human rights,” Kimura told delegates.
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While closing the data gap is an urgent priority for investors to shape sustainability outcomes, Kimura believes asset owners and managers alike should not wait to implement ESG until a “perfect” data set can be obtained, and instead, they should push for investee companies to provide data regardless of the gaps.
“To use an analogy to system development, I think it is very important for investors to take the approach of ‘let’s just launch the system and work it out while squashing software bugs’,” Kimura said. “If you take the approach of squashing 100% of software bugs before launching the system, you will never contribute to the SDGs (sustainable development goals).”
Nippon Life, Japan’s largest private institutional investor, has around ¥70 trillion ($520 billion) in assets under management (AUM).
ESG AT THE FOREFRONT
The increasing focus on ESG also resonated with Dr. Louis Cheng, professor of banking and finance and director of the research centre for ESG and the research institute for business at Hang Seng University of Hong Kong.
Following Kimura’s statements, Cheng spoke on a panel on ESG’s role in the current global economic environment. He stepped down from the investment committee at Hong Kong’s Hospital Authority Provident Fund Scheme (HAPFS) earlier this year after six years.
During his tenure at the fund, he saw major changes in ESG prevalence and prominence. Six years ago, the ESG awareness of investee companies and asset managers was at a minimum.
“Now, they must address their ESG strategy early in their presentation to investors. If they are not able to do that, they will be kicked out the door,” Cheng said.
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“When you are on the buy side and look at what companies to engage with, you have to look at what the asset owners want. Do they really want a number, do they want alpha generation and ESG compliance?” he continued.
Cheng pointed out that asset owners have different mindsets about ESG: some might be merely looking for the data, while others seek alpha generation and ESG compliance.
“Some are actually looking at the compliance issue from a risk perspective. A lot of the ESG data provided by the large commercial data providers look at ESG as [a form of] risk management,” Cheng said.
THE ASIA CHALLENGE
Asia is an especially challenging region for ESG data gaps, according to Jack Lin, president at Hong Kong-based data provider MioTech. There’s a disparity in the region between developed markets like Japan and Australia, and emerging markets like China and Indonesia.
That creates great variability in the availability of data. At the same time, one size does not fit all, Lin said with a nod to Kimura’s statements.
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“A lot of the current ESG frameworks were all developed in the West, and the methodologies are all driven by the structure of the economy, the way the governments are set up. So you cannot simply take those frameworks and graph it onto many of the Asian markets,” Lin said.
His take is that it is with the gathering of relevant data, for instance with AI, that can lead to informed choices: “It is really hard to argue for the development of ESG if you cannot measure it accurately and cannot have an open, transparent discussion about progress.”
MORE DATA, MORE RULES
There is increasingly more comprehensive ESG data available to cater to asset owners’ needs, according to Roman Novozhilov, head of ESG at New Development Bank.
In parallel with ESG development in the last few years, there has also been general growth in regulations company disclosures, leading to more comprehensive, universal data sets.
Novozhilov pointed out that it now all comes down to the mandate and which ESG product is in demand. While some asset owners look for certain solutions, others just require ESG ratings. Still others prefer to go to the raw data and try to analyze and create bespoke solutions internally.
“The question now is how credible the data is and what the remaining gaps are. We see proliferation from the different providers that can aggregate, segregate, analyze the data, [and] use AI to provide certain investment tools for the clients,” Novozhilov said.