Why instos will need more than offshore ESG experts
Asia Pacific-based asset owners have grown more progressive in incorporating environmental, social and governance (ESG) factors into their portfolio management strategies, to the extent that their fund managers’ continuous reliance on overseas specialists will not suffice in meeting their demand.
In Tuesday’s (June 9) report, entitled ‘Vision 2025’ and jointly published by KPMG and Hong Kong Investment Funds Association, close to three quarters of asset manager respondents said providing sustainable investing-related products is increasingly important to their clients.
“There's a lack [of ESG specialists in the local asset management market] and the capacity building it is critically needed in the market,” Woo Pat-Nie, partner and head of sustainable finance of Hong Kong at KPMG China, told AsianInvestor.
The call for better talent development came after AIA’s chief investment officer Mark Konyn expressed frustration with slow ESG adoption among asset owners, and a recent survey that showed only four in 10 asset owners globally were happy with asset managers’ response to ESG and sustainable investing.
Typically, asset managers have a limited number of ESG specialists, and they are often based in different places and travel around for meetings with asset owners, Woo said. He believes this way of approaching responsible investing is no longer good enough.
“[Among] the local asset managers, the bar is very low at the moment,” said Woo.
He noted that the issue stems from a discrepancy in the typical skill focus of asset manager executives, which typically focuses on financial analysis, while traditionally a ESG specialist receives engineering training, he argued.
“That middle bit is where that's needed because if you chuck a traditional ESG person into an asset management company, there will still be mismatch in the skillsets,” he said.
Finding executives with these skills or training them into existing staff is going to be growingly essential for asset managers, because institutional investors will increasingly want to see them in relation to their mandates they hand out, Woo said.
One of the more vocal institutional advocates of ESG investment in the region is Japan’s ¥158.58 trillion ($1.4 trillion) Government Pension Investment Fund. It outlined earlier last year why it intended to deepen its commitment to sustainable investing. Thailand’s Government Pension Fund is also underlining its interest in ESG, and has established a dedicated ESG team within the organisation.
“It's not like an overnight thing whereby you are able to do this [integrate ESG principles] immediately because there's no off-the-shelf solution at the moment,” said Woo. "It will take time for you to integrate it within your organisation.
“If you are looking for that sticky capital, those big mandates and you haven't done it by then, mostly likely you will not be around [by 2025],” he added.
Some fund houses are attempting to get ahead of this need. BNP Paribas Asset Management announced in September 2019 that it had converted its flagship funds to all have ESG integration, and rival Amundi says it will ensure all its funds follow ESG considerations by 2021.
A MOVING TARGET
The ability of fund managers to improve their ESG skills of their personnel will not take place overnight, Woo cautioned.
In the case of CFA Institute’s investment qualifications and other industry-specific training programmes, Woo said the current lack of universally agreed ESG standards will be a hurdle in formulating a consistent syllabus.
“In terms of the standardisation space, it's not really a lack of standards. There are plenty of standards out there and I think the last thing anyone needs is another standard,” Woo said.
“In particular, with the whole ESG space being a bit of a moving target as we have been talking about throughout where the standards are all over the place…it [the syllabus] will have to be updated every half a year because it is fast-moving, fast-developing,” he said.
This echoes with CFA Institute’s challenges in integrating ESG elements into its current financial accreditation programmes. Each region and market has its own objectives and motivations in ESG, meaning that it will be difficult to maintain a global perspective when designing the curriculum, said Mary Leung, the head of advocacy of Asia Pacific at CFA Institute.
She added that the institution is seeking to develop an ESG industry standard and a framework for investment managers as well as institutional investors.
In addition, Leung said practice analysis sessions are regularly conducted to ensure that ESG readings currently included in the curriculum reflect the latest and evolving practices.