ESG investing still nascent, but asset owners expecting greater pressure to disclose and improve practices.
Asia’s asset owners expect to treble the proportion of their holdings managed in line with ESG criteria from a low base, new research suggests.
Only 10% of asset owners’ portfolios in the region are invested in ESG assets or ESG-related strategies, according to a survey from investment consultants Willis Towers Watson.
In addition, just a third of Asian investors have an ESG policy statement in place or have established an ESG leadership role.
This is despite owners wanting around 30% of their portfolios to have ESG exposure and 44% stating that incorporating ESG practices into the investment process represents one of their top three goals for the next few years.
Barriers to entry
The main barrier to these ambitions, according to 40% of owners, is the lack of ESG-focused products and services available in the marketplace to suit their portfolio.
In addition, the disparity of ESG data and regulations within Asia could be additional roadblocks to investors based in or looking to invest in the region.
Throughout Asia, governments have set carbon neutrality targets and signalled seismic shifts in public policy. But for now, ESG standards that could hold the region’s investments industry accountable are fragmented and often voluntary.
Survey respondents anticipate change with 57% of organisations expecting greater pressure from regulators and stakeholders to disclose and improve ESG practices over the next 12 months.
“As regulations around disclosure such as the Task Force on Climate-Related Financial Disclosures (TCFD) become mandatory and more tangible, asset owners will likely also expect their asset managers to report on climate risk metrics. However, the most popular motivator for including ESG beliefs and practices is to improve the resilience of the portfolio,” said Jayne Bok, Head of Investments Asia, Willis Towers Watson.
“More sophisticated investors are leading the charge on allocation through strategies that can be described as thematic or impact investing. These include strategies that go beyond integrating ESG into the investment decision process, but actively invest into positive ESG impact companies, such as those focused on climate solutions.”
The survey also revealed that Asian asset owners are most likely to make governance their top ESG priority to turn industry goals into action – 71% selected this as the main area of focus. Within governance, the survey results suggest there is room to do more in the areas of disclosure and reporting specifically. Currently, 41% of asset owners agree that they are not held accountable by stakeholders for reporting on ESG issues over and above financial reports.
“We believe that the current 13% of respondents who have undertaken climate change impact analysis on their portfolio will grow significantly in the upcoming years as economies increasingly consider the implicit price of carbon emissions,” Bok added.
“ESG investing should be a strategy in its own right, not just an overlay to other strategies or an adjunct to corporate social responsibility policies. We believe it is crucial to take a broader focus on sustainable investing, which we define as finance-driven, long-term strategies that integrate ESG information and effective stewardship, to make a real-world impact.”