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Asset owners motivated by investment consequences

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A new whitepaper has revealed that Asia’s top asset owners are motivated by an increasing recognition that their investment decisions have material consequences for the environment. 

The whitepaper by the Economist Intelligence unit focused on the top asset owner firms, banks and other industry stakeholders in Asia and found a significant change in awareness uptake and impact of ESG investing. 

“There is growing awareness that integrating values or ethical considerations into investment approaches does not necessarily result in a negative impact on financial returns or performance. Rather, ESG is an integral component of prudent risk management,” said the report.

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The focus on Asia was by design given that the largest region in terms of assets under management among the top 100 asset owners globally is the Asia-pacific region (36 per cent).

Globally, over $23 trillion of assets under management were invested in ESG strategies in 2016, while Asia lagged with around $526 billion, but that is changing, according to the report. 

The report found that many funds in Asia were changing their methods as the environmental and social consequences of not doing ESG investing were increasingly shown to be catastrophic. 

“Our approach to ESG is underpinned by our purpose-led promise of enabling healthier, longer, better lives that relates to sustainable investing, targeting long-term outcomes,” said Mark Konyn, chief investment officer at AIA. 

The Economist Intelligence Unit determined that the monetary consequences of national disasters had doubled from the previous decade and annual losses for companies exponentially increased as global temperatures rise. 

The Asia Investor Group on Climate Change found the loses range from US$16 billion to US$221 billion depending on the climate model used, which ranged from temperature rises from 1.5 degrees Celsius to 3 degrees Celsius. 

Therefore, the paper concluded that Asia had much at stake but also a lot to gain if they responded to the challenge by adopting ESG investments. 

The biggest factor being considered by Asian asset owners was governance, given its demonstratable link to optimising risk-adjusted returns. 

“Capital allocation, in social and environmental themes, tends to be made within a framework of first identifying companies or assets that fit a good-governance profile and fulfil a returns-based role within portfolios,” said the report. 

Good governance underpinned most of the owner’s analysis as it was considered indicative of sound practices and is seen by the region as the more traditional side of financial and management integrity. 

The exception to the rule was in fact China, where environmental concerns were a key driver of investment decisions, and this was due to the concept of ecological civilisation being incorporated into the government’s constitution. 

“China’s environmental protection legislation is comprehensive and law enforcement is also very strict. 

For example, the China Securities Regulatory Commission will use environmental compliance as a necessary condition for corporate IPOs. Thus, the risk and opportunity regarding ESG prevail in China,” said Richard Sheng Ruisheng, director of the ESG office at Chinese insurer Ping An. 

Challenges still remain to ESG investing despite accelerating progress, with the chief concern being poor data preventing informed investment decisions. 

Interestingly, misperceptions around ESG were also impacting its effect, with many people still considering ESG about being values over value. 

But those interviewed for the whitepaper said those misperceptions were being challenged and a lot of progress had been made to show that ESG investing does not mean sacrificing returns. 

 

Asset owners motivated by investment consequences
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Eliot Hastie

Eliot Hastie

Eliot Hastie is a journalist at Momentum Media, writing primarily for its wealth and financial services platforms. 

Eliot joined the team in 2018 having previously written on Real Estate Business with Momentum Media as well.

Eliot graduated from the University of Westminster, UK with a Bachelor of Arts (Journalism).

You can email him on: [email protected]

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