Asian Investors Pressure Companies in to Shift to ESG Investing

Investors in China and across all of Asia, both institutional and high-net-worth, are showing strong and increasing interest in sustainable and ESG-focused investment products, according to experts. Asset managers are responding with more such products. They are also turning up the pressure on the companies they invest in, aiming to get them to improve their disclosure of climate risk and other relevant data points.

Despite recent improvements, more pressure — from investors, managers and regulators alike — is needed.

A wide range of asset managers are noting the shift in investor appetite for sustainable strategies. “Sustainable investing is indeed becoming more important to investing,” said Geraldine Buckingham, senior managing director and head of Asia Pacific for BlackRock, speaking at the Asia Financial Forum conference held recently in Hong Kong.

This trend is particularly noteworthy among investors in China, a huge market that is increasingly opening itself up to foregn asset management firms. Amy Lo, co-head of UBS Wealth Management for Asia Pacific, cited a recent survey her firm conducted that found strong interest and even “passion” for sustainable investing among Chinese investors. The level of interest is “significant compared to other parts of the world,” Lo said.

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Similar words came from Jonathan Drew, managing director in the Sustainable Finance in Real Assets and Structured Finance Group at HSBC and v.p. of the Hong Kong Green Finance Association. Drew said that, whether he is speaking to investors or asset managers, sustainable investing is “a key priority discussion with almost all of them. It’s an absolute priority of conversation.” Managers need to be aware of this, he added, and take appropriate steps if they want to collect investment dollars: “Asset owners today won’t give mandates to investment managers unless they hear about how ESG issues are going to be addressed.”

The phenomenon is putting pressure on all companies, in fact. In December, the Hong Kong Exchange updated its rules around ESG reporting for companies that are listed on the stock exchange. Among other things, the new rules mean companies must disclose significant climate-related issues that impact the company and its operations. They also have to specifically explain how they take ESG issues into account.

The knock-on effect of new rules like that, and of related interest from investors and managers, is that companies of all kinds are facing increased pressure from all sides to pay more attention to climate issues and to improve their disclosure of ESG factors. “Investment managers will always be asking companies who are looking for those asset managers to put capital to work in those companies: ‘how is that entity addressing those huge risk issues, and how will  those companies be driving low-carbon revenues into their business?’” Drew said.

Some companies are ready for such questions, according to Arnout van Rijn, CIO for Asia Pacific at Robeco.

“In the past, [asset managers with an ESG focus] were seen as a nuisance factor. ‘Why do you want to talk to me, you’re always telling me I do things wrong,’” van Rijn said. “But now, you hear more companies saying, ‘Tell me, what are the best practices’ when it comes to ESG and climate risk disclosure.”

But it’s crucial for ESG data to improve across the board, said Hannah Routh, partner and Sustainability and Climate Change Advisory Leader at Deloitte China. “There’s an enormous and very urgent need to improve ESG  data,” Routh said. “It’s a very critical and urgent matter in the market. The availability of quality data forces people to make good investment decisions.” On the other hand, she added, the lack of quality data has been a “key factor that’s been stopping the flow of capital” into ESG investments.

Indeed, despite the general optimism at the conference regarding the movement toward more ESG investing, there was also plenty of skepticism, especially around disclosure issues. Vivek Pathak, regional director for East Asia and the Pacific at the International Finance Corp., noted that there’s still plenty of room for improvement. And, he said, he finds that the demand from investors for ESG data just isn’t there yet.

Generally speaking, “investors aren’t asking for data,” Pathak said. “If investors start asking for data and say ‘I will only invest in firms that have robust ESG reporting,’ I think people will start moving toward it more.”

For now though, as Routh noted, many companies have to adjust, and it could be a steep learning curve for some — especially those who are forced, by regulators or market forces, to disclose more than they are used to. “That’s going to be a very troubling topic for some CEOs,” she said.

 

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