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ESG Set to Rise in Asia – Is the Buy Side Prepared?

Incorporating ESG as a core asset management strategy presents buyers with a once in a decade opportunity. But there are many challenges facing buyers across the region, such as finding capable ESG specialist and finding strong ESG corporate data.

The last two years have demonstrated that traders in asset management firms across Asia are increasingly looking for responsible investment products across various asset classes that authentically integrate ESG and stewardship insights into the investment processes, according to Federated Hermes, an investment manager headquartered in Pittsburgh, Pennsylvania that has operations in Singapore.

The COVID-19 pandemic has intensified discussions about ESG practices being essential to an organisation’s resilience. According to a 2021 EY Global Institutional Investor Survey, 90% of investors say they attach greater importance to ESG performance in their decision-making than they did before the COVID-19 pandemic.

The outbreak of COVID-19 has placed ESG at the front and center of asset management, but ESG will only become more important from a strategic perspective over the next decade. The ESG investing and integrated strategies is expected to grow strongly with Broadridge forecasting ESG-related assets under management (AUM) is set to grow from $8 trillion in 2021 to over $30 trillion 2030.

Most of the ESG-related AUM now is in ESG integrated strategies driven by growing ESG disclosures & standards, asset owners issuing ESG mandates and Asia’s push for climate and decarbonization, according to data from Invesco that was given to GlobalTrading.

ESG-related challenges Asian-based buyers face

To capture the once in a decade opportunity, asset managers will have to improve their technology and enhance their ESG investment strategies across Asia.

“Asset managers will need extensive data capabilities, broad ESG offerings and outcome-based engagements to elevate ESG investing. ESG data capabilities like climate analytics is crucial to best capture and quantify ESG risks,” said Alexander Chan, Head of ESG Client Strategies, Asia Pacific, Invesco to GlobalTrading.

Alexander Chan, Invesco

According to Chan, ESG responsibility at Invesco is embedded in investment teams with ESG factors incorporated into investment construction and monitoring alongside proprietary firmwide resources. Most investment teams conduct their own in-depth ESG research, utilizing platforms, external information obtained from company disclosures, dialogue with the companies and third-party ESG ratings and research firms.

Kher Sheng Lee, Co-Head of APAC for Alternative Investment Management Association also told GlobalTrading that finding good data on Asian ESG corporate efforts is still a major problem right now for asset managers who buy and sell debit and equities across the region.“It will be a big game changer for managers to raise their game would be the widespread availability of high-quality consistent data at an affordable price point across all investable sectors,” said Lee.

Kher Sheng Lee, Alternative Investment Management Association

Transparency is the key in Asia

ESG is more than just buying equities from a firm that claims they are integrating ESG into their business. It requires active buyers to create a strategy that allows them to select firms that are providing full transparency on their ESG efforts.

“We believe that beyond financial performance, asset managers must commit to positive outcomes as part of their investment strategy, which are attainable through becoming active owners in the companies and assets they invest in,” Dr Michael Viehs, Head of ESG Integration at Federated Hermes – International told GlobalTrading.

Dr Michael Viehs, Federated Hermes

Viehs said that this trend has stimulated a swathe of product launches from ESG, to Sustainability to Impact, and a broader and accelerated adoption of shareholder engagement and stewardship, both of which are now seen as a critical component of enhanced outcomes and authentic responsible investment strategies.

“We integrate ESG and engagement insights into the investment processes of all of our investment products. With the growth in ESG investing and given that we are a big player in this space, we can offer clients three distinct pathways to sustainable wealth creation – Active ESG, Sustainable and Impact,” Viehs added.

Clients will now need to discern which products are truly ESG-integrated and sustainable, and asset managers will need to focus on how they can create greater transparency for clients.

Although transparency is an issue with Asian corporates, GlobalTrading spoke with Lynette Leong, Chief Sustainability Officer, CapitaLand Investment, a leader in shaping ESG strategy from a corporate point of view in Asia. She pointed out many ways how Asian companies are elevating their commitment to ESG standards. Some examples include producing yearly ESG reports that demonstrate their ESG efforts that contain verifiable data.

Lynette Leong, CapitaLand Investment

CapitaLand Investment strives to incorporate ESG concepts in every area of its business from launching green loans to becoming externally certified so that they track and manage our environmental footprint across our diverse portfolio of properties globally.

“To ensure that we walk the talk, our leadership team’s key performance indicators are tied to sustainability achievements,” said Leong.

Its still early for ESG in Asia, but are you ready?

Regulatory bodies across Asia are still working towards developing a harmonized set of ESG and sustainable investing standards, and this will play a very important role in helping clients discern which products are truly ESG-integrated and make it easier for institutional buyers to discern which companies are transparent in their ESG-related claims.  

While regulation is one of the key drivers, we continue to believe that the onus is on asset managers like us to create transparency for clients. Federated Hermes is de-mystifying the ESG spectrum of products for clients through clear labelling and definitions of all our products and ensuring that continue to maintain high standards of reporting.

ESG is the future, and it presents unprecedented opportunities for asset buyers across Asia for the next decade. But are you ready?

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