Asia-Pacific investors identify barriers to ESG integration
Limited understanding of ESG integration and issues, lack of comparable and historical data, and cultural issues cited as barriers by investors in report by CFA Institute and PRI
A limited understanding of ESG integration and issues, lack of comparable and historical data, and cultural issues are the top barriers to ESG integration for equity and fixed income investors in Asia-Pacific, according to the CFA Institute and Principle for Responsible Investment (PRI) in a report released on June 5.
Called “ESG Integration in Asia Pacific: Markets, Practices, and Data,” the report’s findings were derived from ESG workshops held in Australia, China, Hong King, India, Japan and Singapore. Other workshops were also held in countries in the Americas and Europe, Middle East and Africa.
“The Asia-Pacific region contains arguably the most diverse markets in the world, each with a unique take on ESG integration,” says Paul Smith, CFA, president and CEO of CFA Institute. “But the commonality is an uptick in most markets for ESG integration, and we see this trend continuing as investors all over the world seek to better integrate ESG analysis.”
Most of the Asia-Pacific markets in the report saw increases in ESG investing and interest, with the exception of India where a lack of client demand was cited as one of the main barriers.
In China, there has been a significant uptake in ESG investing in recent years with major drivers being ESG integration demand from international investors and regulation. The main barriers include a limited understanding of ESG issues, a lack of company culture in ESG investing and a lack of comparable historical ESG data. Demand in Hong Kong for ESG is likely to grow though this has started from a relatively low level of ESG integration. Risk management and client demand are the main drivers of ESG integration, while corporate governance is considered the most impactful ESG factor by survey respondents.
ESG investing has been slow in India in the past few years as most investment managers are not seeing demand for ESG products while asset owners do not have many policies that ask for ESG practices to be incorporated. Two-thirds of financial professionals believe that corporate governance issues “often” or “always” impact share prices compared to one-third for environmental and social issues. The main barriers are limited understanding of ESG issues and a lack of company culture with ESG integration, as well as lack of client demand. ESG integration is starting to take place in Japan with fiduciary duty a strong driver in equities while client demand is driving adoption in fixed income. A lack of understanding of ESG, limited data and concerns about returns are seen as barriers to ESG integration.
ESG integration is increasing in Singapore as ESG issues are impacting prices more frequently. A lack of comparable and historical data is the top barrier to incorporating ESG in equity investments.
In Australia, risk management and client demand are the main factors driving ESG integration with fiduciary responsibility cited as the main factor for fixed-income investors.
Fiona Reynolds, PRI CEO, comments, "In the latest report, the enthusiasm for ESG integration from Asian investors is extremely encouraging. There is great demand for increased knowledge in ESG, and we expect this trend to be reflected by investors across asset classes in the region ‐ especially China, Japan and Singapore ‐ in the coming years."
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