Asia seeing increased adoption of ESG among investors, asset managers
Mounting environmental and social pressures are pushing asset managers into ESG
Mounting environmental pressures and increasing social pressure are pushing asset managers to adopt ESG standards, says the global head of stewardship at Schroders. Sustainable or responsible investing has moved from a niche area to mainstream investing, with Asian asset managers incorporating more environmental, social and governance (ESG) factors into their investment decisions.
"Over 90 of the world's 100 largest investment managers have committed to incorporating ESG considerations into investment decisions, ownership and reporting by becoming signatories to the Principles of Responsible Investment (PRI), a UN-backed initiative," says Jessica Ground, global head of stewardship at Schroders, in an interview with The Asset.
Active fund managers like Schroders are constructing asset portfolios based on either in-house ESG research or third-party reports. "If you are an asset manager and a lot of your business is passive, it can be harder to put the ESG in," she adds. "But in general a lot of asset managers are adding more resources for incorporating ESG. And we are now seeing demand for some products that are more responsible, or avoiding certain industries, and slightly more long-term," says Ground.
Eighty percent of Asian investors believe that sustainable investing is more important now than five years ago, according Schroders. This figure compares with the global average of 78%. Sixty-eight percent of Asian investors have increased their sustainable investments over the past five years, compared with the global average of 64%.
China's worsening environment is prompting investors and asset managers to think more about ESG, move quickly into ESG investing and take further concrete measures. Major players in China asset management including China Asset Management, E Fund Management, China Southern Asset Management, and Harvest Fund Management, have signed up to PRI.
ESG's social aspect is tricky to measure compared with the environmental part. Yet awareness of this topic is increasing.
"Increasingly there is a lot of focus on the supply chain," adds Ground. Consumers are now more aware of the quality of the supply chain, for example whether there is any modern slavery. "Transparency and social media mean that breaches can be known overnight. These issues are even more important in the luxury sectors where consumers expect more." Cybersecurity and personal data protection, as well as food safety, are also key social issues.
ESG in Asia is still at an early stage but will get more attention, says Ground. In addition to determining an investor's goals and risk attitude, asset managers need to understand how investors want to have an impact on the world. "Asset managers need to think about how portfolios are tilted to take account of shifting trends and build tools to support investment decisions and engage companies to promote more transparent and forward-thinking responses."