Video: How does Europe see China in terms of ESG?
The cliché that Asia lags behind Europe in ESG is not necessarily correct, but the importance of reliable and trustworthy data remains a critical factor for all fund managers
European asset managers are usually seen as leaders in environmental, social and governance (ESG) investing, but Asian markets such as China are performing even better in green and other environmental indicators compared to Europe, say senior executives of the Association of the Luxembourg Fund Industry (ALFI), who spoke to The Asset.
According to China Central Depository & Clearing, China continues to be the world’s second-largest green bond market. China’s total issuance of green bonds hit US$31.2 billion last year, recording a 33% y-o-y growth. Industrial Bank of China issued 23% of last year’s total green bonds, making it the largest issuer in China and the second-largest worldwide.
“We met with some Chinese players in Luxembourg who are very advanced in everything that is green. I think it is not surprising that this is a priority area when considering the problems China faces with pollution. They have done a great deal in the green bonds area lately,” says Anouk Agnes, the deputy general director at ALFI.
However, China’s activity is a little subdued compared to Europe in terms of other aspects of ESG such as the social aspect. “I do not really know about social investments or the social responsibility approach. I guess that exists too. But it is correct to say that in the green and environmental area, the Chinese are very far advanced compared even to Europe,” says Agnes.
In fact, China is also looking at the overseas market in terms of making efforts in ESG. “We spoke to an ESG specialist provider in mainland China, which is now looking into setting up a number of Luxembourg funds. So the focus on ESG now has gone up in China as well as in Hong Kong,” says Marc-André Bechet, director legal & tax, ALFI.
But challenges still exist such as information disclosure, which is a big issue for fund managers. “The challenge is probably that if you want to have an ESG fund, you need a set of data on the investments in order to screen the investments and report back to the investors. And that is an issue that we have in common in Europe and in Asia: making sure that companies live up to expectations and deliver that data. If you do not get the data, the investment manager cannot screen the target investments,” says Bechet
“You need reliable data to be able to evaluate the impact of what you are doing,” echoes Agnes, noting that the US is probably more advanced in this field.
“Another challenge that we see in Europe, and I cannot imagine it is different here in Asia, is investor education. Investors want to do something about the climate, especially the younger generations, who are probably very sensitive but they don’t really know how to go about it. I think much communication needs to be done, not only on the environmental front but also social issues,” says Agnes.
In addition, the lack of a common language regarding ESG matters is also an issue. “People not only speak about ESG but also talk about other terms such as green funds, socially responsible investing (SRI), responsible investing and sustainable investing. They do not necessarily mean the same things,” says Agnes.
European regulators have been working towards solving this problem. “The European Commission has now decided to do something about that and to work on what they call a common taxonomy, meaning a common language,” says Agnes.
In fact, Europe is always referred to as a leader in ESG, but the cliché that Asia is lagging behind Europe in terms of ESG does not necessarily hold true nowadays.
“Europe is now extremely concrete on what it is doing (in ESG). But if you listen to Asian institutions and how they operate their businesses and go about ESG, I do not have the feeling that they are really lagging behind. There is a lot happening right now. Asia is watching Europe, and probably vice versa,” says Agnes.