Asian investors beginning to understand the importance of ESG
Asian investors beginning to understand the importance of ESG as major funds like Japan's Government Pension Fund move toward incorporating ESG assets
Asian institutional investors are beginning to understand the importance of environmental, social, and governance (ESG) and the need to incorporate it into their overall investment strategy. However, there is still a lot of work to be done in terms of getting Asian institutions up to speed to be able to achieve the big target of net-zero CO2 emissions by 2050.
This goal, originally set by the European Climate Foundation, has become the benchmark for the Asian markets after the UK Parliament signed a law on June 27 to abide by the net-zero greenhouse by 2050. The UK became the first G7 country to set such a goal and the most aggressive transition toward a clean energy economy in the world to date.
The good news is that Asian institutions may move towards ESG investing in a shorter time frame when compared to their European counterparts which began adopting ESG investing as early as 20 years ago.
The UK’s Climate Change Act, for example, first became law in 2008 but it was only two weeks ago that the ambitious goal of achieving net-zero CO2 emissions by 2050 was formalized.
In Asia, Japan’s Government Pension Fund Investment Fund (GPIF), with US$1.3 trillion in assets, announced on July 2017 that it has set a target of converting 10% of its portfolio in ESG-compliant assets although it did not set a timetable.
Other Asian institutions that made significant steps towards ESG in the past 12 months are the National Pension Services (NPS) of South Korea, Taiwan’s Bureau of Labour Funds (BLF), Hong Kong Monetary Authority, and AIA Insurance Group.
“Asian clients want to understand how serious they should take ESG. What we tell them is that when they look at Europe they’re basically looking into the future when it comes to ESG since Europe is basically leading the discussions on ESG,” says Pieter Furnee, Global Head of Responsible Investing Coverage at DWS.
The increased interest and awareness of ESG among Asian institutions is manifested in the fact that all discussions between asset owners and their asset managers now include ESG as a standard component.
“In Asia, they are trying to make up their minds on when and how to integrate ESG criteria into their portfolios to ESG and they can move quicker than in Europe. Although a lot has been achieved over the past 20 years in Europe, the transition to ESG has been a slow process. I would expect that it will go faster in Asia,” says Furnee.
The reasons are the level of understanding in Asia is much higher now than it was a couple of years ago, and regulations are pushing institutions to become more ESG-compliant.
More Asian institutions and corporates are also expected to attend the forthcoming conference of the United Nations Principles of Responsible Investments (PRI) to be held in Paris on September 10-12. PRI is billed as the largest annual conference on responsible investing, with 6,300 attendees expected this year.
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