Recent survey of asset managers and owners incorporating ESG strategies finds that the majority of investors in the Asia Pacific region are aligning their ESG investment framework with the UN Sustainable Development Goals (SDGs). Data and technology costs remain barriers to ESG integration, but investors are optimistic, with over half predicting up to 75% of their funds will be allocated towards ESG by 2021.
“While Asia’s optimism in terms of asset allocation to ESG may not come as a surprise as multiple Asian markets, not least China, have pushed for increased regulation surrounding ESG disclosures, challenges such as transforming disparate data sets into actionable insights and technology costs hinder progress.” said Madhu Gayer, Investment Analytics & Sustainability Manager, BNP Paribas Securities Services.
“As a bank committed to building a sustainable future, we are pleased the BNP Paribas survey identifies these pain points where we can work together to solve”
The key findings of the ESG Global Survey 2019 include:
- Stronger commitment to ESG investment: While Asian respondents lag behind global counterparts in terms of asset allocation into ESG (10% vs 18% globally), they are more optimistic about allocation of funds in the future, with 55% of Asian respondents expecting to incorporate between 50% – 75% in ESG funds in two years’ time, compared to 49% globally.
- The outperformance factor: ‘Improved long-term returns’ was ranked as the top reason for ESG investment for Asian respondents, with almost two-thirds (63%) ranking this as a key reason compared to 52% globally. 70% of Asian respondents expect their ESG portfolios to outperform over the next five years, while 60% of global respondents do so.
- The great disclosure: While returns are top of mind for Asian respondents, more of them (69%) expect an increase in ESG disclosure requirement over the next 12 months compared to only 59% globally.
- New jobs in ESG investing: The growing prevalence of ESG investing has led to a number of new roles requiring relevant expertise. Asian asset owners and managers are more likely to hire new ESG talent from non-traditional backgrounds (45% vs 29% globally), train incumbent teams in ESG principles and best practice (51% vs 40%) and hire or increase numbers of external ESG consultants/ specialists (46% vs 34% globally).
- The UN SDGs are a new compass: More Asian respondents (76%) indicated that their organisation aligns investment framework mainly by setting SDG-related revenue targets for investee companies with the UN’s SDGs than globally (65%).
- Tactical impact: Globally, the highest number of respondents indicated that investing in companies based on their ESG profiles have had the greatest impact on their sustainable strategy (45%). In Asia, respondents seem to be more convinced by benchmarks, where 47% of respondents indicated that benchmarking funds against an ESG benchmark have had the greatest impact, compared to only 37% globally.
- Data and technology costs are barriers: As was the case in 2017, data remains the biggest barrier – ahead of costs, a lack of advanced analytical skills and greenwashing risks. One-third of respondents cite technology costs as a barrier to ESG integration (doubling from 16% in 2017).