The coronavirus pandemic has highlighted the importance of environment, social and governance (ESG) considerations in investment decisions. According to a report by the Bloomberg Women’s Buy-Side Network (BWBN), an informal group of women executives in asset management in Asia, ESG is no longer looked at as a “feel good” or “tick the box” investing exercise, but a method of protecting asset values.
In the report, “2021 Outlook: Sustainability, diversity and impact”, BlackRock asserts that investors should combine traditional investing with ESG insights to improve long-term outcomes. At least 81% of sustainable indices outperformed the benchmark during 2020, especially in the first market downturn in March.
The report warns that as public interest in investing sustainably gains traction, asset owners may be confronted with asset write-downs (e.g., in the case of fossil-fuel companies) if they ignore the growing trend for too long.
Mark Konyn, group chief investment officer at AIA, says: “The ground is moving fast from a sustainability perspective and in respect of asset owners protecting portfolios from the prospect of stranded assets – the time that’s available to act before portfolios come under pressure whilst not yet critical, will be increasingly under review; and this is evolving very dynamically.
“Investors are going to have to be much more disciplined about understanding the investment impact of changing values in society. The time to debate is now over, the time to act and take account of these risks is now.”
The impact of climate change can be especially devastating in Asia, which may hasten public and private action to tackle associated financial risks.
‘Investing for purpose’
A major challenge for the region is the lack of collaborative effort within the industry to take ESG investing to the next level, according to the report.
Investors in Japan, Korea and Taiwan have significantly increased their ESG allocations, demonstrating that resilience and sustainability are complementary themes in a world still in the grip of Covid-19.
Says Eleanor Seet, president and head of Asia ex-Japan at Nikko Asset Management Asia Limited: “There is this definite shift from investing with purpose to investing for purpose. It’s really moving so swiftly even though Asia lags Europe in such a big way on ESG. It’s fair that Asia’s journey to a low-carbon future is going to be different from that of Europe; we’re at a different stage of development and still highly reliant on fossil fuels. Things won’t change overnight, but stakeholders as well as regulators are determined and moving progressively.”
While Asia still has a long way to go, Japan, Australia and China have been showing strong climate investment leadership in the region.
But as Asian markets are dependent on fossil fuels, the region’s low-carbon future will be different from Europe’s path, the report notes. The impact of Covid-19 has pushed the private sector as well as regulators to accelerate their efforts for more consistent disclosure and data.
ESG investors in the region are expected to become more disciplined in how they approach their investments. In Hong Kong, 40% of investors regard sustainable funds as attractive investments because of their likelihood to offer higher returns, the report says, citing the recently published Schroders Global Investor Study 2020.
