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Asset managers must drive ESG transparency
Asia-Pacific leads North America in incorporating climate concerns into investment processes
Tom King 17 May 2021

While the focus on environmental, social and governance (ESG) investing has been gathering momentum in recent years, 2020 saw the dialogue pivot from interest to allocations, with substantial inflows into a range of ESG products. Investing sustainably was pushed further into the mainstream due to the global Covid-19 pandemic, equality and discrimination issues, and the threat of a looming climate crisis.

The Monetary Authority of Singapore will soon be placing up to US$2 billion of its funds with asset managers that are committed to deepen green finance activities out of Singapore, according to MAS managing director Ravi Menon.

That pledge echoed the commitment of the world’s largest pension fund, Japan’s US$1.6 trillion Government Pension Investment Fund, which took the ESG lead in Asia in 2017 when it placed US$9.1 billion into Japanese firms and funds focused on ESG issues.

With Europe having introduced the Sustainable Finance Disclosure Regulations (SFDR), Asian regulators may look at the complex rules as a blueprint for building their own standards.

“They (SFDR) are being imported into the region anyway because we sell funds here that have to adhere to those rules, so they are kind of by default being brought in,” Singapore-based Jakob Nilsson, head of distribution in Asia-Pacific at Federated Hermes (FH), tells The Asset.

Retail push

With most interest in ESG/sustainability funds currently coming from discretionary investment managers in Asia, Nilsson thinks financial regulators in the region are still not under pressure to issue directives around ESG investments.

He thinks the situation will change when ESG funds permeate into the retail space, and expects regulation will follow to provide transparency and protection. “Once that kind of flow starts really looking significant, regulators are going to want to make sure it's under control,” he adds.

As part of ongoing efforts to demystify responsible investment criteria at FH, the US$620 billion global investment manager is working to make investing in ESG-compliant assets easier to understand.

While proactive regulatory and sovereign support is a welcome driver of ESG developments and engagements in the region, FH believes that the responsibility is on asset managers to drive transparency for clients through clear labelling and unambiguous definitions. 

To that end FH has established its own ESG Academy to help clients bridge any knowledge gaps and has developed a training curriculum to facilitate Singapore’s development as a sustainability hub.

“On the wholesale side, it's been a fantastic tool for our partners to use in terms of educating their clients because there is still a lot of misunderstandings out there about giving up performance, and obviously we would argue, you're actually giving up performance by not investing sustainably,” Nilsson says.

Investment approach

Meanwhile, according to a survey from PGIM, the global investment management business of Prudential Financial, Asia-Pacific (APAC) now leads North America in climate change investment approach with two-thirds of APAC investors adjusting asset allocations to reflect the shift in thinking.

The survey, conducted in partnership with Greenwich Associates, covered 101 institutional investors throughout APAC, Europe and North America with more than US$3 billion in assets under management and found that 90% think climate change is an important issue for their organization.

When it comes to acting on this, however, there is variation across regions. In APAC 54% actively incorporate climate change into their investment processes, closing in on the global average of 58%. In Europe 81% of investors incorporate climate concerns, while in North America the figure stands at 47%.

Commenting on the survey findings, PGIM chief operating officer Taimur Hyat says: “The good news is that the trend line shows institutional investors around the world recognize the importance of climate change. They are building climate change into their investment processes and creating frameworks for evaluating both the impact of their investments on the climate, and the impact of climate change on their investments.”

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