Integrating ESG as a core asset management strategy offers buyers a once-in-a-decade opportunity. But buyers in the region face many challenges, such as finding a competent ESG specialist and finding solid ESG company data. The past two years have demonstrated that traders at asset management firms across Asia are increasingly seeking responsible investment products across various asset classes that authentically integrate ESG and management information into investment processes, according to Federated Hermes, an investment manager headquartered in Pittsburgh, Pennsylvania. which has operations in Singapore. The COVID-19 pandemic has intensified discussions that ESG practices are critical to an organization’s resilience. According to a 2021 EY Global Institutional Investor Survey, 90% of investors say they place greater importance on ESG performance in their decision-making than they did before the COVID-19 pandemic. The COVID-19 outbreak has brought ESG to the fore asset management, but ESG will only grow in importance from a strategic perspective over the next decade. ESG investing and integrated strategies are set to grow strongly, with Broadridge forecasting ESG-related assets under management (AUM) to grow from $8 trillion in 2021 to over $30 trillion in 2030.According to Invesco data that was provided to GlobalTrading, most ESG-related assets under management are now in integrated ESG strategies, driven by increased ESG disclosures and standards, asset owners issuing ESG mandates and Asia’s push for climate and decarbonization.
ESG Challenges Faced by Asia-Based Buyers
Seizing this once-in-a-decade opportunity will require asset managers to improve their technology and strengthen their ESG investment strategies across Asia. “Asset managers will need expanded data capabilities, expanded ESG offerings and results-based engagements to elevate ESG investing. ESG data capabilities such as climate analysis are key to capturing and best quantify ESG risks,” said Alexander Chan, Head of ESG Client Strategies, Asia-Pacific, Invesco at GlobalTrading.
According to Chan, ESG responsibility at Invesco is embedded in investment teams with ESG factors integrated into the construction and monitoring of investments alongside proprietary resources across the company. Most investment teams conduct their own in-depth ESG research, using platforms, external information obtained from company disclosures, company dialogue, and third-party ESG research and rating agencies. Kher Sheng Lee, co-director of APAC for the Alternative Investment Management Association, also told GlobalTrading that finding good data on Asian companies’ ESG efforts is still a major issue for asset managers buying. and sell debits and stocks in the region. The game changer for managers to up their game would be the widespread availability of affordable, consistent high quality data across all investment sectors,” Lee said.
Transparency is key in Asia
ESG is not just about buying shares of a company that claims to integrate ESG into its business. This forces active buyers to create a strategy that allows them to select companies that offer full transparency on their ESG efforts. “We believe that beyond financial performance, asset managers should be committed to achieving positive outcomes within their investment strategy, which are achievable by becoming active owners of businesses and assets. they invest in,” Dr. Michael Viehs, head of ESG integration at Federated Hermes – International told GlobalTrading.
Viehs said this trend has spurred a series of product launches ranging from ESG to sustainability to impact, and wider and accelerated adoption of shareholder engagement and stewardship, which are now both seen as an essential component of improved results and genuine responsible investing strategies. . “We integrate ESG and engagement information into the investment processes of all our investment products. With the growth of ESG investing and being a major player in this space, we can offer our clients three distinct pathways to sustainable wealth creation: active, sustainable and impact ESG,” added Viehs. Clients will now need to discern which products are truly ESG-integrated and sustainable, and asset managers will need to focus on how they can create greater transparency for clients. Although transparency is an issue for Asian companies, GlobalTrading spoke with Lynette Leong, Director of Sustainability, CapitaLand Investment, a leader in shaping ESG strategy from a corporate perspective in Asia. She highlighted many ways Asian companies are strengthening their commitment to ESG standards. Some examples include producing annual ESG reports that demonstrate their ESG efforts and contain verifiable data.
CapitaLand Investment strives to integrate ESG concepts into all areas of its business, from initiating green loans to external certification so that they track and manage our environmental footprint across our diverse portfolio of properties around the world. “To ensure we lead by example, our leadership team’s KPIs are tied to sustainability achievements,” Leong said.
It’s still early days for ESG in Asia, but are you ready?
Regulators across Asia are still working on developing a set of ESG and sustainable investing standards, and this will play a very important role in helping clients discern which products are genuinely ESG-integrated and making it easier for institutional buyers to discern which companies are being transparent in their claims related to the G.
While regulation is a key driver, we continue to believe it is incumbent on asset managers like us to create transparency for clients. Federated Hermes is demystifying the ESG product line for customers through clear labeling and definitions of all our products and ensuring they continue to maintain high reporting standards. ESG is the future and presents unprecedented opportunities for asset buyers across Asia for the next decade. But are you ready?