ESG IN ASIA
Maharashtra National Law University, Mumbai
With rising awareness regarding the need for sustainable development in all facets of life, the economic sphere of this world has come up with a new ideal of sustainable investing. It is an investment discipline that considers environmental, social and corporate governance (ESG) criteria to generate long-term competitive financial returns and positive societal impact. There are several motivations for sustainable investing, including personal values and goals, institutional mission, and the demands of clients, constituents or plan participants. Sustainable investors aim for strong financial performance, but also believe that these investments should be used to contribute to advancements in social, environmental and governance practices.
ESG investing hence prioritizes a company’s positive contributions to its community, the environment, and social impact. Rating companies along ESG metrics allows socially conscious investors to screen potential investments to fit with their investment goals and values. The global pandemic has raised the importance of ESG issues among investors highlighting how catastrophic events such as climate change would impact investment returns.
As such, the entire world has begun and even significantly progressed in adhering to this new norm. The concept is also taking off all over the Asia-Pacific region as institutional investors accelerated their ESG investments during the COVID-19 pandemic last year. Especially, the ESG regulatory landscape in Asia is evolving very quickly, making sustainable practices an increasingly integral factor in investment decisions. According to a recent MSCI 2021 Global Institutional Investor survey, around 79% of investors in Asia-Pacific increased ESG investments “significantly” or “moderately” in response to Covid-19. Meanwhile, 57% of Asia-Pacific investors expect to have “completely” or “to a large extent” incorporated ESG issues into their investment analysis and decision-making processes by the end of 2021. On the same lines, as per Morningstar, A record $US5 billion was invested in sustainable funds in Asia in the last four months of 2020, bringing the region’s total to $US25.4 billion – up by 131 per cent as compared to the stats in 2019.
While a lot of regions throughout Asia – namely countries like Thailand and Singapore – are making steady progress in the field, the overall progress scale of Asia as a unit is not balanced. Whilst most of the major stock exchanges and regulators across Asia have issued ESG reporting guidelines, although there is a certain degree of coordination between different bodies in the same market and even between similar entities within different markets, it is still an incongruent patchwork of regulations and directives. As such, there is no single format of sustainability questions that can be answered and those answers universally utilized. In the absence of such generally agreed-upon sustainability metrics, investors have had to make do with scantily pieced together bits of local regulations, competing data vendors, and a multitude of differing standards of bodies. This in itself is the single biggest things holding back the growth of ESG investment in Asia. This view is supported by a 2019 study that found data and scoring issues to be the dominant obstacles to further ESG integration.
But, looking ahead, the road is only brightly lit. All that is required for Asia is to keep building ESG products and services by tailoring them more according the region. ESG needs to be contextualized and localized to Asian conditions so that it can have the best possible impact on such a densely populated and diverse region. The unique intersection of wealth accumulation and opportunities in Asia presents strong potential for sustainable investments provided that the ESG metrics are capable of reflecting the cultural, political, economic and societal differences as precisely as possible. Further, from a product issuer perspective, providing ESG solution must be client-driven. As such, the generational changes in Asia will certainly favor a client-driven policy. With the millennials and gen-z populace working on environmental causes and raising awareness in the investing community, it will become much easier to facilitate ESG based services and products which help increase awareness and responsibility regarding various environmental concerns.
Hence, it can clearly be seen that ESG investing is no longer a backwater in Asia Pacific. It is no longer in its infancy, and with a combination of investor awareness and attractive opportunities being catalyzed rapidly by improving information and product design, all the conditions are in place for ESG’s rapid adoption as a mainstream investment approach across asset classes and markets throughout the region.