While the majority of Asian investors increasing their ethical investments in line with the United Nations Sustainable Development Goals, data and technology are proving barriers to environmental, social and governance (ESG) investing integration.
Asia Pacific respondents to BNP Paribas’ ESG Global Survey 2019 said that data was the biggest issue, ranking it ahead of costs, a lack of advanced analytical skills, and greenwashing risks. A further quarter pointed to technology costs as a barrier, up from 16 per cent in 2017.
Despite still lagging behind their global counterparts for ESG asset allocation however, at 15 versus 18 per cent globally, Asia Pacific respondents were more optimistic about allocating funds to ESG in the future. Fifty-five per cent expected to incorporate 50 – 75 per cent ESG funds in two years’ time, compared to 49 per cent globally.
This could partially be due to them expecting a crackdown on ESG disclosure, with 62 per cent of Asia Pacific investors expecting an increase in ESG disclosure requirements over the next year, while only 59 per cent did globally.
The main incentive behind ESG investing however, was their financial impact. Almost two thirds of Asia Pacific respondents ranked “improved long-term returns” as their top reason for ESG investment, with 70 per cent expecting their ESG portfolios to outperform over the next five years.
A key difference between Asia Pacific ESG investors and global ones was where they sourced their ESG information. In the Asia Pacific, respondents leaned toward benchmarks, with 42 per cent saying that putting funds against an ESG benchmark would have the greatest impact. Globally, investors were more likely to rely on ESG profiles. More Asia Pacific respondents aligned investment frameworks mainly by setting Sustainable Development Goals-related revenue targets for investee companies than they did globally, at 76 versus 65 per cent.
The expected growth in ESG investing in the area had also led to the creation of new jobs in the region.
Asia Pacific investors were more likely to hire ESG talent from non-traditional backgrounds, train incumbent teams in ESG principles and best practice, and hire or increase numbers of external ESG consultants and specialists than their global counterparts.