ESG presents challenge for Asia-Pacific investments
Bell Asset Management has highlighted how difficult it can be to find a company in Asia-Pacific that meets its environmental, social and governance (ESG) standards.
The firm ran a Global Emerging Companies fund but it had just 1.7% allocated to the Asia-Pacific region compared to 29% in Europe and 63.7% in the United States.
It held no companies in Japan, which represented a 10.5% underweight, although this had actually benefitted the fund recently due to Japan’s poor performance. The average ESG rating of Japanese companies was BBB which below the MSCI World Index rating of A.
In a webinar, Ned Bell, chief investment officer, said: “We don’t have much exposure in Asia Pacific, there is not much of the right quality for us. Lots of the companies we see in that region are way behind in ESG.
“They have got better, Europe is the gold standard and US companies are catching up but in Japan especially, they are not great, there is still a way to go for ESG of companies in the smaller universe.”
According to McKinsey, smaller companies in Japan “lag behind” on all three elements of ESG. To improve, the organisation said, they needed to focus on their energy consumption and decarbonisation, on gender diversity and societal impact and lastly, on corporate governance and cross-holdings.
Speaking to Money Management, Bell added: “The ESG disclosure levels of Japanese companies are lacking, there is only a handful of AAA-rated Japanese companies which is somewhat disappointing. As far as emerging Asia is concerned, there are many more problematic companies with controversies that cover a range of ESG issues and governance more generally has been somewhat problematic.
“Companies need to be much more proactive about engaging with investors and research houses on ESG. We would also like to see more comprehensive sustainability reports and a willingness to align themselves with the UN Sustainable Development Goals.”
The Bell Global Emerging Companies fund had returned 29.7% over one year to 30 June, according to FE Analytics, versus returns of 41.2% by30 the sector.
AUTHOR
Laura Dew
Recommended for you
Women are expected to inherit US$124 trillion through the intergenerational wealth transfer, but Capital Group has found they are twice as likely to rely on social media for advice over a financial adviser.
Challenger Investment Management has raised $350 million during the offer period for its new ASX-listed investment structure.
A week after Lonsec downgraded multiple funds from Metrics Credit Partners, rival research house Zenith Investment Partners has opted to retain its ratings for the same funds.
Strong adviser engagement has helped Praemium reach $1 billion in inflows on its Spectrum offering, with a deal with Western Australian wealth firm Euroz Hartleys expected to add as much as $2 billion.
