APAC asset owners seen prioritising net-zero goals
Asia-Pacific institutional investors are actively reducing their carbon footprints and accelerating their commitment towards net-zero goals with 43% of the region’s institutions making the ambition their priority, according to the BNP Paribas ESG Global Survey 2023.
Data was collected from 180 asset owners, 180 asset managers, and 60 hedge funds and private capital firms across Europe (50%), Asia Pacific (28.6%) and North America (21.4%) representing an estimated AUM of $51.2 trillion. The survey found that APAC investors are adopting strategic measures to reach their net-zero targets.
Strategies include carbon offset, active ownership, and environmental, social and governance (ESG) integration into their investment decisions, which go toward meeting their climate objectives, according to Jules Bottlaender, head of sustainable finance, Asia Pacific at BNP Paribas Securities Services.
BNP Paribas
"Climate data is used to guide the investment decision process. Additionally, there is direct engagement or voting participation with invested companies to actively influence and reduce their emissions. To compensate the remaining emissions within their portfolio, investors can purchase carbon credits as a form of carbon offset," Bottlaender told AsianInvestor.
The survey also highlighted as key ESG objectives reducing carbon footprint (50% globally and 51% in APAC) and investing in low-carbon assets (45% globally and 52% in APAC).
Correspondingly, APAC asset owners have been adjusting their allocations to low-carbon asset classes and sectors, said Bottlaender.
"Low-carbon assets typically include technology, renewable energies, sustainable transportation, and green infrastructure, with a particular preference for the latter in the region,” he said.
Still, investors can be driven by short-term performance over long-term carbon reduction goals.
“For example, while renewable energies have historically shown strong performance, recent outflows have occurred due to underperformance compared to the highest emitters, trailing by 25% this year,” said Bottlaender.
OVERCOMING DATA CHALLENGES
APAC investors face significant challenges in adopting an ESG strategy, with 71% of respondents identifying inconsistent and incomplete ESG data as a key hurdle.
“Notably, significant gaps persist, especially concerning private companies and aspects like scope 3 emissions,” said Bottlaender, referring to pollution from an organisation’s value chain.
Incomplete or inconsistent data, the risk of engaging with greenwashing, and compliance risk are major barriers identified in the survey, he said.
"Challenges in data quality are consistency, reliability, and availability. Fragmentation among various sources and the utilisation of diverse reporting standards lead to inconsistencies in the reported data,” Bottlaender added. The absence of third-party verification results in a lack of assurance for data accuracy and reliability.
“In some cases, ESG data is simply non-existent, posing a challenge in accessing comprehensive information," said Bottlaender.
To overcome these challenges, APAC institutional investors are engaging directly with companies to enhance ESG disclosures, collaborating with data providers to improve data quality, and implementing data quality control measures.
New technologies and human analysis are also being leveraged to check and enhance data quality.
INTEGRATING EXPERTISE
Large asset owners in the Asia-Pacific region are enhancing their portfolio management with a comprehensive, in-house ESG focus, said Bottlaender.
“They conduct proprietary research, building dedicated internal teams, and collaborate closely with several external data providers. This integrated approach ensures a robust understanding of ESG factors, enabling informed and sustainable investment decisions,” he said.
Additionally, many of these large asset owners in APAC are developing advanced data management systems.
“These systems allow for flexible handling of portfolio positions, integration of external data, and support internal research. It also enables them to create their own scoring methodologies aligned with their specific ESG guidelines," said Bottlaender.