Investors in Asia are lagging their European peers in embracing environmental, social and governance standards, but an ESG veteran at Dutch pension fund manager APG has urged perseverance.
More and more asset owners in the region are integrating ESG into their investment policies, said Park Yoo-Kyung, head of responsible investment and governance for Asia Pacific at APG Asset Management, during an on-stage interview at AsianInvestor’s 14th Asian Investment Summit last week.
She applauded the efforts of asset owners like Japan’s Government Pension Fund (GPIF) and the Hong Kong Monetary Authority (HKMA), but said they – and others – need to keep plugging away.
APG, with €487 billion ($537 billion) under management, has been proactive in meeting investee companies in Asia in the past decade to learn about and help improve their ESG practices, and has encouraged other asset owners to do the same.
When the institution first went to speak to various chairmen and board members about their ESG efforts some years back, she said, they resisted the idea. But now companies in South Korea, Japan and China are opening up to it, Park added.
“As an investor we can do this,” she said. “If we reach out to the companies, they actually open up. Let’s keep trying. We have to inspire the companies. Companies can then give us something in the form of returns. We just haven’t tried enough.”
APG is also working on its external managers, to which it outsources about 20% of its AUM. It has set as top considerations for its annual performance review of external managers the following: ESG governance, ESG research capabilities, and responsible investment policies.
ESG analysis is not so much different from fundamental financial analysis, Park said. When investors look at active investment opportunities, they look at their business models, but also at areas related to ESG, such as corporate governance structure, the quality of the board and the management, how they are incentivised and, most importantly, capital management quality.
ESG is in embedded in the financials, she added, but there are just no tools to express its impact on investment performance.
Others agree that ESG impact should be more easily measurable. They include Anne Fossemalle, director of private equity funds at the European Bank for Reconstruction and Development, who believes a standardised set of ESG measures will be adopted.
LEADING BY EXAMPLE
That would likely encourage more Asian asset owners to practically implement ESG strategies or responsible investments.
Certainly, they are doing a much better job than in the past of encouraging their asset managers to invest responsibly, Park said, citing Japan’s GPIF as a leading example.
GPIF became a signatory of the United Nations’ Principles for Responsible Investment (UNPRI) in September 2015. In July 2017 the Japanese fund allocated ¥1 trillion ($9.15 billion) to domestic equity investments tracking three ESG indexes. In September last year, it invested $10 billion to track two new stock indexes focusing on carbon efficiency.
HKMA, the city’s de facto central bank, has also been active in promoting ESG to fund houses in Asia, noted Park. Such action can help bring Hong Kong’s financial market to a different level and hopefully develop a very healthy ecosystem around ESG, she added.
Meanwhile, HKMA is increasingly investing its Exchange Fund along ESG principles and will soon sign up to the UNPRI. It recently allocated another $1 billion to the International Finance Corporation’s Managed Co-Lending Portfolio Program as part of its broader effort to invest more along ESG lines.
HKMA is promoting Hong Kong as a centre of green finance through its role as regulator and market-developer and is also looking to set a direct example through its own actions as a major asset owner, according to Eddie Yue, the institution’s deputy chief executive.
It is early days, but ESG is starting to catch on in Hong Kong, with pan-regional insurer AIA in March becoming the first asset owner based in the city to sign up to the UNPRI.