Asia Pacific investors are catching up with their European counterparts in placing sustainability as the focus of their investment strategies and rapidly adopting decarbonisation policies and targets, said a climate survey by global asset manager Robeco.
The March 2022 survey — which covers insights from 300 of the world’s largest institutional investors in Europe, North America, and the Asia Pacific, with combined assets under management of $23.7 trillion — highlights a global effort to combat the climate crisis and seek real-world impact through strategic investment via thematic investing, active ownership and biodiversity protection.
While European investors continue to lead in climate actions within their organisations, a significant increase is observed among their Asian peers. About 70% of Asian investors say that climate change is either at the centre of their investment policy or a significant factor, an increase from 57% in 2021. This is compared with 91% of European investors and 63% of North American investors.
Conor Roberts, a spokesperson for the Guardians of New Zealand Superannuation (NZ Super) told AsianInvestor that the trend towards sustainable investing by Apac investors was in line with his fund's best practices in responsible portfolio management
As a manager of around $40 billion in assets for the New Zealand government, NZ Super believes environmental, social, and governance (ESG) considerations are fundamental to its long-term risk and return profile.
“In line with global best practice trends, we are now shifting our focus to sustainable finance, which means considering both how ESG issues impact the performance of our portfolio and how the environmental and social outcomes of our investing activities impact both present and future generations,” he said.
In the next year, NZ Super will look to improve the ESG profile of its global listed equity and increase the number and scale of investments it makes that benefit society, in addition to meeting financial returns targets, he said.
“We will continue to look to improve the ESG profile of our whole portfolio over the long term. Through this ambitious shift, we aim to contribute to the transition to a more resilient, inclusive, robust and agile global financial system."
ACTIVE OWNERSHIP AND BIODIVERSITY
Active ownership — the use of an institution’s rights and position of ownership to influence the activities of the companies in which they invest — is becoming a central issue, according to Robeco’s findings.
It found that Asian investors are seeing high adoption of active ownership within their organisations, with 80% saying it is a central factor. This is compared with 82% in Europe and 60% in North America.
The survey also demonstrates that many investors are starting to include biodiversity in their investment strategies, as climate change and rising temperatures are a direct threat to the variety of plant and animal life in the different ecosystems.
However, Apac investors continue to trail in biodiversity adoption, with only 31% of Asian investors viewing biodiversity as central to their investment policy or as a significant factor today as compared to 57% in Europe and 31% in North America. This is expected to increase to 52% in Asia in the next two years.
“Changes in nature – and its nexus with the climate – are increasingly recognised as significant factors in enterprise value and investment performance,” said Roberts, adding that NZ Super has been factoring biodiversity risks in its investment decisions on a case-by-case basis.
“For example, screening potential land development investments for the presence of at-risk or threatened species,” he said.
As part of its shift to sustainable finance, NZ Super is actively supporting the Taskforce on Nature-related Financial Disclosures (TNFD) through pilot testing of the beta TNFD Framework and via participation in the Responsible Investment Association Australasia Nature Working Group, he said.
“Furthermore, we are pro-actively monitoring the emerging frameworks and metrics to support more systematic consideration of biodiversity risk, opportunities, and positive outcomes from our investments."
LACK OF DATA AND EXPERTISE
The survey found that lack of data and internal expertise remains the biggest barrier for Asia Pacific investors in implementing ESG strategies, with investors calling for more transparency and better metrics on climate change instead of more regulation.
However, NZ Super believes that there is a need to urgently increase the ambition, stability, and global fungibility of climate regulations, as well as increase the scope of corporate climate change disclosures.
“It is clear that the cost of inaction on climate change outweighs the cost of action so it’s in everyone’s interest, including ours as an investment fund. Unfortunately, as the recent Intergovernmental Panel on Climate Change Report found, global action to date is far from sufficient,” said Roberts.
Specifically, NZ Super sees the creation of a global market for carbon — by finalising and implementing Article 6 of the Paris Agreement — as absolutely critical to the reduction of all feasible emissions as quickly as possible.
“Having a robust global system will help to ensure that these reductions can be funded,” he said, adding that NZ Super wants to see a global commitment to stable long-term climate settings.
“It is difficult to deploy capital without having a degree of certainty around long-term policy settings. Countries could address this by appointing an independent commission to advise on setting long-term national carbon budgets and emissions reduction plans,” he said.
“There should also be a requirement for listed companies to disclose their climate risks to allow investors to better understand and price the climate risks in their investments.”