Institutional investors in Asia are increasingly following environmental, social and governance (ESG) guidelines but, unlike many of them, Taiwan’s Cathay Life says it is doing it for more than just appearance's sake.
The remark echoes what the panel speakers said at an AsianInvestor event last month. One key message was that ESG, essentially, is still regulation-led in Asia, with investors mainly embracing it because they have to, rather than because they necessarily want to.
“The whole world is talking about ESG-dedicated allocations … [but] I think they are doing a marketing campaign," Sophia Cheng, chief investment officer of Taiwan’s Cathay Financial Holdings, the parent company of Cathay Life, told AsianInvestor in an interview last month. "Some of our peers are not as good as we do [in ESG], but they know very well how to present.”
That said, Cathay Life -- with investable assets totaling NT$5.5 trillion ($189 billion) as of the end of 2017 -- has made only "very small" investments so far to a ESG-dedicated fund, a matter Cheng was disinclined to elaborate on because she said it failed to tell the full story.
“Investing in a [ESG-dedicated fund] is only sharing a part of the job that I should be doing, so I feel very reluctant when people say how much fund they have invested in,” she said.
However, the company has dedicated ESG analysts and a detailed database to screen the ESG practices of all the companies they invest in across the business, with an investment management team of more than 200 staff and over 80% of investable assets managed in-house.
More than 80% of Cathay Life's external managers have also incorporated ESG into their investment processes, she added.
“When you invest in a company you [have to] think about how good it is in ESG,” Cheng said, noting how Cathay Life is particularly keen to get involved more with engagement efforts, community care activities and financial inclusion schemes for the disadvantaged.
ESG investing still doesn’t come naturally to some Asian investors and corporates, experts at the ESG Investment in Asia event said on March 12. “I would say they are doing this for the sake of compliance,” Sammie Leung, director of sustainability reporting, enterprise risk management, and internal audit at PwC, told the audience during a panel discussion.
That includes investors and corporates in some of the region's most sophisticated investment arenas. “In Hong Kong we tend to be compliant in terms of laws and regulation, but really, in terms of embracing proactively new ideas, it is harder," Lau Ka Shi, managing director and chief executive of pension product provider BCT Financial Limited, told AsianInvestor after the event.
COMMUNICATION CHALLENGES, GLOBAL TRENDS
One big hurdle facing attempts to integrate ESG investing across a large organisation like Cathay Life is communication so that everyone has a common belief. Overcoming this can take time.
“When it comes to communication, [the staff] deserves the right to know why [they] need to do it. So we have spent three years to communicate with the investment team [on ESG investments],” Cheng said.
“We need to make our colleagues think they don’t need to do a lot of extra work. We need to empower them with information and not keep asking them to do more things,” she said.
But she certainly thinks the efforts are worthwhile to prevent unexpected risks. If Cathay invests in a company with bad ESG, one day problems may emerge. The invested company may face lawsuits or have the business suspended, and in which case its share price will crash and Cathay may incur a huge loss, she said.
Cathay has signed up to the stewardship principles for institutional investors launched in Taiwan in 2016, Cheng said.
Other Asian countries have in recent years also adopted stewardship codes that promote accountability and corporate governance in investments, such as the Malaysian Code for Institutional Investors in 2014, the Singapore Stewardship Principles for Responsible Investors in 2016, and the Korea Stewardship Code and Japanese Principles for Responsible Institutional Investors in 2017.
For all that ESG investments in Asia ex Japan lag other regions, BCT’s Lau said. As of 2016 only 0.8% of the region’s total managed assets were in sustainable investments, according to the 2016 Global Sustainable Investment Review.
By contrast, Europe and the US had 52.6% and 21.6% of total managed assets in sustainable investments in 2016, respectively.
Investor attitudes in Asia may be finally shifting, though, a recent survey indicates. According to a global survey by Natixis Investment Managers released on February 28, around 70% of institutional investors in Asia believe that incorporating ESG into investment strategies will become standard practice within the next five years.