Hong Kong’s institutional investors have been slow to adopt global standards of environment, social and governance (ESG) such as the UN Principles of Responsible Investment (PRI), relative to other parts of the region.
But this looks to be changing as Hong Kong’s asset owners begin to engage with the PRI, a United Nations-affiliated agency, and consider their responsibilities as global investors.
This follows Hong Kong-based life insurer AIA Group’s recent decision to become a signatory to the PRI, the first Hong Kong asset owner to do so. AIA became a PRI signatory in mid-March 2019 and Mark Konyn, the group’s chief investment officer told AsianInvestor he believes that “investing sustainably is a key contributor to the long term social and economic development of our markets.
“The principles for responsible investment provide a consistent disclosure framework and industry best practice on how we integrate ESG criteria within our investment approach, as we seek to ensure our investment decisions contribute to the promise of healthier and better lives across the region."
James Robertson, PRI’s Hong Kong-based network manager for Asia, said discussions with Hong Kong asset owners is now progressing after a slow start. He noted that several other local pension funds and insurance companies are ramping up their ESG activity following AIA’s sign-up.
“It sends a strong signal to other investment institutions locally and in the region,” Robertson told AsianInvestor.
There are already 26 investment management PRI signatories in Hong Kong, but AIA is the first asset owner. None of Hong Kong’s other major asset owners have yet to confirm they will become signatories, however.
One of the biggest obstacles blocks is the amount of disclosure required of them to do so. Robertson said asset owners often have concerns around the reporting and compliance obligations.
“In discussions with them, we have to assess, based on their internal rules, whether they are able to disclose more information than they normally would publically," he said.
The reporting requirements for PRI members are designed to ensure they don't sign up merely as a box-ticking ESG exercise or in order to greenwash. Asset owners must demonstrate just how their activities comply with the Sustainable Development Goals, a collection of 17 global goals set by the UN General Assembly in 2015 for the year 2030.
Thailand’s Government Pension Fund signed up to the PRI in December last year, and deputy secretary general for the fund management division Yingyong Nilasena told AsianInvestor shortly afterwards that doing so was not something to undertake lightly, owing to the strict reporting requirements. He added that he guessed few other Thai funds would be willing to take the step for that reason.
Robertson said PRI expects the greatest signatory activity in Asia to occur in the first quarter of the year, because this gives institutions more time to prepare for the first formal reporting requirement in the following year.
The PRI reporting window runs from January to March each year. Upon joining, all signatories have one voluntary reporting window but are required to report in subsequent windows. So EPF and AIA’s first voluntary reporting period “will be in January to March 2020 and the first compulsory report will be due in January to March 2021," Robertson noted.
Asia is currently the biggest growth area for new PRI sign-ups, with signatory numbers in China having doubled in the past year. Most have been larger fund management firms, with China AMC, E Fund, Harvest, China Life AM, CSOP and Penghua among those to have signed up last year.
Up until last year, asset owner engagement with PRI in Asia Pacific was mostly limited to Australia and New Zealand pension funds, plus a small number sprinkled across the rest of Asia.
In March, Malaysia’s Employees Pension Fund added its signature to the PRI, confirming a growing momentum across the region. Stanley Kwong, analyst in Aviva Investors’ Global responsible investment team said EPF is a good example of an increasing overlap between local strategies and broader ESG adoption.
Robertson expressed surprise that the results of a recent survey into Asia’s responsible investing leaders recognised Japan’s Government Pension Investment Fund and Singapore’s Temasek among the top-ranked players, but not GPF and EPF.
"What likely pulled them back (in the survey) was a lack of disclosure or public policy documents on ESG. As these documents are still in development or recently being rolled out, they have not yet been publicly disclosed or a dedicated section on their website has not yet been developed,” he said.
However, PRI has generally been very encouraged by overall regional developments.
"We were in Singapore recently and we met with GIC and Temasek. The amount of progress they are making internally is really encouraging," said Roberston. "They may not be able to make themselves more visible in terms of promoting it, but [Temasek] have started to do more in terms of positioning on ESG, so that’s perhaps why they featured well in the Asian leaders survey.”