ESG engagement rises to top of agenda for Asian investors

Much of Asia continues to lag the global standard when it comes to corporate governance, transparency and diversity. But significant progress has been noted of late.
ESG engagement rises to top of agenda for Asian investors

Recent shareholder activity suggests that investors in Asia are intensifying the pressure on investee companies on a range of issues, pushing for greater transparency and more meaningful action on climate change and diversity.

“One thing we have felt for a long time is that when investors are engaging with companies on ESG or net zero targets, it’s fine to focus on those, but you also need to bring it back to the board level; to see whether they have the right decision-makers on the board,” Jamie Allen, secretary general of the Asian Corporate Governance Association, told AsianInvestor.

“I would say, from the company engagements that we have been facilitating with our members, that investors are focusing on what is really going on with the board – who is on the board and how do they justify their position.

“That’s a big positive, because engaging companies around that is not very sexy, but it’s fundamental. Without that you’re not going to get the long term improvements in broader capital management or sustainability.”

Across the region, voting rights are being used to ensure the essential elements of good governance, including board alignment with shareholder interests, appropriate remuneration and business ethics.

In Malaysia, for example, large state pension funds were among those voting against the Axiata Group Bhd's recent acquisition of a 66% stake in Indonesia's LinkNet.

The telco is still able to complete the deal because it gained 58% of the votes at an extraordinary general meeting in May.

A statement from fund manager Permodalan Nasional Berhad, the third largest shareholder in Axiata after the Employees Provident Fund and Malaysia sovereign fund Khazanah Nasional Berhad, said PNB had “concerns over the adverse impact on the financial performance of the company due to the potential increase in debt levels, coupled with lack of visibility on the impact of geopolitical developments on some of Axiata's international operations.”

Axiata chairman Tan Sri Shahril Ridza Ridzuan, himself a former EPF CIO, confirmed that the dissenting voters were mostly concerned about the impact on the company's balance sheet.

EPF and Khazanah were also rumoured to be behind the vote against, but AsianInvestor was unable to get an official confirmation from either fund at press time.


In Japan, 12 institutional investors submitted a proposal to a Japanese company for the first time in the year to June 2022, according to new data.

In their June 2022 AGM presentation, Sumitomo Trust noted that shareholder proposals were submitted at 76 companies, a sharp increase from 48 the previous year. The number of proposals also shot up from 162 to 289. Their major concerns were financial management, the appointment of directors and climate change disclosure.

In one of the more significant shareholder actions of recent years, in June 26% voted in support of a shareholder proposal calling on Electric Power Development Co - known as J-Power - to set credible emissions reduction targets and disclose plans to achieve them.

J-Power operates Japan’s largest coal fleet and derives more than 40% of its operating revenue from coal.

Three climate shareholder proposals were filed by investors, led by HSBC Asset Management, Amundi and Man Group - alongside the Australasian Centre for Corporate Responsibility (ACCR). The proposals also received the backing of the two major proxy advisors Institutional Shareholder Services (ISS) and Glass Lewis.

The shareholder group believes that the absence of a credible decarbonisation strategy represents a range of material financial risks to J-Power.

Brynn O’Brien, director at ACCR said, “A credible, detailed business plan supported by Paris-aligned targets and transparent annual reporting on progress is in the best interests of the company and its shareholders.

“J-Power’s current strategy would see shareholder capital wasted to prolong the life of the company’s coal-fired power generation business. This AGM result sends a clear message that the company board and executives need to act now for the company to thrive in a decarbonised world.”

Allen agrees that shareholders in Japan are giving more attention to whether companies have proper net zero targets.

“Quite often it’s an important element of engagement but it’s not always easy to make a vote on that.”

In Australia, Allen reports that “We’re seeing some very big votes in favour of shareholder proposals for greater disclosure around climate.”

“The substantive resolutions being brought are often challenging the company to disclose its Scope 3 targets (refers to a company's emissions within their supply chain) or to decarbonise faster. Those resolutions get a very high level of support,” said Allen.

“In Australia, they have quite a lot to say on climate. That has been building for a while. What’s been driving it is activist groups like Market Forces (an affiliate of Friends of the Earth) which has been pushing for radical decarbonisation in mining, oil and gas, banking and superannuation. They basically, do a lot of broad-based lobbying. They put up shareholders proposals, and work with the ACCR.”


As reported, a lot of the voting against In Asia relates to independent directors.

“There are still long-standing concerns in the region as to the quality and the expertise of directors,” said Allen.

“There are also diversity issues, where typically a man is being nominated when a shareholder thinks it should be a woman.”

While Japanese companies have reluctantly accepted the need for independent directors in recent years, they still have only a fringe influence, being restricted to fewer than two on most boards, and are predominantly male.

“Japan has much lower levels of diversity,” said Allen. “Not that the rest of the region is brilliant.”

With regards to the process of appointing directors, Allen said it may just be there is no clear pipeline as to how independent directors are selected.

“It may also be that the company doesn’t have a skills matrix, so there’s no clear reason to have them on the board and quite often no nomination committee.”

Standards in Asia are obviously lower. “Very few of our members apply developed market diversity thresholds (or quotas) to Asia yet,” said Allen.

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