Environmental, social and governance (ESG) considerations will become increasingly important in driving investment decisions for many of Asia’s leading asset owners, based on early responses to a survey by AsianInvestor in collaboration with S&P Dow Jones Indices.
More than half (57%) of respondents so far – including many leading regional insurers and some of Asia’s largest pension funds – point to either a "high" or "medium" likelihood of them increasing ESG factors in their portfolios over the next 12 months.
This motivation is likely to be fuelled by evidence that ESG investing proved its worth during the Covid-19 pandemic.
Research from Fidelity International and S&P Global Market Intelligence, for example, has showed that companies with better ESG ratings have typically outperformed their peers during the recent market volatility.
This tallies with the views of nearly half of survey respondents so far on their expectations about how implementing ESG in portfolios will impact annual risk-adjusted returns over the next five years – 48% say it will either ‘strongly improve’ returns (an additional 1%+) or ‘slightly improve’ them (between 0 .1% and 0 .99%).
For 2020, amid the spotlight on ESG, the most popular investment themes among initial survey responses are lower carbon emissions and clean energy.
Yet the influence of ESG within the institutional investment landscape in Asia will likely take some time to evolve.
Of those investors who have responded to the survey so far, for instance, 71% have less than 10% of their portfolio currently invested in ESG-related mandates.
Many respondents say there is limited understanding internally about the value of ESG.
Their biggest concern about adding or expanding ESG is a lack of quality or standardised data. Many respondents also say there is limited understanding internally about the value of ESG.
Although there are various drivers for asset owners to incorporate ESG considerations in investment decisions, one-third of respondents say their motivation is only to enhance the public image of the organisation. Around 30% of asset owners say ESG helps them ‘future proof’ their investment portfolio.
Meanwhile, for those institutions looking to incorporate ESG in a more meaningful way in their investment process, clearer governance and ESG processes internally would provide the most support.
Other important components will be stronger leadership to define the ESG strategy plus a wider range of choices in terms of ESG assets, so say respondents so far.
Asset owners are invited to share their views on ESG via the survey by clicking this link. The survey will remain open until the end of April.