Asian institutions are increasingly convinced that meaningful change is integral to active ownership, according to a new study.
The annual survey of institutional investor priorities, carried out by Schroders, indicates that investors across Asia Pacific are taking more sophisticated approaches and expecting more from their active ownership.
The study, running since 2017, spans 770 investors including 205 from Asia Pacific, and total global assets of $27.5 trillion.
Evidence of real-world outcomes that improve company stakeholders' lives (60%) is considered the most important component of an engagement strategy. It is also noteworthy that Asian institutions are much more prepared than their global peers to act when engagement fails, with 37% demand for clear and robust escalation plans, compared to just 30% globally.
Over half of Asia Pacific investors (52%) agreed that engaging in active ownership and influencing company behaviour are important elements when it comes to investing sustainably, which is a significant improvement from 2020, when only 36% agreed.
Almost half identified impact investing as their preferred approach to sustainability, a significant increase from 38% a year ago. Most still prefer full ESG integration into the investment process, though investors still find sustainable investing challenging, as they move to incorporate active ownership, measure impact and set net-zero targets.
“Asian institutions and global investors in Asia are certainly more active in voting against company resolutions and in favour of minority shareholder proposals,” Jamie Allen, secretary general of the Asian Corporate Governance Association told AsianInvestor.
"Japanese domestic asset managers are voting against more. In Malaysia recently, a couple of the asset owners, the EPF and PNB voted against Axiata Group. In Korea, NPS has been more active too."
Looking closely at the different markets, the Schroders survey reveals that thematic investing is more popular in mainland China and Singapore (58% and 51%, respectively, versus 39% in Asia Pacific). A positive screening approach that focuses on best-in-class companies is most preferred in Hong Kong (68% versus 55% regionally), while Taiwanese institutional investors see impact investing as their preferred approach (71% versus 48% regionally).
The energy transition theme is a key one for Asia Pacific investors, according to Schroders. Alignment with corporate values (56%), alongside regulatory and industry pressure (52%) are key drivers for sustainable investing amongAsia Pacific investors.
While many companies are setting corporate sustainability objectives such as decarbonisation, policy actions such as carbon pricing are driven by governments. It is therefore not surprising that Asia Pacific investors are eager to find new opportunities related to energy transition, with 63% saying such opportunities will encourage them to increase their adoption of sustainable investing.
Japan’s Government Pension Investment Fund (GPIF) has taken an interesting approach to ensure its active ownership achieves its objectives. GPIF surveys listed companies in order to evaluate the stewardship activities carried out by GPIF’s external asset managers.
The main objective is to ascertain the actual status of purposeful and constructive dialogue between companies and asset managers.
Simply taking the approach of engaging with their asset managers could result in one-way information gathering and lacks objectivity, said GPIF president Masataka Miyazono, in its latest stewardship report, published in May.
“Therefore, we have made it a purpose of this survey to gather information from the other side, with a focus on how portfolio companies view asset managers’ engagement activities.”
The results of this survey show that there has been progress in dialogue on corporate philosophy and long-term vision and that the number of companies that have endorsed the TaskForce for Climate-related Financial Disclosure (TCFD) and disclosed non-financial information, including information in line with the TCFD has significantly increased in the past year.
GPIF has announced it will “take measures to advance constructive dialogue between companies and investors in the future, including the announcement of ‘Excellent Disclosure’ selected by GPIF’s asset managers.”
The number of companies that make voluntary disclosures of non-financial information including ESG has increased significantly in the GPIF survey, reaching 85%. The number of companies that prepare integrated reports and disclose information in line with the TCFD has also grown considerably. In particular, the number of companies that disclose information in line with the TCFD has increased by more than 100 from 139 in the previous survey to 249.
The latest stewardship report from BlackRock provides another interesting perspective, especially on how Asian companies differ from their global peers.
As BlackRock notes, an essential factor in sound corporate governance is director independence — from management, significant shareholders, or other related parties.
“We look for boards to have a sufficient number of independent directors, free from conflicts of interest or undue influence from connected parties, to bring an objective view to and influence on board decisions."
During the 2021-22 proxy year, BlackRock did not support 2,529 directors at 1,521 unique companies globally, over concerns about independence, with a high concentration of such voting in Asia Pacific. Their assessment considered a number of factors, including the balance of independent and non-independent directors and the tenure of directors and the overall board on average.
The accompanying chart shows how much Asian companies are falling short of the independence of directors.