Asia Pacific's family offices are a nimble bunch and never more so than when it comes to ESG where they're already proving to be ahead of the regulators.
Thailand’s $14 billion Government Pension Fund (GPF) is following in the footsteps of some global peers and eyeing tie-ups with other large foreign pension funds, as it seeks to benefit from scale in an increasingly competitive environment.
Srikanya Yathip, secretary general of GPF, said that such collaborations would be as much about knowledge sharing as it is about accessing deals. She named Australia’s Hesta Super Fund as one of the pension funds she has recently spoken to.
“Having a chance to talk with them [Hesta] means we can share our common issues, interests and experience; for example, I asked them to share how they manage and communicate plan choices for their members,” she told AsianInvestor.
The pension fund, which is Thailand's second-largest investor (after the Social Security Office), also hopes to collaborate with peers on furthering the UN’s Social Development Goals, specifically human rights and climate change. Pension funds GPF has approached so far are very enthusiastic to work with them on this, Srikanya said, although they are yet to iron out the details of such collaborations.
A notable example of a recent partnership between two large asset owners is Korean pension fund National Pension Services’s $1.2 trillion tie-up with the Netherlands’ APG in October 2020. The alliance is intended to improve both organisations' respective access to large infrastructure and real estate deals.
While GPF is keen to further social development issues, and is a signatory to the UN Principles of Responsible Investment since December 2018, it is disciplined in its use of the term “ESG” (environmental, social and governance).
“ESG is too broad an idea,” said Srikanya. “I would prefer to be more specific and say we focus on particular areas like climate change or human rights.”
The secretary general said diversifying towards emerging markets may also provide an opportunity to carry out the fund’s sustainability goals. “With support from developed countries, some emerging markets are doing well in offering opportunities for sustainable investment,” she explained.
GPF is also part of the Blue Dot network, an OECD initiative to establish a certification scheme for sustainable infrastructure investments. Led by government agencies under the US, Australia and Japan, the project has been labelled the West’s rival to China’s Belt and Road Initiative.
The asset owner is being careful about rushing into climate action initiatives that may not align its current strategy or capacities. “We don't want to commit to something we are not ready to commit to,” said Srikanya. “You can’t just say you’re part of something and have no idea how you’re going to execute it.”
That said, GPF incorporates ESG engagement into its daily operations. Srikanya, alongside chief investment officer Man Juttijudata, sits on the fund’s engagement team. When they identify an area of concern, GPF initiates engagement by contacting the company’s investor relations department. Prior to Covid-19, the engagement team would meet the portfolio company in person, she said.
“From my experience doing direct engagement, most companies are fully aware when there’s an issue and are willing to adjust to improve the situation,” Srikanya said.
She added this could also be because the fund selects quality, investment-grade companies to begin with. GPF’s clout as a major local asset owner also plays a role in its ability to influence change, she believes.
Srikanya added that GPF would only choose divestment “as a last resort” but notes it is on the table. She offered the example of an external asset manager which divested from a bank that had implemented what they considered unfair remuneration policies in response to Covid-19.
Srikanya is supportive of recent reforms to modernise Thailand’s pension system in response to its aging population. In March, Thailand’s cabinet approved a new compulsory pension scheme for private sector employees and a centralised database of workers.
“I think the government has made big progress in introducing some of these reforms,” Srikanya said.
She believes the most encouraging reform effort to date is the planned National Pension Fund Policy Committee to harmonise the country’s multiple pensions schemes.
“If the committee can get the right kind of people together, that would be very powerful and drive Thailand towards become a better and more sustainable country for its people.”
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