When it comes to Environmental, Social and Governance (ESG) in Asia, investment management recruitment not only seeking expertise - already a sparse commodity in the region - but hires that are able to see ESG through the lense of a customer.
Within Asian institutions, efforts to promote ESG at a local level are challenged by the low level of familiarity with ESG principles and how to apply them, say experts that spoke to AsianInvestor.
The head of Asia for a large European insurance company, responsible for integrating ESG principles into the investment strategies of its operating companies across Asia Pacific, told AsianInvestor he often encountered misunderstanding in how to apply ESG principles.
More than the poor
“[Many] think it’s just about CSR (corporate social responsibility) or donations to the poor,” he said. “Some [staff] have been board members for many years but don’t see this through a customer’s eyes. I explain how customers will view them, how that will impact whether they like you and whether they will buy your products.”
Where local units have adopted it in their investment approach it is often highly siloed, perhaps adopting an ESG component for one of ten funds, he said.
“They just create ESG funds for a unit-linked [insurance product] but don’t anticipate adopting it across the entire portfolio. We need to be further on, especially in the investment space.”
Typically, he will task one or two people in each operating company – usually one in the executive committee and the CIO – with spearheading the project, then push them towards policies that will result in quick, measurable ESG impacts.
He said this works better than attempting to effect wholescale change.
“It’s about materiality: where to get the bang for your buck. Then board members see [the benefits] in a concise and coherent way.”
Hunt for expertise
Real expertise in ESG is still difficult to source in the region and funds are increasingly seeking to nurture skills internally rather than seeking difficult-to-find skilled up professionals
“Specific ESG experience in acquisition and [building] management experts is still a rarity,” Dr Raphael Mertens, chief risk officer at Allianz Real Estate and head of ESG told AsianInvestor.
He said the company was in the process of hiring an ESG specialist exclusively to cover Asia, a role that requires investment manager hires to have a good grasp of ESG, he added.
However, he said that it was currently focusing on developing ESG skills internally, highlighting training of its acquisition and management teams in Asia. He said the focus was on how they should collect and apply criteria in a form that can be easily fed into environmental benchmarks.
“It’s important to over time that we drive the whole team in a direction where they improve,” he said, adding another important focus was ensuring that buildings owned by Allianz Real Estate consume as much renewably generated power as possible.
Mind the social gap?
For many investors from outside Asia who have taken social and governance principles into their investments from the start, environmental impact is the main focus.
OMERS infrastructure is one such investor. Christopher Curtain, Omers Infrastructure’s head of Asia Pacific in Sydney told AsianInvestor: “Social and governance have always occupied a lot of discussion,” he said.
He said the SG part of the equation was already playing out with strong board representation, strong stewardship, looking after staff, as well as appreciating the central role many of its investments play in the local economy.
However, there was now everything to play for with the E in ESG.
“The environmental piece has grown over the years and been refined: that’s the area that offers the most opportunities,” he said.
Despite this, expert opinion remains divided on whether the three pillars of ESG are truly working in concert.
In July, Fiona Reynolds, departing CEO of the United Nations’ Principles for Responsible Investment (PRI) told AsianInvestor that for the majority of investors, social responsibility was lagging environmental engagement in Asia.
“[Investors have] fallen short around social issues. There is an S in ESG, and it is completely overshadowed by the environment and climate issues, while people started thinking about governance in the early days of responsible investing,” she said. “What I would like to see is that governments also look more to social issues, while investors need to get good reporting and data on them. I’ve never understood why people ignore people.”