Asset owners worldwide are moving quickly to integrate environmental, social and governance (ESG) factors into their investment strategies, and in this regard the Covid outbreak seems to have had a particularly big impact on allocators in Asia Pacific. The latter group are also well ahead of their counterparts in North America, and notably the US, when it comes to ESG-related allocation.
There were among the findings of an indepth survey* by British investment consultancy Bfinance that were seen by AsianInvestor before being widely released at 2pm Hong Kong time today (February 8).
The research polled 256 senior staff at asset owners such as pension schemes, foundations and insurance firms in December. It looked into areas such as the importance of ESG criteria to manager selection and the degree of integration of ESG factors for different asset classes, with the coronavirus featuring heavily in the findings.
“As the dramatic events of 2020 unfolded, fears that the pandemic would distract attention from ESG agendas proved to be unfounded,” Bfinance said in the report. “In reality, quite the opposite occurred: 32% of investors say that the pandemic has resulted in ‘more focus’ on ESG issues; only 3% say less.”
It is in Asia where Covid has had the biggest impact on institutional investment teams’ approach to ESG issues, according to the survey (see graph below).
Asked why she thought that was the case, Kathryn Saklatvala, London-based head of investment content at Bfinance, told AsianInvestor: “We were surprised to see the difference between Asia Pacific and other regions with respect to this point – especially given that the pandemic has been more economically damaging in a number of western nations.”
Asian countries, on the whole, imposed lockdowns more swiftly and decisively than many of their counterparts in Europe and the US and have subsequently staged a quicker and stronger economic rebound.
In many key areas of ESG-related investment, meanwhile, Asia-based asset owners are closer to their European peers – the leaders in this space – than are institutions in North America, the Bfinance poll shows.
About seven in 10 Asian institutions said they had an ESG, responsible investment or sustainable investment policy. The figure was 76% for Europe and 56% for North America. (Notably there is rapid evolution in this area: 47% of the investors globally with an ESG policy said it was incepted within the last three years.)
Meanwhile, four in 10 (44%) of Asian institutions have a headcount dedicated to ESG/responsible investment, compared to 53% in Europe but just 27% in North America.
Similarly, 42% of asset owners in Asia assess the carbon emissions footprint of their portfolio, as against 58% in Europe and 27% in North America.
Moreover, around eight in 10 of both Asian and European asset owners said that they had stricter ESG criteria in fund manager selection and had modified their treatment of ESG in manager due diligence compared to three years earlier. Those figures fell to 68% and 65%, respectively, for those two activities among North American respondents.
It is likely that US institutions are the main drivers of the lack of appetite for responsible investment, given that Canadian pension capital is known for its focus on sustainable and socially responsible allocation.
“The US has remained somewhat out of step with other countries in terms of ESG matters,” Saklatvala said. “If anything, those divisions have become more evident in the last three years. We see that continuing in the short term, though things may well shift under a more receptive US administration that has rejoined the Paris accord.”
There may be a move in the US towards a more coherent policy and regulatory approach that filters down to asset owner activity and resourcing, she added.