Sustainability is increasingly getting attention from institutional asset owners in Asia but progress here is still proving too slow to make a sufficiently meaningful impact, according to a new industry report.

Despite their huge responsibility, given the outsized assets under their management (see table below), the Asia-Pacific region's asset owners remain behind the curve in getting portfolios aligned with key issues of climate change and governance, says the study by Willis Towers Watson (WTW).

And as long as that continues, that's bad news for the planet, it suggests.

Asset owners are “too important” to fail in their mission, said Jayne Bok, head of investments in Asia at WTW in Hong Kong. “They have no real choice but to take seriously their financial stakes and real world responsibilities and to lead from the front in addressing the big issues.”

Top 20 APAC asset owners (in US$ million)

Global Rank

Organisation

Country

Total Assets

Primary Category

1

Government Pension Investment

Japan

$1,374,499

Pension Fund

3

China Investment Corporation

China

$941,420

SWF

7

National Pension Service

South Korea

$573,259

Pension Fund

8

Hong Kong Monetary Authority

Hong Kong

$509, 353

SWF

11

SAFE Investment Company

China

$439,837

SWF

12

GIC Private

Singapore

$390,000

SWF

14

Temasek Holdings

Singapore

$374,896

SWF

15

National Social Security

China

$325,002

Pension Fund

19

Central Provident Fund

Singapore

$286,963

Pension Fund

26

Employees Provident Fund

Malaysia

$201,687

Pension Fund

28

Local Government Officials

Japan

$199,522

Pension Fund

33

Employees' Provident

India

$145,372

Pension Fund

37

Korea Investment Corporation

South Korea

$131,600

SWF

47

Pension Fund Association

Japan

$104,966

Pension Fund

48

Future Fund

Australia

$103,391

SWF

51

Labor Pension Fund

Taiwan

$102,711

Pension Fund

53

AustralianSuper

Australia

$99,990

Pension Fund

54

National Federation of Mutual Aid

Japan

$99,486

Pension Fund

83

Nulis Nominees (Australia)

Australia

$71,400

OCIO

85

National Public Service

Japan

$68,549

Pension Fund

Source: WTW

WTW, via its Thinking Ahead Institute, has just published the second part of a study of the world's top-100 investors. It notes that global best practice on sustainability for asset owners is on an upward trajectory. “But it still has a long-way to go,” Bok said.

“We have already seen countries such as Japan leading the way in sustainable investing, but change is not happening fast enough to reverse the damage already being caused by issues such as climate change,” she told AsianInvestor. 

CULTURAL TRANSFORMATION REQUIRED

To accelerate this, the study encourages asset owners in Asia to undergo a cultural, operational and transformation that puts sustainability at the core of all investment models.

“Asset owners continue to be asset rich but time poor, so improving the governance model is a key challenge,” Bok said. “The larger asset owners are starting to evolve their mix of internal and external intellectual capital, to create more networked thinking, thus increasing their influence.”

The development of key external strategic relationships is an important element of this process. Bok said “asset owners are extending beyond asset managers and are going deeper with others in the value chain. They are looking for opportunities to improve decision-making through collaboration and are seeking deeper relationships from engaged partners, where values, costs and incentives are in sync.”

On the investment side, the report said funds have to explore new opportunities “in a market environment where most opportunities do not meet current targets. Factor investing is set to have a bigger profile and private markets are increasingly significant in the opportunity set.” 

In practice, as Bok acknowledged, asset owners have limited scope to integrate these ideas within their current capacity: “The human capital required can be significant”

But as these investment ideas (smart beta, private equity) become more mainstream, “accessibility has improved substantially and there are more products available.”

She said a good example of the greater involvement of small- and medium-sized asset owners would be the endowments and foundations space “which have been active adopters, despite their much smaller size.”

The largest global foundations and endowments (in US$ billions)

Source: WTW

Bok added that while she had detected a step-change in attitudes among insurance companies, sovereign wealth funds are still struggling when it comes to sustainability “due to political constraints”.