Why Asia instos must respond faster to climate crisis

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)

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.”