Environmental, social and governance (ESG) considerations have taken centre stage in the investment community. Asset owners and managers are increasingly integrating ESG factors into investment strategies, seeking to align their portfolios with sustainability goals. This shift has brought about a surge in demand for ESG-related services. And custodian banks and fund administrators are ramping up their capabilities to meet this demand.
The goal of ESG investing is to engage with investee companies to improve their practices, encourage them to embrace a broader set of values, and regularly monitor their activities to make sure standards are kept and impacts are generated.
It is not just about ticking boxes and screening companies. The tightening of regulations on "greenwashing", the gradual unification of standards and regulations, and the increasing focus on ESG impact and effectiveness have taken ESG investing to the next level of development. In this respect, asset service providers play an important role in supporting ESG research and data sourcing.
The Asset Servicing Insights 2023, an asset survey conducted by Asset Benchmark Research, finds that a substantial portion of asset owners and managers in Asia rely on their service providers for ESG-related support. Approximately 60% of respondents engage these providers for ESG advisory and research, while 53% tap them for relevant ESG data. These figures are consistent with the previous year's results, indicating a sustained and stable demand for ESG services.
One of the standout findings of this year’s survey is the remarkable growth in the adoption of ESG-related services by Chinese asset managers and owners. About 69% of respondents from China obtain such services from asset service providers, marking a significant 30% increase from the previous year. This surge reflects China's increasing commitment to ESG principles and sustainable investing practices as the country aims to reach the peak of its carbon emissions by 2030 and achieve carbon neutrality by 2060.
Beyond China, Asset Servicing Insights 2023 identifies Southeast Asian countries as hotspots for ESG-related service demand. Indonesia stands out with an impressive 86% of asset managers and owners seeking ESG services from asset service providers. Malaysia records a respectable 63%. These statistics indicate a region-wide drive towards ESG integration and solid demand to source related services from asset service providers.
Hong Kong is one of the leaders in ESG investing in the region. About 75% of asset managers and owners from this market utilize custodian banks and fund administrators for ESG services.
For asset managers and owners who do not rely on asset service providers for ESG-related services, the majority (73%) choose to handle their ESG requirements in-house. This suggests a significant level of internal expertise and commitment to ESG integration. However, 10% of respondents prefer to outsource these services to other providers, indicating a willingness to collaborate with specialized ESG-focused organizations.