Asia-Pacific asset owners and asset managers are leaping ahead of their European and North American counterparts by incorporating Environmental, Social and Corporate Governance (ESG) into their investment strategies, despite a lack of relevant data and rising costs.

According to a report by BNP Paribas Securities Services, about 84% of 135 institutional investors from Asia-Pacific currently incorporate ESG into their investments, although 61% of Asia-Pacific institutional investors see the lack of robust data as a barrier to further adoption. The level of ESG adoption by Asia-Pacific asset owners and asset managers is higher than the 82% level in Europe and the 70% level in North America.

However, investment in ESG alternative assets are expected to increase 22% across Asia-Pacific although 31% of global asset managers are worried about the mounting costs of incorporating ESG into their portfolios.

“The research shows that Asia-Pacific has learned from the experience of more developed markets and is placing more emphasis on ESG in the early stages of market developments, which can only be a good thing. From the survey we see that investors in this region are looking closely at ESG from an expertise and resources perspective, investment allocation, board oversight, and from a regulatory risk point of view,” says Madhui Gayer, head of investment analytics for the Asia-Pacific region at BNP Paribas Securities Services.

The survey included a total of 460 institutional owners and asset managers globally, representing about US$5.4 trillion in assets under management.

Asia-Pacific respondents included institutional asset owners and asset managers from China, Hong Kong, Japan, India, Malaysia, Singapore, Australia and New Zealand, representing US$1.4 trillion in assets under management.

And while a fifth of Asia-Pacific institutional investors currently market a majority of their funds as ESG-compliant, more than 60% expect to do so within two years, highlighting that the world’s fastest-growing region is also moving fast in the direction of sustainability.

According to the survey, 46% of Asia-Pacific respondents felt environmental considerations were the most important, compared with 29% for corporate governance and 25% for social concerns.

Across Asia-Pacific, a lack of robust data was cited as the most significant barrier to further incorporation of ESG, with 61% of institutional investors agreeing. However, Asia-Pacific’s institutional investors are confident they will overcome this challenge in two years. Only 9% expect data to remain a barrier to further ESG incorporation.

“This shortage of data to support ESG investments has led some senior management ranks to be more sceptical, which has in turn limited adoption across the Asia-Pacific region, and globally more generally. However, smart data, artificial intelligence and ESG specialists will play a crucial role in helping to break down these barriers in the next few years.”

Among the top markets where ESG is catching up is China where pollution and clean air have been a major challenge for investors, the government, and the general population.

“In China, where environmental concerns remain front and centre of policy-makers’ minds, respondents were more emphatic than any other single location in terms of their plans to recruit specialists in ESG integration,” Gayer says.