Thanks to a governmental push as well as growing ESG awareness and compliance among institutional investors, sustainability is quickly picking up in Asia, though challenges still exist.
Featuring Christopher Hui, executive director, Financial Services Development Council; Karine Hirn, partner, chief sustainability officer, East Capital; William Ng, ESG engagement analyst, investment team, HSBC Global Asset Management; and Paul Milon, sustainability and ESG integration specialist, BNP Paribas Asset Management; the first panel at The Asset's 2nd ESG Forum held in Hong Kong on December 5 addressed some of the challenges in developing ESG investing.
Asia is still in its initial stages compared to Europe and the US in terms of investing sustainably. “The Europeans are far ahead in ESG, and the US is catching up. Japan is strong in ESG compliance in the pension space,” says Hui.
The nature of the market in this part of the world is one of the obstacles in quickly deploying sustainable investment strategies. “European investors mostly eye the long term thanks to the market structure - we have a lot of pensions here. The long-term perspective needs to be seen more in Asia so that sustainable investing in this part of the world can further develop,” says Hirn.
However, this can also be seen as an opportunity. “There are more short-term investors in Asia. but this also indicates an opportunity for us in the region,” comments Ng.
“There is no regional leader in Asia. But Hong Kong regulators are showing commitment and effort in developing ESG. This market is potent to be a regional leader,” Hui says, noting that local regulators are enhancing rules and requirements in areas such as ESG disclosure.
Another challenge is related to data and analysis. Asia lacks reliable ESG data in terms of quality and quantity, according to the panellists. “Data and analysis are very important in further enhancing the ecosystem of developing ESG,” says Hui. “Bad data could be misleading. Enhancing data collecting could be an interesting market for some asset managers,” Hirn adds.
Greenwashing is one area that has attracted quite a lot of discussion recently. “There is a lot of cases of greenwashing in ESG compliance. To address this issue, before investment, we set up our own ESG scores and carried out ESG analysis. Second, for the companies that have lower ESG scores, we engage with them to help the companies improve the weakness we identified. Lastly, we have KPIs or benchmarks to make sure the ESG investment is on the right track,” says Milon.
Despite the challenges, momentum for ESG investing is quickly picking up in Asia. The panellists agreed that in this part of the world, ESG can develop even faster than in other developed markets such as Europe.
“ESG is not just a means to prevent risk but to enhance investment. Many institutional investors are looking at ESG as an asset class, but they also generate values in terms of financials, internal staff, and the reputation of the company. This shift towards sustainability is not just about ESG investment as a financial means but about generating values,” Hui says.