Climate change: Asian investors aware of risks but face obstacles in directing capital to mitigate them, survey finds

Study found most investors in the region have established climate policies and set long-term targets to reach net-zero emissions
But there are ‘significant barriers’ to establishing short- or medium-term climate targets or realigning capital flow at the rate required

ESG investing

Yujie Xue

Published: 6:00am, 30 Nov 2023

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Asian investors are highly aware of the risks associated with climate change but face barriers in setting feasible targets and directing their capital to mitigate those risks, a new report found.

A total of 116 Asia-headquartered investors with a combined US$27 trillion of assets under management (AUM) have publicly recognised global warming as a source of material risks and opportunities, according to a new analysis published by the Asia Investor Group on Climate Change (AIGCC) on Thursday.

The report, which will be released in full in the first quarter of next year, analysed the environmental practices of 183 Asian investors with US$33 trillion in AUM in 15 markets, including China, Hong Kong, Taiwan, India, Japan, South Korea, and Singapore.

It found the majority of investors in the region have established climate policies and set long-term targets to reach net-zero carbon emissions, and performed well in making widespread climate disclosures aligned with the leading standard, the Task Force on Climate-Related Financial Disclosures.

However, there seem to be “significant barriers” to establishing short- or medium-term climate targets or realigning capital flow at the rate required to protect the region from the related economic and physical damage, according to the report.

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Only 36 investors with US$8 trillion of AUM have set interim targets, and just 20 with US$5 trillion of AUM intend to direct a proportion of their funds towards climate solutions, the AIGCC’s survey showed.

“Asia’s major investors have undeniably recognised that climate is going to move markets and reshape the region’s economic outlook, but policy barriers prevent them from actually moving the capital to mitigate climate risks in Asia,” said Rebecca Mikula Wright, CEO of AIGCC in a statement on Thursday.

The AIGCC report comes immediately ahead of the United Nations COP28 climate summit that kicks off this week in Dubai, where delegates from around the world will discuss the possibilities for more ambitious action to respond to the worsening risks of global warming.

There is a high inherent exposure to physical climate risk in 14 industries with US$6.1 trillion in rated debt, according to a report, published on Wednesday, by credit ratings agency Moody’s that analysed 90 sectors accounting for US$82 trillion in rated debt. These sectors, including agriculture, energy, property, and chemicals, are highly exposed to risks such as rising sea levels, wildfires, water stress, extreme heat, and increased frequency and severity of hurricanes.

Sixteen sectors, including coal mining and oil and gas refining, that together hold US$4.9 trillion in rated debt, face high or very high exposure to carbon transition risks, such as tighter emissions standards necessitating substantial investments in carbon-reducing technologies, according to Moody’s.

“Under the right local policy conditions, private investors can quickly deploy significant capital that will support governments’ growing responsibilities on climate,” said Mikula Wright.

Commitments at the centre of the COP28 agenda this year, including tripling renewable energy capacity and phasing out fossil fuels, are the kinds of policy signals that will attract Asian investors’ capital, she said.

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