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Demand from investors drives shift towards sustainable business in Asia

Firms are upping their environmental, social and governance game as asset managers offer their clients more sustainable investment funds in the region

PUBLISHED : Wednesday, 07 March, 2018, 3:53pm
UPDATED : Tuesday, 03 July, 2018, 5:31pm

Many Asian companies remain reluctant to step up their environmental, social, and governance (ESG) efforts, unaware of the potential financial benefits of doing so. But greater supply-chain transparency, support from regulators, and engagement from investors are starting to drive changes in sustainable practices in the region, analysts said.

There is growing evidence that ethical and sustainable business practices allow companies to better manage risk and explore opportunities in a fast-changing world, and this can make them more profitable than firms that cut corners or ignore such issues. This also makes them a better bet for investors.

We believe that good ESG policies in the long run will lead to better and more stable investment returns
Masja Zandbergen, head of ESG integration, Robeco

More than 2,000 academic studies have been conducted on the relationship between ESG and corporate financial performance, with 92 per cent of them showing a positive or neutral correlation between sound sustainability practices and stock price performance, according to the University of Hamburg.

To meet the growing interest from investors, more ESG or thematic funds are being offered to attract private capital.

“We are seeing a growing interest in sustainable investment in Asia. The greatest interest is in our thematic strategies tackling sustainability challenges such as water, climate change, resource efficiency or sustainable food,” said Alex Ng, chief investment officer Asia Pacific at BNP Paribas Asset Management.

According to the Global Sustainable Investing Alliance, sustainable investments under management reached US$52 billion in Asia in 2016, a 16 per cent increase on 2014, but still much lower than Europe’s US$12.04 trillion.

In the coming month or so, UBS is expected to launch the first fully sustainable, cross-asset portfolios in Asia. The Swiss private bank’s sustainable assets under management grew 80 per cent in Asia last year. About half of subscriptions raised by UBS came from its Asian investors in a US$2 billion global impact fund called The Rise that was led by private equity manager TPG and UBS, as well as the US$471 million Oncology Impact fund. The latter invests in companies involved in cancer research and treatment, and is led by US-based MPM Capital and UBS. The Rise fund is the largest private investment impact fund ever raised.

“Many of the most exciting investing opportunities are in the fast-growing sectors which are also impact sectors. That’s a realisation that is quite new,” said James Gifford, head of impact investing, global wealth management, at UBS.

For Dutch asset manager Robeco, when it comes to sustainable investments, the focus tends to be on the integration of ESG factors and active ownership, such as engagement and voting.

“We are talking to many companies in Asia on topics like board independence and quality, remuneration policies and capital allocation policies,” said Masja Zandbergen, head of ESG integration at Robeco. “To start reporting on carbon footprint or human capital management will lead to more knowledge and ultimately better policies and procedures. We believe that good ESG policies in the long run will lead to better and more stable investment returns.”