Whilst optimistic about the direction of travel when it comes to ESG investment in Asia driven by positive comments by Hong Kong authorities and China putting capital behind green finance, more progress can – and is expected – to be made, a panel of experts told Funds Global Asia
at a recent roundtable.
While the continent has traditionally lagged behind its global peers when it comes to ESG allocation – 10% compared to 18% globally according to BNP Paribas survey – it is seeing growth, and many believe that the gap will narrow over time – particularly with greater availability of better-quality data.
As China, a vast market of more than a billion people, opens up to foreign investors with the internationalisation of its A-shares market, investors are sensing the benefit of using foreign capital market practice as a way of helping to encourage reform within Chinese companies.
Highlighting regulatory support in the region as another key factor, Ben Sheehan, senior investment specialist at Aberdeen Standard Investments said: “The Hong Kong Management Authority came out with measures to support climate change risk and sustainable finance, and one of those was to prioritise their capital allocations towards asset managers who can provide ESG solutions. That is certainly a positive signal for the industry.”
Last month Hong Kong issued its debut green bond and is looking to earn a reputation as a green finance centre.
“What is really going to change the momentum here in Hong Kong is when we see more initiatives from asset owners and the large institutional investors in Hong Kong,” said Karine Hirn, partner and chief sustainability officer at East Capital.
“The Hong Kong Government‘s planned HK$100 billion (US$12.74 billion) green bond programme is a big deal, it makes people change and think differently. Hong Kong was really lagging behind in terms of green finance, and now it is the third largest green bonds market in Asia after mainland China and Japan in just a very short time,” she added.
The climate emergency has been thrust into the media spotlight and investors are considering how they integrate climate concerns into portfolios and the investment process. “Our approach is around trying to support an energy transition where we are looking at the carbon intensity of a company’s energy or power production portfolio,” said Gabriel Wilson-Otto, head of stewardship for Asia at BNP Paribas Asset Management.
“The other areas that we look at where climate change impacts filter through is on deforestation and our approach to managing companies with that style of risk,” he added.
Aside from the obvious heavy carbon emitters – the oil and gas, utilities and mining sectors – which other areas are investors engaging with?
“[Approximately] 25% of the global carbon emissions comes from agriculture,” said Ben Colton, head of Asia Pacific asset stewardship at State Street Global Advisors. “The agriculture and food and beverage sectors are probably the most susceptible to the negative implications of climate change,” he added, highlighting the importance of considering how companies are adapting and positioning themselves to either capitalise on or mitigate against transition to the lower carbon economy.
The ESG roundtable was held in Hong Kong and will be available in Funds Global Asia’s summer report in July 2019.
©2019 funds global asia