Politics
ESG investments increased in Asia-Pacific in 2020, according to MSCI survey
Chinese tourists wear masks to protect themselves from pollution outside the Forbidden City on a high pollution day in Beijing, China.
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Sustainable investing is taking off in Asia-Pacific as institutional investors ramped up their environmental, social and governance (ESG) investments during the coronavirus pandemic last year.
ESG investing prioritizes a company’s positive contributions to its community, the environment and its social impact. Rating companies on ESG measures allows socially conscious investors to select potential investments based on their investment objectives and values.
The global pandemic has increased the importance of ESG issues among investors, highlighting how catastrophic events such as climate change would impact investment returns.
About 79% of Asia-Pacific investors increased their ESG investments “significantly” or “moderately” in response to Covid-19, according to a recent MSCI 2021 Global Institutional Investor survey.
This is a slightly higher share than the 77% of investors globally who increased sustainable investments over the period. Overall, the figure rose to 90% for larger institutions, or those with more than $ 200 billion in assets, according to the survey.
Meanwhile, 57% of Asia-Pacific investors expect to have integrated ESG issues “completely” or “to a large extent” into their investment analysis and decision-making processes. by the end of 2021.
“Once an issue for ‘green funds’ and side pockets, ESG and climate are now firmly established as high priority issues,” said Baer Pettit, President and COO of MSCI, in the report. “The year 2020 marked a profound shift in the way institutions invest, as many investors have recognized that many companies with strong environmental, social and governance practices have outperformed during the pandemic.
MSCI, a leading index provider, surveyed around 200 sovereign wealth funds, insurers, endowments, foundations and pension funds with combined assets under management of $ 18 trillion. About 70 of the institutions were from Asia-Pacific.
“ESG analysis and integration is increasingly common in the APAC region, and the adoption rate has increased during the pandemic,” said Gabriel Wilson-Otto, global head of sustainability research at French bank BNP Paribas Asset Management, in an email interview.
This is mainly due to the fact that Covid-19 has put “a spotlight on business behavior, business resilience and broader sustainability issues,” he noted.
“The human cost of the pandemic has underscored the importance of robust healthcare systems, employee treatment, and contributed to record social bond issuance in 2020 as investors sought to channel capital toward solutions,” Wilson-Otto pointed out.
He added that a key driver is the growth of “value-based” investing in thematic and ESG investment products, aided by a generational shift.
“As a result, there has been a shift in focus from ‘integration of ESG can hurt returns’, towards a growing recognition that sustainable business practices can be aligned with resilience of companies,” Wilson-Otto said.
Impact of climate change
In particular, some Asia-Pacific countries are among those leading the way on climate change considerations.
About 50% of investors in Asia-Pacific countries, excluding Australia, New Zealand and Japan, consider climate change parameters for decision making compared to the average 42% worldwide, according to the MSCI report.
“The reality is that climate change is linked to a rapidly changing social context which, in turn, is driving changes in investor demands, all in a very dynamic regulatory environment,” Pettit said in the report. “These trends are amplified by technological innovation, which adds significant costs and time pressure. Quite simply, investing has never been a more complex ecosystem.
Although starting from a position of higher carbon emissions, there is a growing awareness of climate change issues across the Asia-Pacific region and a growing ambition to address its impact, Wilson said. -Otto.
“The series of ‘net zero’ emissions targets announced by countries in Asia-Pacific towards the end of 2020 highlight how quickly the political landscape can change,” he added. This is further amplified by the “strong growth in the integration of ESG analysis into investment decisions in China and India,” he noted.
China remains the the largest greenhouse gas emitter in the world, responsible for 28% more global emissions than the United States and the European Union combined.
But by surprise, Chinese President Xi Jinping at the United Nations General Assembly last year pledged the country would become carbon neutral by 2060. This was quickly followed by similar pledges fromJapan and South Korea.
“The increased focus of the government on solving environmental problems in China over the past 10 years has been a direct driver of environmental problems that have become financial problems for many issuers,” Wilson-Otto said.
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