This article is intended for Institutional Investors (as defined in the Securities and Futures Act, Chapter 289 of Singapore) only and is not suitable or intended for persons who do not qualify as such.
Despite a major step-up in sustainable investment in Asia Pacific, there are considerable variations in standards between countries. Close engagement and stewardship can lead to real improvement where needed.
Over the last five years, there has been a step change in the focus on sustainable investment in the Asia Pacific region. Nowhere is this more evident than in Japan, where assets managed in sustainable investment strategies grew from USD 7 billion to over USD 2 180 billion between 2014 and 2019 (based on Global Sustainable Investment Alliance data).
This increased focus is being driven by a wide range of stakeholders including:
However, we note that the level of engagement from these stakeholders and the growth of sustainable investment strategies varies significantly between different countries within the region.
Unintended consequences and the risk of greenwashing
The growing focus on sustainable investment practices and the use of ESG scores to evaluate corporate performance are positive developments, but have introduced a new set of challenges. Increasingly, companies have an incentive to misrepresent or exaggerate their sustainability credentials. With this in mind, it is not surprising that there is a strong relationship between company size and the length of formal corporate social responsibility (CSR) or ESG reports.
This means investors need to distinguish between companies that treat sustainability issues as a public relations exercise (‘greenwashing’) and companies that ‘walk the talk’, demonstrating a culture and track record of performance that reflects strong engagement with underlying ESG issues.
The benefits of company engagement and stewardship
In the Asia Pacific region, gaining insight into a company’s ESG performance is complicated further by low levels of data disclosure (in particular when compared to Europe) and the many different regulatory requirements and company norms in the region. As a result, investors often do not have enough reported data to effectively evaluate a company’s ESG performance relative to its peers.
In our view, this increases the importance of engaging directly with companies to assess their culture, performance and engagement with ESG issues. Company engagement is a critical component of BNP Paribas Asset Management’s Global Sustainability Strategy. It is used to help supplement investment analysis and positively impact the broader environmental, social and financial systems in the region.
Company engagement and the investment process
We highlight three main categories of engagement with companies and policymakers that can improve an investment process and drive positive change.
The ESG issues or business strategies targeted by different asset managers’ stewardship activities can vary significantly. As outlined in our Global Sustainability Strategy, our focus areas in Asia Pacific include: