Institutional investors in Asia-Pacific are tracking ahead of their global peers in aligning their strategies with the goal of achieving carbon neutrality by 2050 as environmental, social and governance considerations become increasingly core to businesses.
A BNP Paribas survey shows that 47% of investors in Asia-Pacific have made commitments to align investment strategies with the 2050 goal, compared to 42% globally. Within the region, Chinese investors exhibited the highest level of commitment at 63%, followed by Singapore at 57% and Japan at 54%. The French bank's ESG Global Survey 2021 respondents comprised 356 asset owners, official institutions and asset managers globally.
"When we look at the [Asia-Pacific] data, you can see that a lot of the territories where you have the highest level of aligning already with net-zero [...] are the ones that have made these net-zero commitments," Paul Milon, head of stewardship for Asia-Pacific at BNP Paribas Asset Management, said during a conference call.
Several economies in Asia-Pacific, including Japan, South Korea and Hong Kong, have already committed to reaching net-zero carbon emissions by 2050, and mainland China aims to meet the same target by 2060. Singapore has not yet announced a net-zero goal, but its central bank has been placing emphasis on its green finance action plan, which includes strengthening the financial sector's resilience to environmental risks.
Compared with other regions, European investors exhibited similar commitment levels to those in Asia-Pacific, while U.S. counterparts lagged behind, said Nadim Jouhid, head of investment solutions at BNP Paribas Securities Services Asia Pacific. Europe's high level of investor buy-in can be attributed to the region's early start in ESG, although Asia-Pacific has been catching up with a relatively fast pace, Jouhid said.
Looking ahead, Jouhid does not expect any significant change in how European and Asia-Pacific investors approach ESG over the next year.
Brand image matters
More than half of institutional investors in Asia-Pacific said brand image and reputation are the strongest drivers for them to incorporate ESG into their investment decisions, broadly in line with the global trend. External stakeholder requirement is the second most important factor, according to survey results, followed by improved long-term returns and decreased investment risk.
"Players in these markets definitely have a great incentive to be part of that story [of net-zero and the green finance action plan] and that focus by the regulators and policymakers," Milon said.
Within the region, 91% of investors in mainland China cite brand as the key driver for incorporating ESG into their investment decisions, while Australian investors said external stakeholder requirement is the main reason, followed by pressure from board or activist investors.
Data challenges persist
Although institutional investors continue to incorporate ESG into investment strategies, they said data quality and consistency are major barriers to further adoption. To deal with inconsistencies in ESG data, 73% of investors use and compare multiple sources of data, although doing so adds further complexity within the organization.
Compared to the 2021 survey, investors cited the lack of data availability as the key challenge in the previous iteration of the survey in 2019, Jouhid said. This indicates that there are many more ESG data providers today, Jouhid said, although integration is now a challenge for investors.
"Having multiple data sources is great, but it opens up a whole new can of worms, where a company needs to invest into a solution that allows them to integrate and aggregate technology across the board," Jouhid said.