Private capital is booming in the Asia-Pacific, and so is sustainable investing. The region now leads the world in bringing these two investment strands together, with a strong emphasis on shared values between private asset owners and managers.
Investors in Asia Pacific (APAC) place a high priority on asset managers’ research, reporting and disclosure capabilities, as regulators in the region are insisting on clearer, more consistent, and transparent standards around environmental, social, and governance (ESG) reporting.
The challenge is therefore on asset managers to ensure not only that they are in compliance with new regulations, but also that they are using the full suite of analytics tools to leverage the ESG data now at their disposal – catering to the growing expectation in the region among asset owners for clear information on the impact of their investments.
New rules for a new world
Streamlined regulations are key to a wider integration of ESG norms into investment processes around the world, according to the BNP Paribas’ ESG Global Survey 2021. Nearly two-thirds of global investors expect ESG regulations to accelerate and deepen the adoption of ESG strategies, according to the survey.
Authorities across APAC are playing a leading role. Hong Kong’s Securities and Futures Commission in January 2022 introduced enhanced disclosure requirements for ESG funds, while the Monetary Authority of Singapore is moving towards a more detailed and prescriptive approach to ESG issues, including issuing guidelines for portfolio construction and risk management.
Meanwhile, New Zealand’s Financial Sector (Climate-related Disclosures and Other Matters) Amendment Bill, introduced in 2021, requires large financial market participants to disclose information about climate change-related risks and opportunities. And the Australian Prudential Regulation Authority’s Superannuation Data Transformation Programme updated reporting standards in 2021, including practices related to climate change financial risk management.
Furthermore, exchanges in Malaysia, Thailand and Vietnam have made ESG reporting a listing rule for all companies. The Association of Southeast Asian Nations (ASEAN) has also set up the ASEAN Taxonomy of Sustainable Finance to promote the adoption of green finance and encourage sustainable development.
More demanded of asset managers
In this new environment, enhanced ESG reporting, and disclosure requirements will help institutional investors better structure their investments, while asset managers will be compelled to leverage ESG analytics tools, accurately explain their portfolio performance, and deliver better value to their investors.
Indeed, those who do not do so will struggle to compete. The BNP Paribas study showed 47% of APAC investors highly value a manager’s ESG research capabilities when selecting an investment manager for ESG-factored investments, compared to a global average of 35%. Some 55%, meanwhile, say the alignment between the manager and its ESG values and mission is crucial (compared to 47% globally), and some 40% say the same of the managers’ ESG reporting and disclosure capabilities.
The emphasis on research, reporting and disclosure underscores a key goal of the suite of new regulations: to encourage genuine and efficient sustainable policies that facilitate investors’ attempts to align their investments to their ESG commitments.
As Michael Woolley, Director, Sustainability at Singapore-based Eastspring Investments, noted, “Regulation has a big part to play, and harmonisation of regulation is very important as well. Otherwise, there could be confusion or conflict between different regulatory systems. It will be difficult to have an ‘apples to apples’ comparison until you have data consistency, and that is a significant challenge.”
The good news for APAC is that while Europe is leading in adopting ESG regulations, the region is quickly catching up in terms of recognising the role regulations play in addressing ESG-related issues, and designing and implementing a coordinated regulatory approach, according to a report by auditing firm EY.
“As APAC regulators boost their ESG guidelines, we are pleased to see investors welcoming and leveraging them to create better value for themselves,” said Josephine Maiorana, Head of Regulatory Watch & Market Advocacy, APAC at BNP Paribas Securities Services. “Regulations need to be looked at as catalysts, not obstructions, to climate-aligned investments.”