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.
As sustainability considerations grow in importance for institutional investors worldwide, BNP Paribas has found that those in the Asia Pacific (APAC) region are increasingly leveraging the universal framework to align their investments / taking a holistic approach to aligning with the universal framework.
According to BNP Paribas’ ESG Global Survey 2021, 35% of institutional investor respondents in APAC said they try to align their investments with all of the UN’s 17 Sustainable Development Goals (SDGs). By comparison, the figure globally is 32%.
The numbers come from our questions to institutional investors on their attitudes to SDGs that cover five areas: climate change and sustainability; human rights and social issues; health, well-being and quality of life; work, growth and responsible consumption; and biodiversity and life on Earth.
In the five APAC markets we assessed – China, Hong Kong, Japan, Singapore, and Australia – institutional investor respondents appeared to be most focused on the group of SDGs that relate to climate and sustainability: 85% align their investments factoring these into account, only slightly below the global average of 89%.
APAC institutional investors lag the world in the other four SDG groupings, though – and significantly in three of those. While 44% say they align their investments with the SDGs related to work, growth, and responsible consumption (just behind the global figure of 46%), only 38% consider SDGs on health, well-being and quality of life compared with 53% globally.
And while one-third say they do so for SDGs related to human rights and social issues (globally, 56% do), just 8% of APAC institutional investors we surveyed factor in SDGs on biodiversity and life on Earth; that is far behind the global figure of 37%.
For sustainable investing, asset classes matter
Also of interest is our finding that regional investors who factor environmental, social and governance (ESG) considerations into their strategies are increasingly keen to seek out the right asset class to buy into.
This chimes with a paper published by the Principles of Responsible Investment (PRI), a UN-supported network of investors, which notes that the role investors play in shaping SDG outcomes hinges on the asset classes they invest in, the markets they operate in, and the size and duration of the investment. By way of example, the ownership shares and medium-to-long-term horizon in private equity and infrastructure projects give investors greater scope to shape outcomes.1
When it comes to aligning investments and sustainability, APAC institutional investors are more focused on certain alternative assets. Take private equity and debt: 43% say they use this asset class to integrate ESG, compared with 38% globally, while 29% use thematic ETFs versus 22% globally. Equities, on the other hand, are favoured by 69% of respondents globally, but by just 58% of those in APAC.
Additionally, 35% of institutional investors in APAC are choosing to align only their impact and thematic strategies to relevant SDGs, compared with 34% globally.
It is heartening to see regional investors care more and more about the long-term impact of their investments.says Caleb Wong, Head of Alternatives for Asia-Pacific region at BNP Paribas Securities Services.
Asset managers in APAC are well positioned to help them enter the hard-to-navigate ESG space for alternatives and accelerate investments into private equity, venture capital, infrastructure or pension funds.
Encouragingly, 41% of APAC institutional investors surveyed report to be also signatories of the PRI, which plays a pivotal role in helping the world meet the SDGs. This is only slightly lower than the global figure of 44%.
That said, the survey shows there is plenty of room for improvement in APAC. While we saw earlier that 35% of respondents try to align their investments with the SDGs, we also found just 14% manage to comply with the SDGs – well short of the global figure of 24%.
If nothing else, the results show that the substantial gap between ambition and attainment, while narrowing, is still there. In short, although institutional investors in APAC are taking crucial steps on the road to sustainable investing, there is still much to do.
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.
With more governments, companies and financial institutions committing to reducing carbon emissions, institutional investors have realised quickly they cannot afford to be left behind.