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ESG mandates gain traction in Asia
April 06, 2016 | Publication : Asia Asset Management

Environmental, social and governance (ESG) mandates are gaining traction in Asia with asset managers increasingly incorporating sustainable strategies into their investments over the past 12 months, whereas asset owners are mobilising capital into ESG-adjusted products, according to a panel discussion at the Responsible Finance Summit 2016 in Kuala Lumpur on March 30.

Commenting on the key trends within Asia which she described as “transformative”, Jessica Robinson, head of Asia ex-Japan at the United Nations-supported Principles for Responsible Investment (UNPRI) initiative, opines that governments regionally must step up by developing policy recommendations to support the green-finance market.

She cited China’s adoption of mandatory ESG disclosures as having a significant regional impact in setting the tone for improving commitment to corporate responsibility, when five years ago, the world’s second-largest economy hardly emphasised green finance or even considered ESG issues. 

According to Ms. Robinson, the Paris Agreement, inked between 195 countries on December 12, 2015, has also been instrumental in the growing participation of corporations and institutional investors in responsible investing. The agreement also marks the point when government policies start to play a bigger role in encouraging corporates to adopt ESG mandates.

Emily Chew, vice president and Asia-Pacific ESG research lead at MSCI, concurs, observing that there has also been an increased demand from investors for ESG compliance, in response to grassroots’ inquiries on scalable solutions.

Ms. Chew notes that policy debates led by civil societies have been translated into actual demands, which, as a result, saw asset owners and managers increasingly mobilising their capital into ESG-adjusted products that include themes like low-carbon indexes and gender diversity.

She observes that responsible financing is gaining more traction in emerging markets via partnerships with stock exchanges and governments – compared to developed markets – as regulatory bodies around the world increasingly assume a bigger role in raising awareness on the impacts of responsible investing.

Zainal Izlan Zainal Abidin, executive director of Islamic capital market at the Securities Commission Malaysia, illustrates some of the initiatives in creating a sustainable investment ecosystem, and emphasises that institutional investors should take the lead as they have the economies of scale to invest more efficiently.

He cites the Sustainable and Responsible Investment (SRI) Sukuk framework launched in August 2014, the FTSE4Good Bursa Malaysia (F4GBM) Index comprising 34 ESG constituents launched by Bursa Malaysia, and the introduction of fund products for the ESG Index by investment holding company ValueCap Sdn Bhd – the first to introduce ESG-compliant fund products available for public subscription – as some of the initiatives launched in Malaysia within the responsible investing space.