ASIA, October 21, 2021 – Among the larger institutional investors, there is clear expectation that regulatory and stakeholder pressure will strengthen the case for Environmental, Social, Governance (ESG) investment and disclosure in the coming years. Asset owners in Asia will need more and better ESG-focused investment products and services to suit their portfolios. That is according to a new ESG survey – that examined the ESG investments beliefs, priorities, and expectations of some of the largest asset owners across Asia by Willis Towers Watson (NASDAQ: WLTW), a leading global advisory, broking and solutions company.
Currently, an average of just over 10% of the portfolios of those surveyed are invested in ESG assets or ESG-related strategies. The desire for ESG exposure in portfolios is around 30% and this is predicted to increase, as 44% of respondents said that incorporating ESG practices into the investment process represents one of their top three goals for the next few years.
A significant issue arises with implementation, as nearly 40% of survey respondents expressed concerns about the sufficiency of ESG-focused products and services available in the marketplace to suit their portfolio. Furthermore, the disparity of ESG data and regulations within Asia could be additional roadblocks to investors based in, or looking to invest in, the region.
With the COP26 summit taking place at the end of this month, attention will be turned to the impactful role investors can take in addressing and mitigating climate effects. Throughout much of Asia, governments have set Net Carbon Neutral Targets and signaled seismic shifts in public policy to come. However, official ESG standards and regulations that could hold the region’s investments industry accountable are fragmented across countries in Asia, and many have yet to become mandatory.
Jayne Bok, Head of Investments Asia, Willis Towers Watson (WTW), says: “As regulations around disclosure such as the Task Force on Climate-Related Financial Disclosures (TCFD) become mandatory and more tangible, asset owners will likely also expect their asset managers to report on climate risk metrics. However, the most popular motivator for including ESG beliefs and practices is to improve the resilience of the portfolio. More sophisticated investors are leading the charge on allocation through strategies that can be described as thematic or impact investing. These include strategies that go beyond integrating ESG into the investment decision process, but actively invest into positive ESG impact companies, such as those focused on climate solutions.”
The survey also revealed that Asian asset owners are most likely to make governance their top ESG priority to turn industry goals into action – 71% selected this as the main area of focus. Within governance, the survey results suggest there is room to do more in the areas of disclosure and reporting specifically. Currently, 41% of asset owners agree that they are not held accountable by stakeholders for reporting on ESG issues over and above financial reports. However, 57% expect greater regulatory and stakeholder pressure in this area over the next 12 months, which may alter this balance in the near future.
“We believe that the current 13% of respondents who have undertaken climate change impact analysis on their portfolio will grow significantly in the upcoming years as economies increasingly consider the implicit price of carbon emissions. To date, WTW has helped several large asset owners not only assess the backward- and forward-looking risks posed by climate change on their portfolio, but also set interim (2030) and longer-term (2050) targets and pathways towards reduced or net zero emissions,” adds Jayne.
“ESG investing should be a strategy in its own right, not just an overlay to other strategies or an adjunct to corporate social responsibility policies. We believe it is crucial to take a broader focus on sustainable investing, which we define as finance-driven, long-term strategies that integrate ESG information and effective stewardship, to make a real-world impact.”
The Asia ESG Survey Beliefs and Practices Survey 2021 was conducted between May and July 2021. Results of the survey are based on responses from 63 asset owners in Asia, with half of the organisations having AuM of over US$1 billion. The asset owners include Pension Funds, Endowments and Foundations, Insurance Companies, Private Wealth/Family Offices, Sovereign Wealth Funds/Central Banks and others.
Willis Towers Watson (NASDAQ: WLTW) is a leading global advisory, broking and solutions company that helps clients around the world turn risk into a path for growth. With roots dating to 1828, Willis Towers Watson has 45,000 employees serving more than 140 countries and markets. We design and deliver solutions that manage risk, optimise benefits, cultivate talent, and expand the power of capital to protect and strengthen institutions and individuals. Our unique perspective allows us to see the critical intersections between talent, assets, and ideas – the dynamic formula that drives business performance. Together, we unlock potential.
