Asset Owner ESG Surveys Paint Mixed Picture of Implementation | Asset owners

Two ESG surveys of asset owners, released late last month, both came to broadly similar conclusions about the importance of investment strategies, but the responses differed markedly when it came to implementation. of the ESG.

A survey report by FTSE Russel titled Asset Owners Widely Adopting Sustainable Investment found that 86% of asset owners globally were implementing sustainable investments. By contrast, only 29% of respondents to a Morningstar survey called Voice of the Asset Owner said they considered ESG issues for more than half of their assets under management (AUM).

Although almost nothing separates the two surveys as a barometer of market sentiment on ESG, the gap between their findings on implementation clearly illustrates the continuing lack of clarity around sustainable investing – and more fundamentally , how to define it – despite its now dominant status.

Helena Fung, head of sustainable investing for Asia-Pacific (APAC) at FTSE Russell, and Thomas Kuh, global head of ESG index strategy at Morningstar, attributed the differences in the main survey results to a a number of factors, including the way the questions were worded. But they pointed out that the almost identical results from surveys of asset owners’ attitudes towards ESG demonstrated the fact that it had become a priority consideration.

“I would be hard pressed to find a major asset owner now that doesn’t comprehensively try to implement sustainability in their holdings,” Fung said. Asian investor.

Kuh said the study – the first of its kind conducted by Morningstar – would be conducted on an annual basis, noting that “ESG investing has finally reached a scale and influence that means it matters.”

ASIAN EQUATION

Fung said the sustainability of FTSE in APAC required a tailored approach, due to the different levels of economic development, political priorities and industrial ecosystem in the region.

“We see ESG as a key topic in markets like Malaysia and Japan, for example, but then we see a transition focus in Australia, which is obviously a very carbon-intensive public market, so it there’s no consistent theme,” she said. said. “If there’s anything to point out, I think the regulators are particularly focused on them, but it also has, I would say, an impact on the approach of investors, which is really about…climate change and the opportunities of the green economy.

A survey released earlier this month found that institutional investors in APAC lag behind their counterparts in Europe and North America when it comes to prioritizing integration of ESG for carbon reduction, climate strategies and the environment.

Hardik Shah, head of the Singapore-based ESG practice at US asset manager GMO, characterized the position of asset owners in the region as tied to the degree of ESG complexity rather than aggregate demand. of ESG compliance.

“The basic level of complexity varies from region to region,” he said. “I would say European asset owners are probably the most demanding…then the US, then Asia comes third.”

Still, Shah pointed out that APAC asset owners aren’t necessarily trampling on sustainability concerns in pursuit of profit.

“Gone are the days when people would argue about the usefulness of ESG integration per se, saying things like, ‘Am I doing this at the expense of returns? These arguments are more or less made, even in Asia.

Tomomi Shimada, Chief Sustainable Investing Strategist APAC at JP Morgan Asset Management, said Asian investor that it did not consider Asia to be behind the US on ESG.

“These are two regions that are still in a transition phase. I think [Asia] has the potential to quickly catch up with regions like Europe,” she said, adding that Japanese companies were at the forefront of environmental disclosure and technology, despite the possibility of improving issues. social and governance issues such as diversity.

FOCUS

Different levels of ESG engagement across jurisdictions and among investors are reflected in shifting priorities within the ESG universe, but the FTSE Russell global survey found that, overall, the focus put by investors on climate had diminished as their concerns about the social component of ESG had increased. According to the survey, the proportion of asset owners affected by the climate this year was 41%, compared to 67% the previous year.

“Many asset owners have already established a foundation for climate integration,” Fung said. “I don’t think that suggests the climate is any less important – it may suggest that the climate is more established in terms of integrating and managing those risks.”

Kuh shared this view, saying that following the 2015 Paris climate accord, climate became almost a singular focus, but the balance was restored amid the pandemic.

CLIMATE ISSUES

Shah said the climate issue was more difficult for investors in Asia, and in developing countries, in particular, than for those elsewhere.

“It is somewhat natural that Asian investors, [consisting] emerging economies that are still very heavily dependent on fossil fuels, would be less inclined to jump on the divestment bandwagon – for a variety of environmental but also societal reasons – than the developed world,” Shah said.

However, he noted that “what has happened over the last couple of years, very clearly across the world, is a broad acceptance of ESG integration. This approach is largely becoming a basic expectation of asset managers in different parts of the world.

Kuh said that despite shifting priorities – which, in addition to Covid-19, have also been attributed to the war in Ukraine and rising inflation – environmental and climate concerns have remained central to sustainable investing. .

“We hear about the issues that matter to investors, and climate is high on the list, but a number of what I see as climate-related issues are also emerging, such as biodiversity, food and agriculture. sustainable, and things like that, and in the social context, this notion of ‘just’ transition,” he said.

“If you care about these issues, as a sustainable investor, you don’t want a climate fund here, a biodiversity fund here and a social fund there. The question is: how to account for these different dimensions and factors within the framework of a unified approach? I think what really emerges here is a more holistic perspective.

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