Asian Institutions Far Behind U.S. on ESG Investment Strategies: Report

U.S. institutions are at the “vanguard” of ESG investment strategies, but their Asian peers are behind the curve, according to a report from Asia Asset Management.

But that could change soon, as many Asian institutions and businesses are already exploring ESG strategies.

From Asia Asset Management:

“Comparatively, the US market is at the vanguard of ESG investment, which is predominately due to its government placing clear regulatory guidance on matters relating to national security, resource allocations and population migration,” he notes. As an example, he singles out the California Public Employees’ Retirement System (CalPERS), which was one of the first pension funds to employ ESG strategies.

According to the USSIF – the Forum for Sustainable and Responsible Investment, sustainable and responsible investment (SRI) in the US amounted to US$6.57 trillion in 2014, up from around $3 trillion in 2010. Of this, 74% of the SRI was sourced from ESG-related investments.

“To facilitate the adoption of ESG solutions, Asian regulators [will] have to press ahead with educational and regulatory reforms,” Mr. Drum points out. According to him, some Asian institutions are “dipping their toes in the water”.

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For instance, the Stock Exchange of Hong Kong, a wholly-owned subsidiary of Hong Kong Exchanges and Clearing Limited (HKEx), decided to strengthen its ESG guide for listing rules in December 2015 by upgrading the disclosure obligations for ESG investments, which was met with strong support from a broad range of market practitioners.

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“Over 75% of the S&P Index constituents in the US provide reporting on carbon emissions and other environmental factors whereas most Asian companies don’t have such disclosures. It’s just not part of their corporate DNA,” he explains.

In terms of investment mentality, Mr. Drum opines that Asian pension funds should take ESG factors into consideration more when they come to structuring their portfolios, particularly because of their long-term investment horizons.

Zero Hong Kong institutions have issued ESG mandates – yet.

Photo credit: “Asia Globe NASA”. Licensed under Public domain via Wikimedia Commons