Saturday, May 15

ESG investments rising rapidly in APAC — Survey

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Manraj Sekhon

KUCHING: A survey by Franklin Templeton showed that investors’ predisposition towards environmental, social and corporate government (ESG) investing in Asia Pacific (APAC) is rising rapidly, but investment adoption and application methods differ across the region.

Franklin Templeton recently released the APAC results of a comprehensive global study on ESG adoption, implementation and development across institutional and wholesale asset owners globally, conducted by NMG Consulting.

Globally, ESG is now a central consideration for asset owners, with a large majority building their capabilities in this area.

The study shows that two-thirds (67 per cent) of APAC respondents now consider ESG an important component within the investment process. Across the APAC, 71 per cent of asset owners are investing to increase their ESG knowledge and expand their investment capabilities in this area.

Franklin Templeton Emerging Markets Equity (FTEME) chief investment officer Manraj Sekhon commented: “ESG factors can have a material impact on a company’s current and future corporate value; consideration of these is integral to the rigorous fundamental bottom-up research our team conducts.

“We take a holistic approach in assessing ESG, considering both developed and emerging markets perspectives.”

He added, “Businesses with a market leading approach to ESG are often characterised by superior management teams, greater long-term earnings sustainability and higher valuations.

“Accordingly, those companies where material improvements in ESG are being seen can represent excellent investments. Having direct local insights enables us to identify those on the cusp of change. While there are global leaders in ESG among emerging market corporates, there remain many opportunities to engage to help effect change, driving returns to shareholders. Improving governance in particular has become a structural theme driving emerging market equities.”

Franklin Templeton managing director and head of Institutional (ex US) Stephen Grundlingh said: “ESG considerations are becoming increasingly prominent across APAC, and large asset owners and asset managers are collaborating to capture the benefits of ESG.

“The world today is facing a growing number of complex and interconnected challenges; from slowing global growth and persistent economic inequality, to climate change and geopolitical tensions. Many of these risks are ultimately ESG related and are increasing in likelihood and impact.”

According to Franklin Templeton’s study, as ESG considerations gain acceptance, there is a high degree of consensus on the risk benefits, but differences of opinion on the impact on returns.

ESG adopters in Australia and New Zealand (ANZ) in particular, no longer accept that ESG investing must mean accepting lower rates of return.

It pointed out that an impressive 94 per cent of ANZ respondents believe that ESG investments would in fact enhance returns. While ANZ leads in this belief, other Asian countries are not far behind with 80 per cent holding this view across the rest of the region.

The study found that the three components of ESG have become interdependent as asset owners globally now view them as linked.

Overall, it noted that European asset owners focus on a broader set of ESG issues, reflecting the region’s longer track record on responsible investing, while APAC and North American ESG adopters tend to have a narrower focus.

However, it highlighted that in APAC of the two prioritised criteria ‘Environment’ and ‘Governance’ shifts in priority over time has seen ‘E’ becoming more important. 70 per cent of respondents consider environmental factors as their first and second priority among the three factors.

While the ‘environment’ factor is rising in APAC, overall corporate governance (71 per cent) ranks number one amongst APAC asset owners in terms of ESG priorities.

This is followed closely by the specific environmental impact of climate change (67 per cent). Sustainability (56 per cent) and corporate corruption (54 per cent) are also seen as significant concerns. The emphasis on corporate governance could be attributed to the fact that APAC investors (with the exception of Australia and New Zealand) often have large exposures to emerging Asian markets where disclosure and corporate governance standards are less developed than in Europe and North America.

For APAC asset owners, it said, the need to strengthen corporate governance is a long-standing preoccupation that predates responsible investment frameworks.

Overall, it pointed out that the improvements in perceptions regarding returns from sustainable investing, greater availability of ESG data, and increasing ESG-related activity by regulatory bodies would encourage asset owners and managers to incorporate ESG considerations into their investment analysis.