The investment landscape has been rewritten of late, with all the players in the investment value chain shifting their focus to long-term sustainable risk-adjusted returns. This is a key global trend, with worldwide responsible investment assets as at the end of 2016 amounting to nearly USD 23 trillion. In Asia Pacific, the trend to responsible investments has seen spectacular growth, with China and India growth doubling between 2014 and 2016. Indeed, China has grown rapidly to become the largest issuer of green bonds globally, accounting for 40% of all new green bonds.
In 2017, BNP Paribas conducted a study on ESG practices in Asia Pacific and globally, with over 450 investors, accounting for over USD 5.4 trillion AUM. The results underline the importance of ESG – in the next two years, 46% of asset owners plan to have 50% or more of their investments in funds that incorporate ESG/RI, and 54% of asset managers plan to market 50% or more of their funds as ESG/RI funds. We also found that investors are increasingly investing based on the ESG profiles of the investee companies (57% of respondents) and using green, sustainable bonds (52%).
Asia Pacific investors are leapfrogging their regional counterparts, with the Paris Agreement of 2015 hugely important in focusing attention in Asia on green and low-carbon growth, and in spurring environmental and social investing. “In many Asian countries, it is no longer regarded as something that is ‘nice to have’, but instead regulation and policy development is placing the region on a trajectory that will see it soon overtake other parts of the world.” APAC respondents in our survey are particularly positive about ESG. They are more likely to have an ESG policy as part of their strategy (92%) and incorporate ESG factors into decision-making (84%).
Despite these positive developments, there is still much work to do and challenges to overcome. Action is required in three key areas:
- Smarter data, better analytics: our respondents noted that a lack of robust ESG data is the biggest issue for asset owners and asset managers with over 55% of citing this as the biggest challenge. ESG and long term sustainable value creation is not just about the past and the present, but of the future; the emphasis has to be on developing more rigorous and granular analytics and stress-testing capabilities. This will assist the investment decision-making processes, bolster risk management practices, and demonstrate long-term performance benefits.
- A common language: If investors are to make more informed, transparent decisions, they need to understand every ESG-related risk and opportunity associated with the companies and sectors in which they invest. According to our survey, the biggest reason why ESG is not part of investment decision making today is a lack of clarity over how to define it – an obstacle for 38% of those respondents that do not currently incorporate ESG into their investment decisions. Hence a common language to enable richer, deeper, more comprehensive reporting of the risks and the opportunities is something the industry at large is working to. In November this year, with the rapid growth of the green bond market, the European Investment Bank (EIB) and the China Green Finance Committee (CGFC) presented the initial conclusions of a project that ultimately seeks to facilitate the establishment of a common language in green finance. The organisations’ study looked in detail at the green bond standards in China and the EU, finding that they used different categories to classify underlying assets.
- Governance and standards: ESG goes beyond just the investor or the corporate and impacts all aspects of the investment value chain. Regulators and industry bodies as well have a strong role to play, be it in the realm of Governance codes, Stewardship codes, the UN PRI guides, the GRI reporting standards or with standards on green bonds. With the launch of the ASEAN Green Bond Standards (AGBS) in November 2017, the ASEAN nations have a strong base from which to provide incentives for both corporates and investors, to consider green bond investments in ASEAN. It is also a key enabler of business, potentially attracting investor capital to the region, and allowing ASEAN issuers wider and greater access to investors.
As Asia Pacific undergoes dramatic change and disruption in the coming years, the three little letters E, S and G will bring significant challenges and opportunities for investors and corporates alike. Harnessing the opportunities, managing the risks and overcoming the challenges in a coordinated, holistic manner will be the key to success.
 2016 Global Sustainable Investment Review, GSIA.
 Assets under management.
 Responsible Investment Market Update: A Snapshot of Signatory Action, Principles for Responsible Investment, 20 March 2017.
 The need for a common language in Green Finance: Towards a standard-neutral taxonomy for the environmental use of proceeds, Phase I of Joint Research by the European Investment Bank, the Green Finance Committee of China Society for Finance and Banking, November 2017.
 Investor Obligations and Duties in 6 Key Asian Markets, UNEP, UN PRI, 2017.