ESG Integration in Asia Pacific: Markets, Practices, and Data
CFA Institute and the Principles of Responsible Investment (PRI) have released the final report (in a series of four) concerning the current state of global ESG integration. The new report; ESG Integration in Asia Pacific: Markets, Practices, and Data explores the current state of ESG integration in Australia, China, Hong Kong, India, Japan and Singapore.
This report follows the release of: ESG Integration in the Americas: Markets, Practices, and Data, ESG Integration in Europe, the Middle East, and Africa: Markets, Practices, and Data, and Guidance and Case Studies for ESG Integration: Equities and Fixed Income.
As part of our efforts to better understand ESG integration, we surveyed 1,100 financial professionals (predominantly CFA members) around the world, ran 23 workshops in 17 countries, analyzed Bloomberg’s ESG company disclosure scores to better understand the current state of ESG disclosures, analyzed data from PRI’s reporting framework to better understand ESG investing practices in each market, and interviewed leading practitioners in each market to understand the current state of ESG integration.
Our main findings include the following points:
- There is no one “best way” to handle ESG integration.
- Governance is the ESG factor most investors are integrating into their process.
- Environmental and social factors are gaining acceptance, but from a low base.
- ESG integration is farther along in the equity world than in fixed income.
- Financial professionals are integrating ESG, but rarely adjust their models based on ESG data.
- Risk management and client demand are the main drivers of ESG integration.
- A limited understanding of ESG issues and a lack of comparable ESG data are the main barriers to ESG integration.
- ESG data has come a long way, but advances in quality and comparability of data are still a work in progress.
- A single ESG reporting standard would help streamline data collection and produce more quality data.
- ESG products be driven by marketing concerns and not be true ESG investments.
Asia Pacific is arguably the most varied and diverse region we explored in these global ESG integration reports. The markets included in this report tend to focus more on governance in their ESG integration than in other markets, but environmental factors and social factors are starting to make their way into the conversation. Many regulators and stock exchanges in Asia are currently reviewing the level of ESG disclosure the will require from issuers, some moving from a comply and explain structure to a more mandatory disclosure regime.
As in most markets, risk management and client demand are the main reasons firms integrate ESG analysis in the investment process, with regulation and fiduciary duty trailing as the 3rd and 4th most cited reason for ESG integration.
A lack of comparable and historical data, a limited understanding of ESG issues, and a lack of investment culture around ESG integration were seen as the main barriers to ESG integration.
Contributing author: Justin Sloggett, CFA, Head of ESG Investment Research, UNPRI.
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