May-June , 2022 | @ green
COVER STORY
17
Driving ESG stewardship in Asia & beyond
Regulation has been a critical driver for the heightened awareness and interest in the ESG space
THE ADOPTION of Environmental , Social and Governance ( ESG ) within Asian communities and economies has steadily gained traction over the last couple of years . The growing awareness of ESG in Asia has resulted in numerous family offices focusing on financing ESG-linked activities in this region .
What makes Asia exciting and challenging for ESG investors is its heterogeneity . The diverse nature of fund markets in various parts of Asia can be attributed to this . It is not entirely surprising that China has become the second-largest green bond issuing nation after the United States of America .
Being the largest emitter of carbon in the world , the Bank of China ’ s decision to reverse its decision to categorise coal pollution mitigation enterprises as green assets is a step in the right direction , eradicating the possibility of clean coal projects for green financing .
Regulation has been a critical driver for the heightened awareness and interest in the ESG space within Asia . Exchanges are including more ESG stewardship codes and principles in their listing and reporting requirements .
Listed companies must also assess their climate and broader ESG-related risk and propose mitigation measures as part of their annual disclosure . More importantly , we have also witnessed the fermentation of transnational collaboration in the form of multi-stakeholder forums and associations of financial institutions .
The Asia Sustainable Finance Initiative ( ASFI ), incubated by the World Wildlife
Fund ( WWF ) Singapore , is one such example . Other examples include the Sustainable Finance Institute Asia ( SFIA ), an independent institute that aims to influence policy making to catalyse ideas around sustainable finance .
Besides regulation , institutional investors are accelerating the ESG conversation in Asia . Over the years , we have seen more investors from Europe and the US channelling capital and parking funds and investing in Asian markets .
By doing so , they are also channelling their knowledge around ESG principled investment into Asian markets . This flight of knowledge has built capacity and capabilities among Asian institutional investors over the last couple of years , allocating more assets to ESG issues and setting principles around ESG investment .
In tandem , we are also increasingly witnessing the greater scrutiny placed on conducting due diligence on ESG funds .
Asian institutional investors are beginning to tap more on ESG analytics and consultancy reports to understand whether their investments truly support ESG causes they champion or advocate . It has contributed to an ecosystem within Asia where service provision around ESG due diligence and analytics has taken root .
While ESG risk assessment methodologies have yet to complete formalisation , the journey within Asia has started . Asset owners and managers align their investments around international standards , frameworks and principles .
Some examples include the United Nations ( UN ) Principles for Responsible Investments ( PRIs ) and the International Finance Corporation ’ s ( IFC ) performance standards around environmental and social risks .
While these are steps in the right direction , they could lay the foundations for a more contextual ESG stewardship framework that considers Asia ’ s specific environmental and social nuances .
The last couple of years has also witnessed a talent flight from other parts of the world into Asia to set up family offices and ESG stewardship teams within financial institutions and institutional investors .
As Asia ramps up its ESG knowledge gap to attain parity with its Western counterparts , more is to come . Education institutions are also playing their part in these .
Asian schools have realised the knowledge vacuum and are establishing curricula to plug the gap . An example is the recently launched Masters in Sustainable and Green Finance offered by the National University of Singapore ’ s ( NUS ) Business School .
It will lay the foundations for more educational institutions to foster the net wave of talent to drive ESG stewardship in Asia .
ESG stewardship
The momentum around ESG stewardship is evident and can only be expected to accelerate over the coming years . An ESG stewardship ecosystem is slowly falling into place and will evolve with regulatory pressure and investor sentiment playing decisive roles in its evolution .
Good ESG stewardship will require a sound understanding of Asian cultural nuances and the relevant types of investment needed for a sustainable future . The Asian ESG landscape will also have to take strong steps to prevent greenwashing within assets labelled as ESG products .
The rush of ESG capital flight into Asia and the flurry of ESG activities around it should not diminish and cloud the need for the procedural due diligence to weed out assets that have shades or tinges of greenwashing .
The Asian ESG ecosystem has a fundamental role in ensuring the integrity of its assets and transparent disclosures around ESG claims and labels placed on assets .
Impact measurement and communication is an area that the ESG stewardship community should also work collectively to address to build credibility amongst stakeholders . — @ Green
Kavickumar Muruganathan is a sustainability professional & part-time lecturer at National University of Singapore on environmental economics and sustainable development
CAPTAIN PLANET
BY KAVICKUMAR MURUGANATHAN
Good ESG stewardship will require a sound understanding of Asian cultural nuances and the relevant types of investment needed for a sustainable future . The Asian ESG landscape will also have to take strong steps to prevent greenwashing within assets labelled as ESG products .”