Anyone monitoring sentiment among Asia’s most prominent institutional investors would not have failed to notice an upswing in recent weeks in positive commentary toward making ESG-compliant investments.
On Monday, GIC’s CIO for fixed-income, Liew Tzu Mi, underscored the Singapore state investment firm’s intention to prioritize investments that either adhere to, or are subject to plans that adhere to, current global sustainability standards. His colleague Sunny Tsun, a vice-president of GIC’s real estate business, made similar remarks last Thursday at PERE’s inaugural Global Investor 100 Roundtable, which will be published next month.
Other heavyweight Asian institutions are doing more than dialling up the rhetoric on investments that demonstrate globally recognized green credentials. Institutions in China, Japan and Korea are making appointments to see through their agendas too.
According to its annual report released on Wednesday, China Investment Corporation has formulated an ESG investment policy framework, with guiding principles and phase-one plans for advancing sustainable investment, following a review of its peer experience and its own practice.
In 2020, Japan’s ¥186 trillion ($1.7 trillion; €1.4 trillion) Government Pension Investment Fund became the country’s second investor – after the Development Bank of Japan – to sign up as a real estate investor member for the Global ESG Benchmark for Real Assets (GRESB). Earlier this year it made an announcement to hire firms to provide research and tools for its sustainable investments.
Last month, Korea Investment Corporation established its first dedicated responsible investment team. According to a statement last year, the country’s 785 trillion won ($672 billion; €568 billion) National Pension Service has also required its external fund managers to provide non-financial performance indicators in their financial reports so it can track their ESG performance.
Given the surge in international demand for investments that improve their buyers’ carbon footprints, it is unsurprising that Asia’s biggest investors would eventually follow suit.
Asian investors have historically lagged their Western peers in incorporating ESG into their policies and investments, and there is still some way to go before they can catch up. GRESB has no signatories from the region outside Japan and Australia. The initiative, founded by European investors in 2017 to benchmark and assess ESG standards in real assets investments, now has 113 real estate investor members globally.
GRESB’s lack of Asian contributions is not an isolated indicator either. Research provider MSCI’s Investment Insights 2021 report, published in January, states that Asian investors outside Japan, Australia and New Zealand are also the slowest in adopting ESG frameworks into their investments. The report shows that only 25 percent of Asian investors havex adopted ESG frameworks; this compares with 75 percent of investors from Canada – the country with the highest level of adoption – and a global average of 52 percent.
Moves demonstrated by the likes of CIC and KIC, and even the statements made by GIC, are strong steps in the direction required by a global institutional community. The next step has to be concrete commitments.
Similar to NPS’s keenness to see managers demonstrate their ESG policies, GIC’s Tsun admitted during PERE’s roundtable that the institution was performing by proxy through its selection of partners. Furthermore, the investor is happy to invest in assets that are not currently demonstrating sufficient credentials, so long as there is a business plan in place to reach ESG compliance – both Mi and Tsun said as much.
In the West, the biggest institutions are setting specific targets for their own carbon-neutrality positions. Germany’s Allianz Real Estate aims to reach net-zero by 2050, and Dutch pension manager APG is targeting climate-neutral operations by 2030. Such target setting in Asia-Pacific is conspicuous by its absence. Remedying this will be a discernible next step for the region’s investors.