The appetite for responsible investing is growing in Asia, as regulations evolve and client demand increases. With this, social issues, such as a just transition, supply chain due diligence and gender diversity gain prominence.
A recent trip by members of Columbia Threadneedle Investments’ responsible investment team to Tokyo for Principles for Responsible Investment (PRI) in Person – the world’s largest responsible investment conference – confirmed the significant appetite for responsible investment in Japan and across Asia, as well as the region’s commitment to developing a dynamic and well-functioning sustainable and responsible investment market.
Responsible investment practices in Asia have often been perceived to lag global peers. This is usually attributed to historic barriers, such as a limited understanding of ESG issues and how to integrate these into the investment process, as well as a lack of standardised and comparable ESG data. These barriers are slowly being overcome, with a growing recognition of the materiality of ESG issues, particularly environmental and social ones, following the recent flurry of net zero and carbon neutrality commitments from Asian governments and in the wake of the social issues brought to light by the COVID-19 pandemic. Improvements in the quantity and quality of corporate ESG disclosures – driven by investor engagement, stock exchanges, regulation and an emerging consensus on a global sustainability reporting standard – have helped to support the integration of ESG issues into the investment process.
Greater awareness of ESG issues and their materiality has created significant client demand for ESG incorporation and products among investors in Asia. The market share of ESG funds in Asia has doubled since the end of 2020, with Asian-focused ESG fund inflows growing faster than any other region. Meanwhile, Asian signatories to the PRI have also doubled between 2020 and 2023, to over 500 members.
Asia’s evolving regulatory environment
After Europe, Asia has seen the largest growth in sustainable finance policy instruments globally, with Asian regulators using a host of sustainable finance policy instruments. These include moving beyond voluntary corporate ESG disclosures towards mandatory implementation, while the growth in assets under management allocated to responsible investment has led regulators to adopt ESG fund disclosures and labelling regulation, to tackle greenwashing. Additional focus areas for Asian policymakers have also been sustainable and green finance taxonomies, and the introduction and revision of stewardship codes.
Key material ESG issues in Asia
While Asian economies are highly diverse, they face a shared challenge of maintaining economic development, while simultaneously transitioning their economies to meet the goals of the Paris Agreement. Growing populations, rising incomes and urbanisation will increase energy demand in the region. With approximately 85% of current Asian energy demand being met by fossil fuels, this is anticipated to increase Asia’s share of global greenhouse gas emissions, despite the per capita footprint being lower than the global average.
Interested in learning more?
We discuss these points in more detail, while also considering our engagement across the region and our key takeaways from the Principles for Responsible Investment (PRI) conference in Tokyo. Download the full ESG Viewpoint to learn more.
