Schroders Institutional Investor Study 2022: Asia Pacific investors broaden ESG approaches, from impact measurement to energy transition opportunities
Institutional investors in the Asia Pacific (APAC) region are taking more sophisticated approaches and expecting more from sustainable investing, from measuring and assessing impact to finding new energy transition opportunities, as well as delivering real-world outcomes with active ownership, the Schroders Institutional Investor Study 2022 has found.
The flagship annual institutional study, first launched in 2017, is an influential bellwether of the investment appetite of investors globally, spanning 770 investors (including 205 respondents from APAC) and US$27.5 trillion in assets.
Findings this year revealed that almost half of the surveyed APAC institutional investors (48%) identified impact investing as their preferred approach to sustainable investing, a significant increase from 38% a year ago. Most APAC investors still prefer full ESG integration into the investment process, with almost three-quarters (72%) highlighting it in their top three approaches. Negative screening, such as the exclusion of alcohol and tobacco, has declined to 42% from 53% in 2021.
The increasing sophistication of sustainable investing in the region, from regulation to additional requirements for sustainability disclosure, demands a more complex investment approach. As such, 82% of APAC investors, up from 78% in 2021, find sustainable investing challenging as they move to incorporate active ownership, measure impact, and set net-zero targets beyond simple exclusionary or integration policies.
Looking closely at the different markets, thematic investing is more popular in mainland China and Singapore (58% and 51%, respectively, versus 39% in APAC). A positive screening approach that focuses on best-in-class companies is most preferred in Hong Kong (68% versus 55% regionally), while Taiwan institutional investors see impact investing as their preferred approach (71% versus 48% regionally).
Mervyn Tang, Head of Sustainability Strategy, Asia Pacific, Schroders, commented:
“This year’s Schroders Institutional Investor Study demonstrates how quickly sustainable investing approaches have evolved in the APAC region. Industry initiatives in the region are also drawing focus to certain themes and asset classes.
“Enhanced reporting and transparency from asset managers, along with consistent and comparable data points, are unsurprisingly the most important factors to institutional investors when investing sustainably. But what investors find important is broadening; more than half of APAC investors now say active ownership and influencing company behaviour are important, a substantial increase from 2021. The same can be said for understanding the impact of investments on society and the planet, consistent with the rise in APAC investors identifying impact investing as one of their top three approaches to sustainable investing."
Amy Cho, CEO, Hong Kong and Head of Distribution APAC, Schroders, commented:
“The increasing sophistication of our institutional clients across the APAC region and differences in priorities within the region – from the popularity of thematic investing to investors' preference on positive screening approach – have undoubtedly highlighted the importance of our Regional Centre of Excellence for Sustainability, which provides a local presence to support our APAC clients in their sustainability journey.”
APAC investors search for higher returns and new energy transition opportunities
Alignment with corporate values (56%), alongside regulatory and industry pressure (52%) are key drivers for sustainable investing among APAC investors. In addition, these investors are increasingly driven by higher return potential (41%) and risk management considerations (45%), both factors up by 7% compared to 2021.
Whilst many governments and companies are setting corporate sustainability objectives such as decarbonisation, policy actions such as carbon pricing mechanisms and formation of transition from companies are at the same time driven by governments. It is therefore not surprising that APAC investors are eager to find new opportunities related to energy-transition, with 63% saying such opportunities will encourage them to increase their adoption of sustainable investing.
Real-world outcomes are integral to active ownership
Over half of APAC investors (52%) agree that engaging in active ownership and influencing company behaviour are important elements when it comes to investing sustainably, which is a significant improvement from 2021 when only 36% agreed. Evidence of real-world outcomes that improve company stakeholders' lives (60%) is considered the most important component of an engagement strategy.
It is also noteworthy that institutional investors in APAC are much more prepared than their global peers to act when engagement fails, with 37% demand for clear and robust escalation plans, compared to just 30% globally.
Net-zero is a growing priority for asset owners
International climate talks, such as the COP26 in Glasgow, Scotland, in November 2021, have given the goal of net zero carbon emissions new impetus. 71% of APAC institutional investors have committed to reducing emissions, many of whom have pledged to reach net zero by 2050. Those who are yet to be on the pathway to net zero only account for less than one-in-ten (7%) in the APAC region, compared to 14% globally. Overall, 55% of APAC respondents believed a greater consensus on frameworks and methodologies would help them on their net-zero journeys.
Mervyn Tang added:
“While the motivations and approaches of investors share many commonalities across and within regions, a closer inspection of the Study results shows individual market nuances that highlight the need for on-the-ground sustainability expertise to help support our clients as they navigate challenges implementing sustainable investing.”
For more information on Schroders Institutional Investor Study 2022, please click here.
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