Schroders Institutional Investor Study 2022: Sustainable investing evolving rapidly across APAC
Regional nuances are evident across the survey, however, the increasing importance of active ownership and the increasing search for opportunities in energy transition is clear.
The latest release of our flagship Institutional Investor Study demonstrates just how quickly sustainable investing approaches have evolved in the Asia Pacific (APAC) region, as institutional investors move beyond simple exclusionary and integration approaches to incorporating active ownership, measuring impact and setting net zero targets.
The annual study, first launched in 2017, is an influential bellwether of the investment appetite of investors globally, spanning 770 investors and US$27.5 trillion in assets. 205 of the respondents were APAC based investors.
We explore the key observations from the study below. The full sustainability findings can be found by visiting the studies webpage here.
Challenges increase as ESG becomes more sophisticated.
More APAC investors say implementing sustainability is challenging (82% from 78% in 2021) potentially a reflection that ESG in many investors’ minds have expanded from screening and integration to areas such as active ownership and net-zero targets. We should also recognise that there has been a huge amount of regulation materialising from markets across APAC, from those asking investors to consider climate risks to additional requirements for sustainability disclosure.
APAC investors are increasingly trying to measure, manage and deliver impact – almost half (48%) of investors identifying impact investing as a preferred approach to sustainable investing versus 38% in 2021. This contrasts with negative screening, such as exclusion of alcohol and tobacco, which fell to 42% from 53% over the same period. Approaches like impact investing can be more complex to implement than blanket exclusion policies and require more and higher quality investment data and other information.
APAC investors are looking for new energy transition opportunities, and to generate higher returns with sustainable investing:
Alignment with corporate values (56%), and regulatory and industry pressure (52%), remain the most commonly drivers of sustainable investing identified by APAC investors, but the proportion selecting higher potential returns as a driver has jumped significantly from 34% in 2021 to 41% in 2022.
One area APAC investors are looking for opportunities is the energy transition, with 63% indicating such opportunities would encourage them to increase adoption of sustainable investing. This is particularly evident in Australia (75%) and Japan (68%).
Decarbonisation has driven policy actions from governments such as the introduction of carbon pricing mechanisms and formation of transition from companies. In anticipation, APAC investors are looking to find new investment opportunities that address the energy transition.
Active ownership rises significantly in importance in APAC – real world outcomes are crucial.
More APAC investors agree that active ownership and influencing company behavior is important to them when investing sustainably (36% in 2021 to 52% in 2022). Evidence of real world outcomes is the most important feature of an engagement strategy for APAC investors like rest of the world, but the region attaches greater importance to clear and robust escalation plans if engagement fails (37% in Asia compared to just 30% globally).
Net-zero is a growing priority for APAC asset owners, like the rest of the world.
The goal of achieving net zero carbon emissions has been given fresh impetus by international negotiations on tackling climate change, such as the COP26 talks in Glasgow, Scotland, in November 2021. 71% of APAC investors have made commitments to reduce emissions, many of which have pledged to reach net zero by 2050. This is consistent with the conversations we have been having with many of our clients, who are looking to understand the implications of these commitments to their investment portfolio. Less than one-in-ten (7%) in the region are not on the pathway to net zero, compared to 14% globally.
55% of APAC respondents thought greater consensus on frameworks and methodologies will help them with their net zero journey, and we believe it will be important for APAC stakeholders to have a voice in their development.
Reginal nuances across individual markets on sustainable approaches is significant.
While increasing adoption of sustainable investing is evident across APAC, our survey highlights that regional nuances are evident across the survey, from the focus on human rights in Australia to Japan’s interest in human capital as an engagement topic. This highlights the importance of on-the-ground expertise to support regional sustainability priorities.
About the Schroders Institutional Investor Study
Schroders commissioned CoreData to conduct the sixth Institutional Investor Study to analyse the world’s largest investors’ key areas of focus and concern including the macroeconomic and geopolitical climate, return expectations, asset allocation and attitudes to sustainability and private assets.
The respondents (770 globally) represent a spectrum of institutions including corporate and public pension plans, insurance companies, official institutions, endowments and foundations, collectively responsible for US$27.5 trillion in assets. 28% of these respondents were Asia based investors.
The research was carried out via an extensive global survey during March 2022.
Read the full report
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