Asia asset managers lag behind on ESG risks, says WWF

Asian fund managers trail far behind their European counterparts in addressing environmental, social and governance risks, the World Wide Fund for Nature Singapore has said.

The shortcomings were found in taking nature-based risks into account, as well as disclosure of responsible investing actions and governance.

Chinese asset managers’ ESG efforts were particularly lacking, with their average assessment score actually declining from last year, according to the WWF’s 2022 Respond assessment report, which calls for improvements so that resilient and sustainable portfolios can better protect nature and drive decarbonisation.

Forty asset managers were surveyed comprising 22 in Europe and 18 in Asia, of which six were in China, five each in Japan and Singapore and two in India.

This article was previously published by Ignites Asia, a title owned by the FT Group.

“Preserving and restoring natural capital is essential in tackling climate change,” the WWF Singapore report said. “However, none of the Asian asset managers have voting policies and expectations on investee companies on urgent issues, like managing water risks, protecting oceans and ending deforestation,” it added.

Only a third of Asian asset managers acknowledged nature-related risks, compared with 73 per cent of European managers. And while only 21 per cent of the European managers have set nature-related risk expectations on investee companies and 33 per cent have created guidelines on the nature-related risks they will vote on, none of their Asian counterparts had done anything on these two points.

Asian firms also fare badly when it comes to governance oversight and performance incentives for portfolio managers, directors and board members.

“Only one out of 18 Asian asset managers has a direct link between the remuneration of senior management and/or portfolio managers and ESG performance,” the report noted.

Training for portfolio managers and management is a key shortcoming among regional fund firms, with only 23 per cent of senior management and 20 per cent of board members of all asset managers assessed having received ESG training.

When accounting for all the European and Asian asset managers surveyed, 74 per cent disclose their responsible investing actions at least once a year. But that percentage would be much lower if the European managers were not included.

“While all European asset managers report on responsible investing actions, only 38 per cent of Asian asset managers do so,” according to the report, adding that just 33 per cent of regional managers had alignment with the Task Force on Climate-related Financial Disclosures as well.

One metric the survey uses to gauge asset managers’ commitments to sustainability are their voting records. Nearly three-quarters of all surveyed managers disclose their complete voting records, though this number included just seven Asian asset managers.

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“Further, only four of 18 Asian asset managers (three Japanese and one Indian) share the rationales of their votes on ESG-related resolutions,” the report said.

When looked at separately, some Asian countries fared better than others with their sustainability disclosures and integration of ESG factors. Asia ex-Japan, ex-China, which includes Singapore and India, saw their responsible investment policies minimum score improve 43 per cent from 2021 to 2022. The average score improved 7 per cent over that span.

“In terms of governance, Japan and Asia (excluding Japan and China) have shown sizeable average improvements of 12 per cent and 7 per cent respectively,” according to the report. “Moreover, Asia (excluding Japan and China) improved its minimum score by 14 per cent, indicating an overall strengthening in governance within the region.”

Japan shines above all countries when it comes to metrics and targets, realising a 34 per cent year-on-year average improvement versus 9 per cent for Europe over that span. The average scores for China and Asia ex-Japan, ex-China, stood at zero and minus 2 per cent respectively.

Of all countries, China showed the least year-on-year improvement overall, and in more than half of the performance areas measured, realised declines.

The region is predicted to grow its ESG AUM from $1tn in 2021 to $3.3tn over the next four years, according to PwC’s 2022 Asset and Wealth Management Revolution report, which surveyed 250 institutional investors and 250 asset managers globally.

This would represent the largest percentage growth in ESG-related AUM of any region globally, with Europe expected to increase by 35 per cent and North America by 133 per cent in the same time period. Global ESG assets are expected to grow by 84 per cent to $33.9tn in 2026 from $18.4tn last year.

*Ignites Asia is a news service published by FT Specialist for professionals working in the asset management industry. Trials and subscriptions are available at ignitesasia.com.