Sowing the Seeds of ESG Investments in Asia
Millennial investors’ germinating interest in responsible investment
Strong interest from a new generation of investors in environmental, social and governance (ESG) assets, particularly with regard to green energy, sustainable infrastructure, as well as socially responsible and ethical companies, are causing ESG investments to grow in Asia.
According to the Global Sustainable Investment Alliance (GSIA), assets managed under responsible investment strategies remains at a very low percentage in Asia (outside of Japan) at only 0.8 per cent of total assets under professional management, well below Europe’s 52.6 per cent. According to the CFA Institute, Asia’s current ESG assets under management accounts for only 2.2 per cent, or US$500 billion, of the US$23 trillion ESG assets managed globally.
Despite that, there are indicators that there will be significant opportunities the growth of sustainable investments. ESG investing is becoming increasingly urgent due to the region’s need to combat climate change and increasing awareness among millennial investors.
Increasing inflows of ESG investments are expected in Asia, partly because the new generation of investors are found to be more socially-conscious and prioritise environmental concerns more than the older generation.
In the 2017 Essence of Enterprise Report from HSBC Private Banking, 21 per cent of age 20-plus respondents regard responsible investing as important, as compared to 13 per cent of age 50-plus respondents. In addition, according to a global ESG research paper published by BNP Paribas in 2018, 72 per cent of respondents also believe that ESG enhances investment returns over the long term, making sustainable investments more attractive than ever.
This presents a large ground for Asia to rise in terms of ESG investing, and it is already germinating. Leading the way in ESG investment in Asia is Japan, who accounts for about 90 per cent, or US$474 billion, of Asia’s ESG assets under management. Other countries in the region are poised to catch up to Japan’s lead.
Hong Kong, South Korea and Malaysia are expected to take the lead, reaching US$52 billion in ESG assets under management in Asia. China, the largest player in Asia, have joined forces with Europe to pioneer green developments and combat climate change after the United States has pulled out from the Paris Accord.
Picking up on the trend are stock exchanges from Singapore, Malaysia, Hong Kong and Thailand, who mandate sustainability reporting from their listed companies. These reports give insight to ESG factors which set useful parameters that help the 20-plus Asian entrepreneurs and investors manage the financial risks arising from environmental events, reputational damage and governance issues.
Future projects, businesses and investors must take ESG into consideration as it is valued at a massive USD$23 trillion, 23 times the size of the cryptocurrency market cap, which is valued at USD$1 trillion.
With all this inflow going into ESG investments, it is hard to ignore the benefits the crucial need for responsible businesses. Projects like the Carbon Grid Protocol serve as the stepping stone to encourage socially-responsible investments. By combining the transparency and efficiency of blockchain technology with their vision to combat climate change, the protocol is the gateway to a world that spurs technology and innovation without the sacrifice of the environment.
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