Sustainability’s New Frontier: Asia
Sustainable investing once seemed like a laughing matter to some executives in Asia.
Literally, says Billy Hwan, a portfolio manager for Parnassus Asia Fund (PAFSX), which has $10 million in assets. He says many Asian company managers used to laugh in his face when he would ask about sustainable business practices.
But just a few years later, he says, many of those same managers have shifted away from a growth-at-any-price mind-set.
“Most of the companies I talk to now understand that to attract investor capital and to grow over the long term, they need to consider the overall sustainability of their business practices,” says Mr. Hwan.
Some of these Asian companies see competitors in Europe and North America managing risk and satisfying customers by incorporating environmental, social and governance (ESG) factors into their business models.
In Europe, discussions of sustainable investing have been building for a couple of decades. Zoe Knight, a managing director at HSBCwho leads the bank’s Climate Change Center of Excellence, says European considerations of ESG started more than 20 years ago with a push from charities, foundations and universities, followed by public retirement systems that began to look closely at issues like corporate carbon footprints, and irregular usage patterns, with many stadiums not being occupied on a nine-to-five basis as is the case with office and retail premises but instead being used intensively on infrequent occasions.
Now, the discussion of sustainable investing in Europe is moving beyond equity investments, she says, and into fixed income, with growing interest in so-called green bonds, which are used by municipalities and private-sector borrowers to fund environmentally friendly real-estate development and other projects.
“If you want to be taken seriously in the global economy, you have to have an ESG strategy,” says Ms. Knight. The COP21 international climate negotiations that took place last year in Paris propelled the region’s thinking about sustainable investing, she says. “I think that’s what’s been game-changing.”
Canada is also making strides with sustainable investing, in many ways besting its neighbor to the south. As of Jan. 1, trustees of all defined-benefit pension plans in Ontario are required to disclose whether ESG factors are incorporated into their investment policies and procedures. Similar provisions are already in place in France, Germany, Sweden, Belgium and the U.K., but not in the U.S. “This regulation is the first of its kind in Canada and a big change for pension funds in that country,” says Fiona Reynolds, managing director of the Principles for Responsible Investment, a United Nations-supported initiative whose signatories pledge to incorporate elements of sustainability into their investment decisions. “The U.S. has been a bit slower to integrate responsible investment into the investment process, but we feel the tide is turning,” she says.
Stock exchanges, eager to create a level playing field globally, have joined investors in applying pressure to get emerging-markets companies to consider ESG factors. Bursa Malaysia has led this charge through the Sustainable Stock Exchanges initiative, an international collaboration of 50 exchanges encouraging transparency in corporate sustainable activities. The exchanges include the likes of Kenya’s Nairobi Securities Exchange and the Kazakhstan Stock Exchange, in addition to the major European exchanges and the New York Stock Exchange and NASDAQ.
Bursa Malaysia issued guidance for companies on how to report on ESG factors and started the FTSE4Good Bursa Malaysia Index in late 2014 to track the performance of companies incorporating ESG practices.
“Asia is home to over four billion people, not to mention some of the world’s most vibrant and fastest-growing companies,” says Ms. Reynolds. “It would not be possible for sustainable investment on a global scale to move forward without including Asian markets.”
For additional reading regarding sustainable investing, please refer to the following links:
How Tech Companies are Promoting Sustainability
Best Practices in Sustainability
Getting more renewables onto the grid – issues for developers