A new report by global index provider FTSE Russell reveals a dip in the interest surrounding sustainable investment (SI) in the Asia-Pacific region. This finding forms part of their annual 2023 global asset owner survey that delves deep into SI’s global reception and application.
While 90% of asset owners in Asia-Pacific implemented or evaluated SI strategies this year, the figure saw a dip from 97% in the previous year. This decline echoes a global trend, with SI interest decreasing from 88% in 2022 to 80% this year.
Furthermore, while global client demand for SI continues to surge — evidenced by 52% of asset owners driven by it, up from 42% last year — Asia-Pacific bucks the trend. The region reported a decline in client demand, plunging from 45% to 29% within a year.
Notably, the satisfaction rate of Asia-Pacific asset owners in achieving investment outcomes with SI also took a hit, tumbling from 79% last year to 49% in 2023. This decline parallels a worldwide dip from 63% in 2022 to 58% this year.
Tony Campos, Head of Sustainable Investment at FTSE Russell, highlighted:
Even with the current dip, a significant number of asset owners in Asia-Pacific persistently focus on SI in their strategies. The industry needs to clearly define ESG parameters, a sentiment resonated by many asset owners.
On investment avenues, fixed income emerged as the primary asset class for SI allocations in Asia-Pacific at 66%, overshadowing the global average of 45%. Sovereigns lead the pack within fixed income classes, marking a deviation from the global preference of credit/corporate returns.
As for investment vehicles to achieve SI goals, separately managed accounts top the list at 45%, although their dominance is less pronounced compared to last year.
Shifting gears to regulatory landscapes, governance issues (53%) became the central sustainability focus for Asia-Pacific asset owners. Yet, there’s a pronounced decline in concerns about social themes (43% from 76%) and broader environmental aspects (25% from 72%) compared to 2022.
However, aligning portfolios with SI proves challenging for many Asia-Pacific asset owners. A significant 52% cited the lack of clarity around SI parameters, accentuated by fragmented market perspectives, as a stumbling block. Furthermore, 50% expressed mistrust in their data quality, and 38% found differing disclosure requirements across jurisdictions challenging.
Conversely, the Asia-Pacific region welcomed recent regulatory changes in SI. A sizable 65% of asset owners believe that the unification of ESG reporting standards will benefit investors. Furthermore, sustainable finance and green taxonomies (58%), along with investor disclosures around SI strategies (45%), received a thumbs-up.
While sustainable investment interest in Asia-Pacific has seen a recent decline, the undercurrent suggests a market in flux, seeking clarity and adapting to evolving global trends and regulatory landscapes.