Institutional investors in Asia Pacific expect ESG considerations to become increasingly core to their business as awareness builds among investors and policymakers, according to the results of a BNP Paribas global survey of 356 asset owners, official institutions and asset managers. More asset owners and fund managers in APAC say ESG plays a central, integral or necessary role today than in the same survey two years ago, and only a small minority of respondents expect ESG will still not be integrated in two years’ time.[1]
However, barriers to further adoption remain: 71% of Australian respondents cite inconsistent data quality across asset classes as one of the top five hindrances, and 57% name data quality and consistency challenges. Lack of backing from senior leadership appears to be a greater barrier among investors in Australia (39%) compared to those in APAC excluding Australia (30%) and globally excluding Australia (22%).
Key findings of the ESG Global Survey 2021 include:
- Commitment to ESG soon central to Australia: The penetration of ESG in Australia is expected to increase significantly in the coming two years. Today, 50% of investors say ESG is becoming integral or a necessity to investment strategy – and this number is anticipated to jump considerably to 79% in two years’ time.[2]
- Reputation is the strongest ESG driver: Brand and reputation are the strongest drivers for APAC investors to incorporate ESG in investment decisions. More than half (57%) say this is the primary driver for this choice – a slightly lower percentage than the global figure of 59%.
- Drivers differ by market: China and Singapore cite reputation as the strongest driver of ESG integration, but in Australia, external stakeholder requirements lead (68%), with reputation sitting in fourth place at 32%. Hong Kong is also motivated by external stakeholders (48%), but in Japan, better long-term returns drive ESG integration, cited by 64%.
- ESG across asset classes: While in Australia equities top the list of asset class preferences for ESG adoption (68%) in line with global figures at 69%; we see that only 14% of the Australian cohort use this approach in private equity/debt vs. 40% globally. On the other hand, ETF tracker funds (29%) and ETF thematics (32%) garner greater support in Australia compared to both regional and global figures.
- ESG more prevalent within real estate: Investors in Australia show a stronger propensity to use ESG within real estate (54%), compared to their peers across the region (24%) as well as globally (35%).
- Performance remains a question: A greater portion of Australian investors believe ESG is constrained by a lack of conviction in its ability to improve long-term performance (68% vs 50% globally).
- Cost a concern alongside leadership: The proportion of investors in Australia who say lack of backing from senior leaders holds back ESG adoption is higher than that globally (39% vs. 22%).
- Inconsistent ratings: 68% of investors are concerned about conflicting ESG ratings or indices, this is in line with the global average.
This research indicates a key turning point in the maturity of incorporating ESG. While previous surveys consistently demonstrated growing ambitions around responsible investing, there are now strong signals that concrete actions have followed, and are accelerating at pace. Looking ahead, Australia is showing all the signs of ESG become central to investors’ strategy in the next 2 years.
Nadim Jouhid, Head of Investment Solutions at BNP Paribas Securities Services Asia Pacific said: “The diversity of the APAC region is reflected in the results of this year’s survey, but what is clear is that change is happening swiftly, with ESG playing a rapidly increasing role in investment decisions.
“The preference among many APAC investors for private assets as a route to ESG investing points to the region’s significant variations in outlook compared to the global survey base. Having access to these important points is critical for BNP Paribas to continue offering the products and services our clients in APAC require.”
———