Survey finds Asia Pacific asset owners more progressive on implementing decarbonisation investment strategies
Karen Wong
Asset owners in Asia Pacific are more advanced in their approaches to decarbonisation, compared with global peers, State Street Global Advisors’ research finds.
State Street Global Advisors surveyed senior executives with asset allocation responsibilities at over 300 institutions, including private and public pension funds, sovereign wealth funds, endowments, foundations and official institutions from around the world, with 20% of the respondents based in Asia Pacific.
The survey finds that while only 20% of investors in Asia Pacific and globally have committed to a specific portfolio decarbonisation target, 70% of those yet to set targets in APAC say they will introduce one within the next 12 months, compared with 63% globally.
In Asia Pacific, 85% of respondents are already taking specific action on decarbonisation, higher than their global peers (77%). Meanwhile, 57% of Asia Pacific respondents cite their responsibility to drive the economic transition and help solve the global climate crisis as their top two drivers for climate investment strategies, ahead of driving outperformance (47%) and keeping pace with new regulations (35%).
For those in the region that have yet to set decarbonisation targets, the top two barriers to doing so were concerns about the quality of data from company disclosures and data providers being insufficient to support robust target-setting (56%) and possible negative impact on investment decision-making and performance (54%), which are similar to the global findings with both barriers ranked the top two by 53% of global respondents.
“Decarbonisation highlights the need for bold action to either broaden tracking error allowances or move to more appropriate carbon or climate-focused benchmarks,” said Karen Wong, global head of ESG and Sustainable Investing at State Street Global Advisors. “While only 15% of Asia Pacific asset owners have switched from a conventional benchmark to a climate-tilted benchmark, they are moving ahead of their global peers where only 13% have made that shift. Most asset owners (72%) keep a conventional benchmark and increase tracking error budgets to address the effects of climate-focused investing on tracking error.”
To make progress over the next three years, 60% of Asia Pacific respondents said that increased allocations to climate-thematic funds will be highly important. Only 50% said divestment from carbon intensive industries will be important, and 58% agree this will be considered an option of last resort.
“Similar to global peers, Asia Pacific asset owners prefer engagement rather than divestment, with three quarters of them confident in their ability to decarbonise without substantial divestment. Academic evidence shows that engagement and voting have the power to create positive impact and enhance value. At State Street Global Advisors, we believe impactful engagement is particularly important for index asset managers, who cannot divest their holdings due to investment mandates. Therefore, engagement and proxy voting become critical tools for oversight of corporate management on climate related disclosure and practices,” added Wong.
