Global sustainability A primer: ESG & sustainable investing in APAC – now and in the future

We think the fast growth in the APAC ESG market has outpaced the industry's readiness for implementation. We propose a new framework and offer practical guidance to enable the tailoring of ESG approaches to APAC.

21 Jul 2020

PRI: Number of APAC asset owner signatories & cumulative AUM (May 2020)

Source: UNPRI, UBS calculations

This chart shows the number of APAC asset managers and their cumulative assets under management.

Rise of ESG investing in APAC

APAC ESG investing is growing rapidly, propelled among other things by US$7.7trn of AUM from APAC asset owners who support ESG by having signed up to the UNPRI as of May 2020. As of June 2020, AUM of APAC-based ESG funds was US$61.75bn and ESG ETF for APAC rose from a base of US$1.56bn in Q118 to US$7.01bn in Q120. We see further room to grow, as ESG funds/ESG ETFs constitute only 0.79%/1.17% of the APAC total. Also, APAC regulatory drivers are likely to continue driving the ESG market.

This primer answers three key questions related to ESG investment in APAC

  1. What are the size and growth of ESG investment in APAC?;
  2. What is the conceptual framework to integrate ESG in APAC?; and
  3. What are the practical challenges and solutions to implementation?

Our review indicates that the fast growth in the APAC ESG market has outpaced the industry's readiness for implementation, which lacks conceptual and resource capacities. In response, we propose a new framework that applies to both the developed and emerging markets in APAC and, through a review of real-life practices by over 160+ asset managers, offer practical guidance to enable the tailoring of ESG approaches to APAC.

A new framework for ESG investing in APAC

This primer proposes a new, multi-level framework for ESG investing in APAC, taking into account APAC- and EM-specific conditions such as heightened ESG risks, physical climate vulnerabilities, data deficiencies and development needs. This framework provides an actionable roadmap to integrate top-down ESG trends with location- and industry-specific inputs to arrive at financial implications at the company level. We use UBS Evidence Lab data on air pollution and hydrology to help structure and inform this framework.

Actionable adaptation for APAC

Based on a detailed analysis of the strategies and institutional arrangements of 160+ APAC-based ESG asset managers, this primer provides an objective and evidence-based springboard to understand the status quo and formulate an APAC-centric approach to ESG investment. We also provide practical guidance that enables asset managers and owners to tailor ESG approaches to APAC, with specific focuses on the adaptation and customisation of ESG integration, positive/negative screening, exclusion, proxy voting, and engagement. Drawing from real-world practices and evidence, we suggest strategies to help address capacity constraints and data deficiencies.

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