Grace Leong Straits Times 4 Jun 18;
Asian investors are lagging behind their global counterparts in the adoption of socially responsible investment practices, even as this trend is on the rise in the region.
A report set to be released today by Singapore-based Asian Venture Philanthropy Network (AVPN) at its sixth conference found that less than 1 per cent of funds in Asia leverage ESG investing, which incorporates environmental, social and governance factors into companies' decision-making.
This compared with 50 per cent globally in 2016, the report said.
"ESG looks at how you operate a business. Are you contributing to environmental harm or good? Do you source from sweat shops or adopt fair trade practices? Do your suppliers provide equitable working conditions?
"Governance looks at whether there are adequate measurements of risk, and how top management is overseen by the board," AVPN chief executive Naina Subberwal Batra told The Straits Times ahead of the four-day conference touted as the largest gathering of social investors in Asia.
Other talking points at the conference include the need for early-stage funding for social enterprises here. Another report, The Continuum Of Capital In Asia, notes that funding from US$5,000 (S$6,690) to US$2 million is in short supply in South-east Asia. Critical issues relating to climate action, education and wealth disparity are also set to be addressed, with Asia having one of the largest wage gaps globally.
ESG investing has seen a surge worldwide, with US$23 trillion of ESG assets under management being deployed as of 2016. This came in the wake of major global disasters involving multinational corporations, such as the Exxon Valdez oil spill, and in 2010, the Deepwater Horizon oil spill, among others.
These incidents, coupled with growing environmentalism and social media, accelerated the move towards more responsible business practices. But the take-up rate has been slow in Asia except for Japan - a forerunner due to its actions following the Fukushima Daiichi nuclear disaster in 2011.
AVPN knowledge centre managing director Kevin Teo cited a lack of regulation and ESG compliance adoption here.
"ESG compliance is often demanded from the bottom by millennials, women and employees, but it is regulations and adoption by organisations that change the landscape," he said.
Other factors include a lack of awareness and expertise to interpret ESG standards as well as a tendency to prioritise short-term returns. Also, Asian private investors tend to view investment and philanthropy as separate.
Ms Naina said: "They see financial returns as separate from philanthropy. But millennials are actively making social change through business." With some 35 per cent of Asia's wealth expected to be in the hands of millennials in the next five to seven years, that will allow them to advance ESG investing.
With Asia's share of the world's ultra-wealthy population growing nearly 10 per cent in 10 years, Asia now has more billionaires than the United States, and is set to have the world's largest concentration of wealth in four years.
"In the next two, three years, Asia may overtake the US in ESG investing because of the greater number of green bonds, financial instruments and opportunities for investment. There is also a lot of awareness-building done to encourage listed companies to maintain ESG compliance in financial reporting," Ms Naina added.
