Navigating the new normal

There is no doubt that Covid-19 has wrought changes to the way we work, live and invest. Remote working, digitalisation and use of technologies such as blockchain and artificial intelligence are fast becoming the new normal.

Asset managers who were on the path towards greater digitalisation appear to have fast-tracked its implementation. Others will need to find ways to compensate for the loss of offline business by moving their business online and adopting new technologies. One thing is clear: with threats of new waves of the coronavirus and ongoing geopolitical issues – not least the upcoming US elections and a world seemingly pushing back against an ascendant China – uncertainties abound.

On the technology front, the move towards digitalisation is not limited to employees working from home. It has also spurred the movement of asset allocations away from industries and non-ESG commodities such as oil and gas that have not performed as well as they have in the past.

Our 2020 fund management survey highlights the fact that ESG is making small steps towards progress in Asia. Despite the majority of companies not collating data specifically on ESG mandates, some asset managers are showing signs of becoming more committed to incorporating ESG across asset classes and embedding it into their fundamental research. The fact that research suggests that companies with higher ESG scores are proving more resilient despite the pandemic is encouraging.

That said, there is still a long way to go. The need to push past the barrier of so-called greenwashing has never been so important. The widely held perception that ESG is nothing more than a marketing tool remains. Education and communication are vital to move ESG integration beyond a mere box ticking exercise.

Just as the pandemic has accelerated a move towards greater digitalisation among our survey participants who already had a strategy in place, it may also have kickstarted an awareness and fast tracked a move towards a more proactive approach in Asia’s ESG market. Although the majority of asset managers who took part in our survey appear to continue to base their approach on meeting expectations of their individual clients, it does seem that investors are becoming more aware of the positive impact their investments can have on the environment and society as whole. What may once have been a defensive list-based approach to ESG investment is slowly shifting towards a more decisive and proactive approach, with asset managers and asset owners looking more at ESG indicators in their recalibration of risk.

So how do we move forward? Without trust and transparency, a standardised approach and greater research, investors in Asia – whether mindful of the environmental and social impact of their investments or not - are unlikely to invest in an ESG compliant company over one that promises greater returns.

This June, participants in an AAM webinar called for stronger involvement from regulators, ratings agencies and asset owners in terms of how ESG is controlled and measured, and for the industry as a whole to approach the adoption of ESG and socially responsible investment with a single voice. This, together with standardised digitalisation of the industry, may be the way to go.