Why APAC fund managers must prove their values, as well as their value
Investors in Asia Pacific (APAC) are on the lookout for the right asset managers to help them build the best environmental, social, and governance (ESG)-compliant portfolio as they deepen their commitment to sustainable investing. For fund managers in this rapidly evolving field, proving that they share clients’ values has become all the more crucial to maintaining competitiveness.
More than half of APAC investors (55%) believe that when selecting an investment manager for sustainable investing, the manager’s ESG values and mission should align with their own. This compares to 47% of investors globally, according to the BNP Paribas ESG Global Survey 2021.
A major reason behind this is that investors who are relatively new to ESG investing find it reassuring to have a manager whose interests are the same as theirs. And according to our survey, 60% of regional investors said they are new to ESG integration – meaning the onus is increasingly on fund managers to prove that their values align with potential new clients if they want to win their business.
From screening to integration to impact
Several other factors dictate the need for alignment of interests when investors look for a fund manager. One is the rapidly evolving landscape of ESG investing in Asia: regional investors are moving beyond the negative screening method – identifying and staying away from companies that score poorly on ESG factors – towards ESG integration, which involves actively incorporating sustainability information into investment decisions, and finally onto making positive ESG contributions through thematic and impact investing.
It’s important for asset managers to recognise that the demand for sustainable investing in the region is growing at the grass-roots level, rather than being driven by regulatory requirements. Our survey findings revealed that APAC investors are less motivated by regulatory, or disclosure demands when it comes to incorporating ESG into their decision-making, and more inclined to integrate sustainability into their overall investment approach. Only 8% of APAC investors rank regulatory or disclosure demands in their top three reasons for using ESG, compared with 10% of global investors.
Robust research can meet demand for reliable ESG data
In a region like Asia with several emerging markets, the need for accurate data is acute. Accordingly, APAC investors deeply value research capabilities: nearly half the investors in the region view research capabilities as important, compared with 35% of investors globally.
Reliable ESG data is something all investors want. Low-quality ESG data, including a lack of historical information, is an issue in various markets, including China, according to a report by the CFA Institute and PRI. The dearth of comparable and historical ESG data in Singapore, likewise, remains the top barrier to incorporating ESG factors into equity investments in the city-state.1
Data could therefore be a crucial point of differentiation for asset managers in the region. Our survey shows APAC investors currently tend to turn to other suppliers for ESG data and research, with only 16% saying they would source risk monitoring and analytics from an asset manager. And only 35% of APAC investors would turn to an asset manager for ESG reporting at the company, portfolio, or fund level, compared with 39% globally.
“Top-notch research capabilities set any fund manager apart, but especially in Asia where there is a burning need for reliable data,” says Nadim Jouhid, Head of Investment Solutions, Asia Pacific at BNP Paribas Securities Services. “The growing appetite for ESG investing in Asia is a welcome shift, but this glaring gap in accessing the right data could easily deter otherwise keen participants. Asset managers that fill this gap stand to become a one-stop-shop for investors.”