Report charts the way forward for sustainable investments in Asia

27 August 2020 Consultancy.asia

Government-backed sovereign wealth and pension funds should take the wheel to drive sustainable investments in Asia, according to new analysis from KPMG.

The Big Four accounting and advisory firm compared Asia’s market to economies across the globe, where sustainable investments are occupying an ever-growing share of assets under management. By contrast, the Global Sustainable Investment Alliance (GSIA) reports that Asia accounted for less than 2% of all sustainable investments across the world, with the exception of Japan where sustainable investing has been rising steadily.

As a result, Japan is the only economy to feature among the list of top markets for sustainable investing, and still features well below other major markets such as Australia, New Zealand, Canada, Europe and the US.

Proportion of sustainable investing relative to all managed assets

KPMG worked with ESCAP Sustainable Business Network (ESBN) and the Pacific Basin Economic Council (PBEC) to identify impact areas where Asian economies can quickly increase their sustainability profile. The trio found that there is an urgent need for governments in the region to use the tools at their disposal and take leadership of the sustainable drive.

As a whole, Asia’s economic landscape is promising for sustainable investments, with a number of private players keen to get involved. Many have realised that sustainability is the most viable way forward for their business, particularly as the current rate of environmental degradation has reached crisis levels. Against this backdrop, businesses have lauded multilateral initiatives that guide the private sector in environmental, social and corporate governance (ESG) practices. 

One such initiative is the Task Force on Climate-Related Financial Disclosures (TFCD) created by the Financial Stability Board in 2015. “The TCFD was commissioned to develop a framework through which financial institutions and companies could provide information about the financial impact of climate-related risks and opportunities,” explained the KPMG report.

Since its launch, TCFD has won the faith of many an investment professional across the world, with more than two-thirds of all respondents to a GSIA survey last year indicating that it would play a key role in meeting global climate change goals. According to KPMG and the other researchers, this faith is particularly strong in Asia.

Effectiveness of the TCFD to limit climate change

In Japan, for instance, nearly 90% of investors believe in the TCFD, as opposed to 70% in Europe and just over half in the US. According to the report, this sets the stage for a jump in sustainable investments. What is required beyond this is for the government to set a clear regulatory and incentive structure to promote such investments.

With respect to the private sector, this means tax incentives and subsidies for ESG investments, as well as initiatives such as carbon pricing. The biggest push, meanwhile, would come from putting compulsory ESG metrics on investments made by some of the largest publicly funded investment bodies such as sovereign wealth and pension funds.

“By adhering to widely recognised ESG criteria for their investments and channelling their money into enterprises that meet those criteria, sovereign wealth funds and pension funds can create the conditions for the private investment market to follow suit,” explained Patrick Chu Partner, Head of Business Reporting and Sustainability at KPMG in China.

In response, the authors point out that the private sector will also have to step up its ESG adherence. Not to say that the sector has been completely inactive so far. A number of leading firms across Asia have taken significant sustainability initiatives in recent years, and governments in markets such as China, Singapore and Hong Kong, among others, have stood behind these measures.

Provided that this collaborative approach is successful, sustainable investments could offer a tremendous boost to economies in Asia and across the world. In fact, more than $12 trillion can be released into the global economy if the UN’s Sustainable Development Goals are realised, creating 380 million new jobs by 2030.