Investors and financial services professionals in Asia are increasingly turning their attention onto sustainable and responsible investments.

The Association for Sustainable & Responsible Investment in Asia (ASrIA) has released its 2014 Asia Sustainable Investment Review, as a focused study on the current state of Asia’s sustainable investment strategies.    Based on survey responses from investors and managers as well as industry data and trend analysis, the results reveal a sizeable amount of assets, standing at US$44.9 billion (as at 31 December 2013), that are managed with sustainable investment principles.   Although the figure is relatively small against the broader market and total Asia assets-under-management, the sector looks to be growing, averaging annual increase of 22% since 2011.

Founded in 2001, ASrIA is an association dedicated to acting as a thought leader, convenor and advocate to promote the development of sustainable financial markets and systems in Asia.   Its primary initiative is on climate change, with the aim to foster economic growth and poverty alleviation in Asia while managing environmental impact through efforts for green and low-carbon economy.

According to ASrIA, the 2014 report shows that targeted investments to tackle environment challenges are growing in importance, and the integration of environmental, social and governance (ESG) factors is the most commonly adopted sustainable investment strategy, at US$23.4 billion or 52% of all assets managed with sustainability in mind.    66.7% of the respondents indicated that ESG ratings are systematically included in their standard financial analysis (rather than peripherally), and this is commonly applied in listed equities and private equity investments, but less so in fixed income or real estate.

The use of negative or exclusion screenings amount to 37% of sustainable investment assets, with islamic funds being a significant contributor to this category.   Among the 11 key countries covered in the report (including China, India, South Korea and Taiwan), Malaysia scores strongly as the largest market for sustainable investments because of its position as a well-established centre of islamic funds.

The number of sustainable investment funds grew from just over 400 in 2011 to a total of 500 funds by the end of 2013.   Over this period, there has been a growth in use of strategies across integration, negative/exclusion screening and sustainability themed investing, but a slight decrease in positive/best-in-class screening.  Corporate engagement and shareholder action now also measures as a significant approach to sustainable investing.

Investors may use a combination of strategies, as the report suggests. Looking forward, four emerging sustainable investment themes of clean energy, green bonds, conversation finance and impact investing are expected to become more relevant and important for the Asia investment industry, as the trend suggests investors are beginning to care more holistically about sustainability issues.   However, financial considerations remain to be a key motivation, even as regard the adoption of sustainable strategies.

Finally, the area of sustainability disclosures has been identified as both a place of positive development and an ongoing challenge.   A number of key financial markets such as Hong Kong, Singapore and Shanghai have adopted or are adopting disclosure requirements on sustainable policies of listed companies, but the development of consistent standards for disclosure will be key.

“Asia is a region full of contrasts: home to some of the wealthiest individuals, it also shelters some of the poorest nations. Financial markets and their actors are often accused of being part of the problem, and yet this is an opportunity for Asia’s financial markets to be part of the solution. We are seeing positive trends in areas such as clean energy investment and increasing interest in green bonds – pointing to a dynamic market with huge potential.”  

                                                                              – ASrIA CEO, Jessica Robinson