THE STATUS QUO
- Asset managers sit at the heart of the global ESG ecosystem, playing a pivotal role with respect to regulatory advocacy, capital allocation decisions, and meeting rapidly evolving public expectations regarding sustainable business practices
- Asia Pacific (APAC) lags significantly behind global standards when it comes to implementing sustainable practices across key environmental, social, and governance pillars
APAC ASSET MANAGERS AT RISK
- Leveraging frameworks established by inter-governmental organisations (IGOs), a growing number of APAC regulators are actively establishing ESG-related regulations in their home markets
- In addition, end-investors in APAC, including pension funds, sovereign wealth funds, and high net worth individuals (HNWIs), are increasingly taking ESG considerations into account when selecting their asset managers
- As such, we believe non-adherence to rapidly evolving ESG standards will leave regional asset managers open to sizeable reputational risks, and create challenges with respect to capital raising, especially from offshore investors
- Given growing regulatory and investor pressure, we expect stronger allocations by regional managers to ESG-friendly assets in the coming years, offering a USD 1.8 billion revenue opportunity by 2025
- Despite the significant potential of ESG investing, most asset managers in the APAC region lag considerably behind their global competitors when it comes to integrating ESG considerations into their operational / investment processes, putting them at risk of losing market share to international managers who are currently operating in the region
- While most APAC managers can be considered “Starters” or “Fast Followers” in the ESG space, we see considerable potential for firms with a willingness to evolve to become true “Market Leaders”, attracting significant ESG-related inflows
THE ESG TRANSFORMATION JOURNEY
- Asset managers need to evaluate a holistic range of strategic and operational considerations when embarking on their ESG transformation journey
- Stakeholder Review: as a first priority, managers should comprehend the different ESG needs – and levels-of- influence – of their key stakeholder groups, following which they can develop a fit-for-purpose ESG proposition
- Proposition Development: managers should apply qualitative and/or data-driven quantitative screening methodologies, with a view to developing ESG funds that: (1) increase transparency; (2) prevent greenwashing; (3) redirect capital correctly; and (4) appeal to key target client segments
- Stakeholder Engagement: managers may either outsource their shareholder activism activity to specialists or look to build their own internal expertise, which can serve as a source of competitive advantage
- Reporting: in line with international standards and/or frameworks, managers should not only disclose their financial performance, but also their product-level ESG investment themes, strategies, stewardship approaches, and ESG-specific metrics at the fund and enterprise-level
- Data: data solutions for ESG-related analytics and applications should be adopted across: (1) sales and marketing; (2) investment; and (3) investee engagement
- Corporate Structure: a fit-for-purpose corporate structure should be established to mitigate risks and separate operational processes, via “green” or “brown” spin-offs or hybrid models
- Governance: a decentralised governance structure should be crafted, with responsibilities distributed across the asset management firm
- Talent & Incentives: managers should identify gaps and develop appropriate talent acquisition, development, compensation, and retention plans
- Measurement System: while embarking on this transformation journey, a measurement system can help benchmark asset managers’ progress against industry best practices / market-leading peers, allowing improved identification of what is still left to be achieved
- Change Management: the concept of ESG as a whole should be well-integrated across the organisation and embedded into its DNA, both in terms of its culture and operations
