The Value of Investing in Values: The ESG Opportunity for APAC Asset Managers
This presentation explores the opportunities and challenges facing regional fund managers with respect to ESG adoption and integration.
In addition to exploring the broader ESG opportunity for fund managers in APAC, the report aims to provide a framework for regional managers to develop a fit-for-purpose strategy and operating model that allows them to truly capitalise on ESG, beyond mere regulatory “box ticking.”
Benjamin Quinlan, Justin Chung, and Alison Hu
December 1, 2022
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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
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