The Asian Equation: Solving the Puzzle of Sustainable Investment on the World's Most Complex Continent

800px-20090529_great_wall_8185Coming soon: The "definitive overview" of institutions with assets under management in Asia integrating ESG criteria

Most people live in Asia. With a population over 3.8 billion, it is home to more than four times the people who live in Africa, the world's second-most populous continent. Unsurprisingly, Asia contributes more greenhouse gas emissions than the other continents.

That bursting population puts a lot of stress on the environment. The Union for Concerned Scientists (UCS), a Cambridge, Massachusetts-based non-profit environmental advocacy group, notes that the Asian region "faces a range of climate impacts, including extreme heat, imperiled drinking water resources, and accelerated sea-level rise, which can lead to widespread population displacement, food insecurity, and costly damage to coastal cities and towns."

To be sure, the road to a sustainable future for the entire planet goes directly through Asia.

ASIA'S COMPLEXITY QUOTIENT: ONE CONTINENT, MANY VOICES

But that road covers a lot of very different territory. With widely varying ecosystems, attitudes, cultures, religions, infrastructures, economies, policies and governments, Asia is far from monolithic. As UCS points out, the Asian region encompasses "Indonesia, which faces significant pressures on its tropical forest resources; the oil-rich countries of the Middle East; and the rapidly developing nations of China and India (currently the world's number one and four annual emitters of CO2 respectively)."

The level of sustainable finance and ESG investment considerations are also quite varied across the region. EIRIS, an independent non-profit responsible investment research group headquartered in London, notes that "Japanese companies are demonstrating the best overall ESG performance in Asia, closely followed by those based in South Korea," but "ompanies from Hong Kong and Singapore have made only limited progress to date."

As Wang Zhuoqiong points out in China Daily, "In 2011, the amount of trade between China and Japan reached a record $340 billion, from about $1 billion four decades ago. China is now Japan's largest trade partner and the second-largest destination for Japanese exports. Japan is China's fourth-largest trade partner…Japan is the third-largest source of China's foreign direct investment. By the end of 2011, Japan had $83 billion worth of accumulated investments in China." Certainly, Japan has the economic influence to engage China on a variety of green initiatives, including knowledge-sharing, greening supply chains, consumer awareness, corporate social responsibility and ESG investment.

At last month's "Prospects for Sino-Japanese Relations: From the Past to the Future" forum in Beijing, Tsugami Toshiya, the president of TOA Capital, said that Japanese firms could play a leading role working with local partners in green industry, energy and environmental protection, which can reduce costs to better compete with other foreign joint ventures from the United States and Europe.

And while the Sino-Japanese economic relationship grows closer, other Asian regions remain fragmented. Dr. Vaqar Ahmed, head of the Economic Growth Unit at the Islamabad-based Sustainable Development Policy Institute, said that "South Asia is the least economically integrated region in the world, which necessitates greater regional economic co-operation for pro-poor growth and sustainable development in the region."

IN THE WORKS: A DEFINITIVE REPORT OF SRI TRENDS IN ASIA

But while there are many disparate economic strands that tie Asia together, there is a growing interest in investing in ways that help people and the planet. Funds managed under sustainable and responsible investing in Asia have recently hit the USD 24 billion, according to Erik Floyd, Interim General Manager of the Association for Sustainable & Responsible Investment in Asia (ASrIA). He notes that the figure "may be only the tip of the iceberg of Asia-based investors with SRI policies and practices."

"This is an exciting time for Asia's investment community, and the sustainable and responsible investment industry, in particular," said Floyd, who is also a co-founder of the Plastic Disclosure Project, a plastic reduction initiative launched by the Hong Kong and California-based non-profit Ocean Recovery Alliance and announced at the 2010 Clinton Global Initiative in New York. "Our goal for this first year is to have a credible baseline of ESG investment strategies managed by Asia-based investors."

Floyd's remarks were part of a recent ASrIA statement on the release of the survey for the inaugural 2012 Asia SRI trends report, to be published in December. Founded in 2001, the Hong Kong-based ASrIA is a non-profit membership association promoting sustainable and responsible investment (SRI) across Asia.

According to the press release, the report "will provide a definitive overview of institutions with assets under management in Asia integrating environmental, social and corporate governance (ESG) criteria in investment analysis and decision-making including asset allocation," and will cover the following topics:

- Value of assets under Asia-based management subject to environmental, social or governance (ESG) criteria, policies or screens at year-end 2011
- Percentage breakdown of SRI asset allocation (listed equities, fixed income, PE/VC, farm and forest land, real estate, hedge funds)
- Types of strategies employed to consider ESG criteria (norms-based, negative and positive screening, full ESG integration, sustainability-themed, impact investing, ESG tilted indexing)
- Corporate engagement policies and practices (proxy voting, private and public engagement, filing shareholder resolutions) to impact long-term shareowner value through more effective management of ESG and financial issues
- Key motivations behind implementing ESG policies and practices in investment decision making and post-investment corporate engagement

TRENDING: ASIAN SUSTAINABLE INVESTMENT

"nstitutional investors from around the region are increasingly focused on sustainable investment resulting in greater interest and awareness of ESG by investment managers and service providers," according to a 2011 report by the International Finance Corporation. "This trend towards greater uptake of more sustainable investment is destined to grow among the fast-moving Asian economies."

Indeed, this is a perfect time to take stock of the state of SRI trends in Asia. And whatever the ASrIA report finds, its data will surely help investors, fund managers and policymakers figure out the Asian equation for sustained and growth-focused responsible investment. Considering that the population in Asia is projected to exceed 5.5 billion by 2050, building that road to sustainability—from Shanghai to Sydney, Manila to Mumbai, Riyadh to Rangoon—is more pressing than ever.

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NOTES

Union of Concerned Scientists. Solutions to Global Warming in Asia. May 29, 2011. Accessed September 4, 2012.
Ibid.
EIRIS. State of responsible business (Asia). September 15, 2011. Accessed September 3, 2012.
Wang Zhuoqiong. China's growth fuels investment from Japan. China Daily. August 30, 2012. Accessed September 4, 2012.
Ibid.
Tahir Amin. Challenges, development goals top agenda: fifth South Asia economic summit to begin from September 11. September 4, 2012. Accessed September 4, 2012.
Association for Sustainable & Responsible Investment in Asia. ASrIA Launches Asia Sustainable and Responsible Investment Trends Survey. August 22, 2012. Accessed September 3, 2012.
International Finance Corporation. Sustainable Investment in Asian Emerging Markets. June 2011. Accessed September 4, 2012.
GeoHive. Historic, current and future population: by Continent. Accessed September 4, 2012.

image: Great Wall of China near Jinshanling (credit: Jakub Hałun, Wikimedia Commons)

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