ESG makes inroads in Asia; Investors’ appetite is on the rise

In Asia, environmental, social and governance (ESG) issues are becoming an increasingly important topic for the financial sector. Financial institutions across the region are beginning to understand their role in carbon emissions, and some are now trying to help create a more responsible industry by embracing ESG strategies.

United Overseas Bank (UOB), the third largest bank in Singapore by total assets, is committed to ESG principles and decarbonisation, and has over the years strengthened its ESG risk and climate risk management practices.

Last year it launched the group’s environmental risk management framework, tightened its policy stance on financing thermal coal mining, coal-fired power generation and the palm oil sectors, and continued to push its wealth business towards sustainable investments.

Li Huishi, Senior Vice President, Sustainable Business, Corporate Sustainability Office, UOB, described the bank’s ongoing net-zero journey during Fintech Fireside Asia’s latest panel discussion, highlighting two main parts: the first part, which revolves around employee engagement and education, which as well as ensuring that employees understand the bank’s ESG-related goals and ambitions, and the second part, which involves the business side and which requires the integration of ESG criteria in lending and investment.

“A few years ago, we started taking ESG considerations into our lending process, and so, for every customer who comes to us for a loan, we put them through a screening process to make sure they meet the minimum requirements before we at all taken begin to consider lending them on facilities to run their business,” explained Huishi. “We also have exclusion policies where the bank simply does not engage in certain types of activities.”

Li Huishi, Senior Vice President, Sustainable Business, Corporate Sustainability Office, UOB

To encourage businesses to move towards a sustainable future, she said the bank has introduced new banking products for companies moving towards net zero.

Just last month it launched a suite of solutions for customers in carbon-intensive, fossil fuel-based and hard-to-reduce sectors looking to decarbonise, giving them access to finance for their climate change plans.

“Customers who make an extra effort to use renewable energy, for example, have a clear plan, a KPI and a target – we work with them to structure specific loans that will give them preferential treatment in the loan price,” explained Huishi.

Private market investment platform ADDX has also started offering ESG-focused investment products, and has rolled out a number of sustainability-focused investment products since last year amid growing customer demand, said Inmoo Hwang, Chief Operating Officer, ADDX, during the panel. discussion.

ADDX, a platform that allows accredited investors to invest in unicorns, pre-IPO companies and hedge funds, now offers four different ESG-related products, he said: an ESG fund issued and managed by South Korean asset manager Hanwha Asset Management; two sustainability-linked bonds by Singtel and Sembcorp developed in collaboration with UOB; and an ESG fund with a focus on decarbonisation, new emerging technology.

Inmoo Hwang, Chief Operating Officer, ADDX

“The reason we’ve been working on these kinds of ESG-related projects and originating these kinds of products is because there’s been growing demand, a lot of conversation with our investors and they’re asking for these kinds of products,” Inmoo said.

“It is very clear that people are aware of these types of ESG products and that they are important. Investors really like to look at these products because they believe they are going to be beneficial to them and the economy in general.”

In the venture capital (VC) market, ESG is still a fairly nascent movement, with only a few firms formally committing to the transition, said Paul Ark, partner and head of ESG, Gobi Partners. That said, many are considering making the jump.

“There are probably only three institutional VCs that have an ESG professional in them, and Gobi Partners is one of them,” he said.

“There are a handful more looking at ESG. But I can see the wave coming. There is definitely a lot more momentum around ESG in VC in Southeast Asia.”

Paul Ark, partner and head of ESG, Gobi Partners

Paul joined Gobi Partners last year where he is now responsible for implementing and strengthening ESG practices both within the company and among the firm’s portfolio companies. He is also responsible for advising Gobi Partners’ ecosystem partners and stakeholders on ESG awareness and education.

“As an investment firm, we need to look at how we use ESG along two dimensions: how can Gobi Partners become more ESG-compliant within the organization and … how can our portfolio companies become more risk-resilient using ESG,” he explained. “From the outside perspective, this really involves two key areas: one is making sure that when we’re screening for potential investments, we’re looking at companies that don’t bring in ESG risk … and that’s relatively easy. The hardest part, though, is how we work with portfolio companies after we invest in them to de-risk their operations as much as possible from an ESG perspective.”

“Our job as VCs is really to start working with these early-stage startups when they’re much younger in their lifecycle and get them ready to not only manage the ESG risk themselves, but also attract later-stage capital that will to a requirement that they are compatible and robust.”

Kenneth Kuek, Country Lead, InterSystems, a provider of data management solutions, highlighted the need for banks and financial institutions to have the right technology infrastructure in place to manage ESG data and measure performance.

“We have a lot of data coming in and it’s going to help us make decisions,” Kenneth said. “Technologically, we need a robust platform to ingest all the data required for data decision making.”

Kenneth Kuek, country manager, InterSystems

ESG data and corporate disclosure around sustainability have become a priority for investment firms and financial institutions since the introduction of various sustainability reporting regimes.

Since 2016, public companies in Singapore have been required to issue sustainability reports that outline their material ESG risks, climate-related disclosures, policies, objectives, reporting and governance frameworks.

Sustainability disclosure requirements have since been enhanced to penetrate the non-listed company space, requiring suppliers and partners of listed companies to disclose their own sustainability emissions and metrics.

In July, new guidelines were introduced requiring retail ESG funds to provide details of their investment strategy and criteria, as well as equity metrics used. The measures will come into force from January 2023.

Global ESG assets under management (AUM) are projected to triple between 2020 and 2025 to $6.5 trillion, according to investment management firm Invesco. Of this, Asia is set to be a key driver of growth, with ESG AUM projected to grow fivefold from USD 90 billion in Q3 2021 to more than USD 500 billion by 2025.

Robust ESG AUM growth in Asia will be driven by a broader societal turn towards sustainability, greater demand from assets and managers, as well as a sense of urgency from policymakers to adopt policies and regulations that promote sustainable investing, the firm says.

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