ESG Makes Inroads into 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 starting to understand their role in carbon emissions with some now striving to help create a more responsible industry by embracing ESG strategies.

United Overseas Bank (UOB), the third largest bank in Singapore in terms of total assets, has committed to ESG principles and decarbonization, having, throughout the years, strengthen its ESG risk and climate risk management practices.

Last year, it rolled out its Group Environmental Risk Management Framework, tighten its policy stance on the financing of thermal coal mining, coal-fired power generation and palm oil sectors, and continued to push the wealth business towards sustainable investing.

Li Huishi, Senior Vice President, Sustainable Business, Corporate Sustainability Office, UOB, detailed 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, as well as making sure that staff members understand the bank’s ESG-related goals and ambitions, and the second part, which involves the business side of it and which requires integrating ESG criteria into lending and investment.

“A few years ago, we started putting ESG considerations in our lending process, and so, for every customer that comes to us for a loan, we put them through a screening process to make sure that they meet minimum requirements before we even start considering lending them on facilities to go about their business,” Huishi explained. “We also have exclusion policies where with certain types of activities, the bank just simply does not engage.”

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 that are transitioning towards net zero.

Just last month, it launched a set of solutions for customers in carbon-intensive, fossil fuel-based and hard-to-abate sectors looking to decarbonize, providing them with access to financing for their climate transition plans.

“Customers who are putting extra efforts, to go renewables, 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 pricing,” Huishi explained.

Private market investing platform ADDX as well as has begun offering ESG-focused investment products, rolling out a number of sustainability-focused investment products since last year amid rising demand coming from customers, Inmoo Hwang, Chief Operating Officer, ADDX, said 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-link bonds by Singtel and Sembcorp developed in collaboration with UOB; and an ESG fund focusing on decarbonization, 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 that there has been growing demand, a lot of conversation happening with our investors and they are asking for this kind of products,” Inmoo said.

“It’s very clear that people are aware of these kinds of ESG products and that they are important. Investors very much like to look at these products because they believe they are going to be beneficial for them and the overall economy.”

In the venture capital (VC) market, ESG is still a rather nascent movement, with just a few firms having formally committed to the transition, said Paul Ark, Partner & Head of ESG, Gobi Partners. That being said, many are contemplating making the jump.

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

“There are a handful more that are looking at ESG. But I can see the wave coming. There’s definitively a lot more momentum around ESG within VC in Southeast Asia.”

Paul Ark, Partner & Head of ESG, Gobi Partners

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

“As an investment company, we need to look at how we apply ESG along two dimensions: how can Gobi Partners become more ESG compliant inside the organization and … how can our portfolio companies become more risk resilient using ESG,” he explained. “From that external perspective, this really involves two key areas: one is making sure that when we screen for potential investments, we are looking at companies that aren’t bringing in ESG risks … and that is relatively easy. The harder part, however, is how do we work with portfolio companies after we’ve invested in them to de-risk their operations as much as possible from a ESG perspective.”

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

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

“We have a lot of data coming in and these are supposed to help us make decisions,” Kenneth said. “Technology-wise, we need a robust platform to ingest all the data that are required for data decision.”

Kenneth Kuek, Country Lead, InterSystems

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

Since 2016, public companies in Singapore are required to issue sustainability reports listing their material ESG risks, climate-related disclosures, policies, targets, reporting, and governance frameworks.

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

In July, new guidelines were introduced, mandating retail ESG funds to provide details on their investment strategy and criteria, as well as share metrics used. The measures will come into effect from January 2023.

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

Robust ESG AUM growth in Asia will be driven by a wider societal pivot towards sustainability, greater demand from asset owners and managers, as well as a sense of urgency from policymakers to enact policies and regulations that promote sustainable investments, the firm says.

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