THERE appears to be an action gap among Asia’s institutional investors when it comes to environmental, social and governance (ESG) investing.

While they showed strong interest to channel capital towards opportunities arising from the global net-zero push, only 12 per cent have set a target to increase their investments into climate solutions, indicated a survey conducted by the Asia Investor Group on Climate Change (AIGCC), a collaboration of institutional investors focused on the impact of climate change on investments.

In addition, just slightly over a quarter (28 per cent) have set policies on transition finance, as well as the phase-down of fossil fuels, and an even smaller proportion (12 per cent) of investors have integrated deforestation into their investment approach. These are two areas of the climate crisis that are considered to have a high impact.

The report noted that varying levels of reliance on fossil fuels across Asia create barriers to meaningful progress to net zero. This is especially for emerging markets in the region which faces challenges in creating regional financing models that can displace fossil fuels.

The findings, which were gathered from the responses of 58 investors who are AIGCC members as well as a review of the climate disclosures of another 200 investors active in Asia, were released on Monday (Apr 8).

Lack of data (57 per cent) was deemed to be the most significant barrier preventing investors from allocating more funds to climate-aligned investments.

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Other challenges cited include lack of clear definitions or frameworks (38 per cent), lack of tools to measure and report on their net-zero progress (38 per cent), and not enough client mandates aligned with limiting global warming to 1.5 deg C (38 per cent).

“Investors within AIGCC’s membership have expressed a need for better climate data and climate taxonomies from governments. This will allow better quality climate-aligned reporting and more allocation from investors in climate positive investments,” said the report.

Despite a low level of public commitment towards investing in climate solutions, the report stated that it expects to see more formalisation of targets, plans and strategies by asset owners and asset managers to increase their investments over the coming year, as 21 per cent are actively considering doing so.

After all, most of the investors do recognise climate change as a material risk, with 40 per cent of them having set net-zero targets for all or part of their portfolio.

Out of the various climate solutions, investors are the most interested in increasing their exposure in renewable energy (63 per cent), energy storage (40 per cent), low-carbon transport (40 per cent) and low emission fuels such as hydrogen (40 per cent).

However, investors are mostly interested in East Asia (China, South Korea and Japan), Europe and North America (United States and Canada) as key markets for climate solutions investment. Only 27 per cent expect themselves to be active in South-east Asia.

Yet, the International Energy Agency estimates that an annual investment of about US$180 billion in clean energy is required in South-east Asia alone by 2030 to maintain a trajectory compatible with the region’s climate goals.

Current levels of clean energy investment stood at an average of US$30 billion annually between 2016 and 2020.