BRAND reputation is the top reason why Singapore investors incorporate environmental, social and governance (ESG) considerations into their investment decision making, far outstripping the Asia Pacific (APAC) average, according to a study by French bank BNP Paribas.

The ESG Global Survey 2021 covered 356 asset owners, official institutions and asset managers around the world, with 110 in APAC and 33 from Singapore.

Some three quarters of Singapore investors (76 per cent) said that protecting their brand, reputation and mitigating headline risk is their key ESG driver, followed by improved long term returns at 58 per cent and external stakeholder requirement at 39 per cent.

For APAC investors, on the other hand, about 57 per cent said that brand reputation was the main reason, followed by a tie when it comes to external stakeholder requirement and improved long term returns at 45 per cent.

In Singapore, about 30 per cent of investors said that ESG is becoming integral to their organisations today, with the figure rising to 42 per cent when asked about sentiment in two years' time.

Currently, 21 per cent of investors here said that ESG is central to almost everything they do and a further 6 per cent find it to be a necessity. These figures will each jump to 18 per cent in two years' time, indicating a deeper embedding of this approach among Singapore institutional investors.

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While Singapore leads other APAC markets in terms of how central ESG is to the current investment strategy (21 per cent versus 11 per cent), this could change in the next two years as investors see a sizeable rise in ESG's incorporation as a necessity in investment strategies in Australia and Hong Kong.

Over the past few years, Singapore's large institutional investors and the central bank have been spearheading the need for greater adoption of ESG.

In June 2021, the Monetary Authority of Singapore (MAS) handed down five climate-related mandates as part of its Green Investment Programme. It also expects banks, insurers and asset managers to make climate-related disclosures from June 2022, as part of Singapore's push to become a hub for sustainable finance.

Meanwhile, the survey found that 61 per cent of investors in Singapore are using ESG within private equity and private debt. This is a larger percentage than the regional statistic of 43 per cent, and also leads the asset class to take the top spot among all asset classes under review.

In the report, BNP Paribas said that Singapore's strong uptake of ESG in private capital assets can be considered a reflection of the regulatory efforts to boost the sector through the launch of the Variable Capital Companies (VCC) regulation in 2020.

Launched by MAS in January 2020, a VCC is a new corporate structure for investment funds, providing greater flexibility in the management of assets and risks.

While equities ranked second for Singapore when it comes to the incorporation of ESG in the asset class, the portion is still smaller at 48 per cent, compared with 58 per cent in APAC.

In both Singapore and APAC, inconsistent quality of data across asset classes ranked as the most significant barrier to greater adoption of ESG across investor portfolios at 82 per cent and 79 per cent respectively. This was followed by challenges around data quality and consistency.

About a third of investors in APAC said that the lack of backing from senior leaders holds back ESG adoption, with 45 per cent of Singapore respondents highlighting that as a barrier. However, only a third of Singapore investors see the risk of greenwashing as a barrier, compared with 46 per cent in APAC.

Nadim Jouhid, head of investment solutions at BNP Paribas Securities Services Asia Pacific, said it is clear from the survey that ESG plays a rapidly increasing role in investment decisions.

"The preference among many APAC investors for private assets as a route to ESG investing points to the region's significant variations in outlook compared to the global survey base," he noted. "Having access to these important points is critical for BNP Paribas to continue offering the products and services our clients in APAC require."