More Asian firms pursuing ESG practices amid Covid-19: survey

MORE Asian companies are pursuing sustainability practices on the back of Covid-19, with green bonds seen as the top green financing instrument, a Citi report showed on Tuesday.

About 54 per cent of the bank's institutional clients surveyed in the region already have environmental, social and governance (ESG) policies and practices integrated in their organisations' corporate strategy, while close to 90 per cent intend to roll out ESG policies and practices within five years.

With the pandemic presenting new challenges, ESG issues that were previously on the periphery are now in the forefront for many companies, said Citi.

Over two-thirds of respondents attributed Covid-19 as a driving force of ESG policies and practices.

The top drivers behind the adoption of overall ESG standards include alignment to overall corporate sustainability strategy (65 per cent); positive impact on relationship with customers and stakeholders (57 per cent); and social and environmental factors (48 per cent).

When asked which sustainable and green finance instrument respondents were most interested in or are exploring, green bonds came on top with 22 per cent ranking it as their first choice.

Meanwhile, most respondents (42 per cent) chose ESG-linked working capital financing as one of their top three choices.

According to MSCI Research, which analysed data on the cost of capital between 2015 to 2019, companies with higher ESG scores on average experienced lower costs of capital, equity and debt compared to companies with poor ESG scores in both developed and emerging markets.

On the back of this trend, investors' demand for ESG financing solutions has grown rapidly in recent years.

There is now US$1.3 trillion in outstanding sustainable debt, which includes green, social, sustainability and sustainability-linked bonds.

S&P Global Ratings expects issuance of such bonds to jump to US$700 billion in 2021, up from just over US$530 billion in 2020.

Asia will have an increasingly larger slice of this market as it looks to promote sustainable finance in the region's capital markets, said the agency.

As part of Citi's broader sustainable finance commitment, it has raised over US$25 billion for clients in the Asia-Pacific in the first half of 2021, an increase of about 400 per cent compared to the same period last year.

Beyond offering green finance, the lender is helping issuer clients accelerate the transition to a more sustainable future, while also helping buy-side clients identify opportunities to transition their portfolios to cleaner companies.

As an example, it recently launched an equity benchmark index family, the Citi ESG World Indices, to offer a benchmark for the best-in-class ESG performers from across global markets.

"We are conscious that our region is in a critical position - both in accounting for almost half of global emissions, and in its particular exposure to climate-driven human and economic risks. Asia can and must be a leader in driving positive change across the globe," said Peter Babej, Citi chief executive officer for Asia-Pacific.

The survey was conducted in Q1 this year with 259 institutional clients in 14 markets across the Asia-Pacific.


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