Progress in sustainability investing may be stalling among Asian investors: survey
A VAST majority of investors in Asia-Pacific have not made any changes to their sustainability policies in the last 12 months, according to a survey by law firm Morrison Foerster released on Thursday (Nov 9).
Among the 100 Asia-headquartered general partners polled in the survey, 39 per cent said that it would be impractical to make changes as time needs to be given to multiple stakeholders to get used to their policies.
However, half cited concerns raised by their principals or limited partners as the main reasons behind the lack of progress in their sustainability policies.
The report stated that this reflects some evidence of a backlash against the sustainability work done so far by these investors, and that there may be some anxiety about the potential conflict between sustainability principles and investment practicality.
A third of these general partners, all of whom manage assets of at least US$1 billion, said that their limited partners have expressed anxieties in the last 12 months about their sustainability policies or implementation work.
However, a report on the survey results stated this does not mean that limited partners are necessarily pushing back on the importance of sustainability in itself.
“Rather, their concerns often appear to be about the way in which policies are designed and implemented, or the communication process between general partners and limited partners,” said the report.
A majority of respondents (73 per cent) cited that their limited partners were concerned about whether their sustainability reporting is aligned with environmental, social and governance (ESG) metrics.
Limited partners were also worried about how general partners screened portfolio companies operating in industries susceptible to reputational or headline risks to ensure they are not involved in ethically challenged or controversial businesses.
Despite this, the survey found that sustainability concerns typically are not barriers to making an investment.
Only 23 per cent of general partners surveyed said they decided not to go ahead with an investment specifically because they had identified a sustainability-related problem during their screening or due diligence process.
The report noted that it is not because investors are not prioritising sustainability, but that they believe they will be able to resolve these challenges once the company is in their portfolio.
However, the report also cautioned investors not to underestimate the work required to make such improvements, highlighting that some investors have actually expressed some degree of buyer’s remorse.
Another reason why investors choose to fund companies with ESG challenges is the belief that once these businesses are able to improve their sustainability performance, it will generate financial returns over the medium to longer term.
More than nine in 10 respondents have invested in a company with negative or neutral sustainability credentials on the basis that addressing such issues will drive an improved valuation.
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