Fund managers cite ESG adoption as major growth driver: IMAS survey

ADOPTION of environmental, social and governance (ESG) in investments is seen as the biggest driver of investment growth over the next three years, a survey by the Investment Management Association of Singapore (IMAS) has found.

ESG adoption was cited by 68 per cent of fund managers in the survey conducted in mid-December, compared to 47 per cent in the previous year's outlook study.

The second strongest future driver was demographic shifts such as the emergence of millennials as investors and increased retirement needs.

The latest survey polled 53 respondents, mainly chief executives or chief investment officers of fund management companies. IMAS has over 120 members. The study seeks to ascertain members' top geopolitical and economic concerns, dominant strategies and growth drivers of their businesses.

Based on the 2018 trend report by the Global Sustainable Investment Alliance (GSIA), ESG integration comprised some US$17 trillion in assets.

IMAS chairman Susan Soh said: "Given the increasing prominence of ESG investment strategies in this year's survey results, it looks like 2020 will be the biggest year yet for ESG."

IMAS formed a working group last year to come up with guidelines for ESG in investments. It is understood that the draft guidelines have been submitted to the Monetary Authority of Singapore.

Albert Tse of IMAS's education committee said: "Different organisations have different timelines (in ESG integration). We think there is a valuable opportunity to understand that companies that are better run from a social or environmental perspective will be rewarded with higher valuations."

The European Union is expected to implement a taxonomy on ESG this year, taking a major step towards the establishment of common standards to define ESG.

Asia has been relatively late to the ESG trend. Three UOB fund management subsidiaries - UOB Asset Management, UOB Venture Management and UOB Global Capital - recently committed to the United Nations-backed Principles for Responsible Investment. The UN PRI was launched in 2006, and currently has to date over 2,800 signatories.

Lion Global Investors also signed onto the UN PRI this month.

Meanwhile, in terms of economic or geopolitical trends, tensions between US and China were the top concern among asset managers going into 2020, cited by 79 per cent of survey respondents. The second top concern was very weak global growth (66 per cent) and weakening growth in China (53 per cent).

Rajeev De Mello, chairman of IMAS' development committee, said: "When asked which countries or regions fund managers are overweighting going into 2020, compared to their benchmarks (across asset classes), China emerged as the most favoured. Despite concerns about the US-China relationship, the results show that the industry remains confident that the outcome will be positive for Asia."

As in last year's survey, margin erosion was cited by 83 per cent of respondents as the biggest threat to industry growth over the next 12 months. The second threat was poor returns compared to passive solutions (62 per cent), followed by lacklustre markets which reduce investor interest.

Mr Tse said that there has been a trend over the past years of banks and insurance companies becoming product manufacturers themselves, rather than just distributors. In this case, asset management firms may be invited to take part in a tender exercise to provide portfolio management services, resulting in pressure on fees.

In terms of business impact, more than half (53 per cent) of managers expect rising business and compliance costs to have the most impact on their businesses in the next 12 months. Other perceived threats were the threat of a global economic slowdown (49 per cent) and new distribution channels and technologies (40 per cent).

Nearly three-quarters of respondents said they were looking to differentiate themselves through product or fund design. More than half (58 per cent) expect to develop business lines around sustainable finance or ESG, compared to 36 per cent of respondents in 2019.