AllianzGI Q&A: ESG regulations must cover corporates

Jonathan Ho and Chris Liu discuss engagement, net zero and moving beyond ESG integration in Asia

ESG Clarity sat down with Jonathan Ho (pictured, left), sustainability specialist, and Chris Liu (pictured, right), stewardship analyst, at Allianz Global Investors, to discuss engagement priorities, net-zero strategies and appetite for ESG investing in Asia.

What are the main challenges for corporates in Asia in integrating ESG practices? And where do you think Asia corporates are already at an advantage?

Some markets in Asia do not have sustainability or disclosure requirements for corporates. And for markets that have sustainability guidance, some aspects of ESG may not yet be mandatory requirements. With this context, it is sometimes an uphill battle to influence corporates in Asia to improve in their ESG practices.

Additionally, deep-rooted traditional factors, such as Kansayaku board’s slow transitioning to 3C system in Japan and tight ties between government and large corps in Korea, that shape the structure of corporates in Asia, can sometimes be a challenge in terms of instilling governance best practices.

Separately, a positive observation is that corporates in Asia have moved very quickly in terms of adapting their business model to provision certain goods and products essential for a sustainable future, for example the production of electric vehicles and solar panels.

How does AllianzGI approach engagement with Asia corporates on ESG?

Active stewardship, via proxy voting and engagement. Our engagements rest on two approaches:

  • Risk-based, which focuses on the material ESG risks we identify. Targeting is closely related to the size of our exposure, whether per market, fund or considering total value of investment. The focus of engagements is determined by considerations such as significant votes against company management at past general meetings and sustainability issues that we identify as below market practice. Engagements can also be triggered by controversies connected to sustainability or governance. Engagement activities typically relate to an investee company’s strategy, operational or financial performance, capital management, corporate governance and ESG risks and impacts.
  • Thematic, which are either linked to our three strategic sustainability themes – climate change, planetary boundaries and inclusive capitalism – or related to governance themes within specific markets or more broadly. We identify thematic engagement projects based on topics that we deem to be important for our portfolio investments, for example energy transition or climate change. We prioritise them based on the size of our holdings per market or portfolio, and also factor in the priorities of our clients. We observe an increasing number of requests from clients for engagement, in particular on topics such as climate and energy transition.

Topics we prioritise on engaging with Asia corporates include decarbonisation targets and measures, energy transition, board independence and diversity, biodiversity dependence and impacts, and data security.

As many Asia companies are in early stages of ESG integration, we would provide best-practices and peer examples to them in our engagements, so that the interactions are more educational in nature. We would also engage in collaborative engagements so to leverage our influence most impactfully.

What have inflows been like into Asia ESG strategies at AllianzGI?  

By the end of 2021, our global assets under management in sustainable investments saw a 47% increase compared to 2020. The increasing flow into ESG and sustainable investments is also observed in Asia in 2021.

How important is it for the investment team for corporates to have a net-zero target?

As a member of the Net Zero Asset Managers initiative, we expect companies to develop a sustainability strategy addressing material environmental and social issues including climate change, and to set targets in line with the Paris Agreement and report on progress.

AllianzGI also launched a dedicated climate engagement approach in 2021, which aims to engage with companies on the climate transition pathway towards a low carbon economy. Fund managers will actively engage with the top carbon emitters within their portfolio as a proxy for climate impact. If the issuer does not respond to requests or does not show an improvement effort in their climate pathway, divestment will be considered in the escalation process.

What are the key ESG themes for investment over the coming three years at AllianzGI?

Within the sustainable investing space, we see a few key themes for the coming years:

  • There will be continued attention to decarbonisation and net-zero.
  • There will be a shift from an ESG-integration focus to more focus on impact.
  • Apart from focusing on climate change, we see many “beyond-climate” themes to be of increasing importance. Besides climate change, we have also identified planetary boundaries and inclusive capitalism as the issues of the future.

What would you like to see next in terms of ESG regulation?

It is important that ESG regulations cover corporates. Such regulations would be the most direct measure to support the sustainability transition of the real economy. Furthermore, the ability of asset managers to incorporate sustainability into investing is interlinked with investee companies’ ability to provide sustainability disclosures and willingness to make improvements regarding their ESG performance. As such, increased coverage and robustness for ESG regulations for corporates would be welcomed.

As for ESG regulations covering asset managers, we increasingly see different ESG regulations emerging in different markets within Asia. Harmonisation of standards, to the extent possible, would allow the overall regulations regime to be more effective and efficient.


Natalie Kenway

Natalie is global head of ESG insight for ESG Clarity and has been an investment journalist for 16 years. She won Editor of the Year at the Aviva Investors Sustainability Media Awards 2021, and was Winner...