A survey of around 300 investment institutions throughout the world found that while only 20% of investors in Asia Pacific have committed to a specific portfolio decarbonisation target, 70% of those yet to set targets in Apac said they will introduce one within the next 12 months, compared with 63% globally.
In Apac, 85% of respondents are already taking specific action on decarbonisation, higher than their global peers (77%). Meanwhile, 57% of respondents in the region acknowledge their responsibility to drive economic transition and help solve the global climate crisis as their top two components of their climate investment strategies, ahead of outperformance (47%) and keeping pace with new regulations (35%).
“Decarbonisation highlights the need for bold action to either broaden tracking error allowances or move to more appropriate carbon or climate-focused benchmarks,” said Karen Wong, global head of ESG and Sustainable Investing at SSGA.
“While only 15% of Asia Pacific asset owners have switched from a conventional benchmark to a climate-tilted benchmark, they are moving ahead of their global peers where only 13% have made that shift. Most asset owners (72%) keep a conventional benchmark and increase tracking error budgets to address the effects of climate-focused investing on tracking error,” she added.
Obstacles to progress
For those investors in Apac that have yet to set decarbonisation targets, the top two barriers were concerns about the quality of data from company disclosures and data providers being insufficient to support robust target-setting (56%) and the possible negative impact on investment decision-making and performance (54%). These are similar to the global findings, with both obstacles ranked the top two by 53% of global respondents.
To make progress during the next three years, 60% of Apac respondents said that increased allocations to climate-thematic funds will be highly important. Only 50% said divestment from carbon intensive industries will be important, and 58% agree this will be considered an option of last resort.
“Similar to global peers, Apac asset owners prefer engagement rather than divestment, with three quarters of them confident in their ability to decarbonise without substantial divestment,” said Wong.
“Engagement and proxy voting become critical tools for oversight of corporate management on climate-related disclosure and practices,” she added.