With sustainable investing becoming an increasingly mainstream investment consideration for Asia-based institutions, greenwashing has emerged as a new challenge, according to a research conducted by Schroders.
Around 56% of the 173 Asia-Pacific institutions surveyed by Schroders indicated that greenwashing – such as the lack of clear, agreed sustainable investment definitions – was the most significant obstacle to their sustainable investment intentions.
Alongside the investment challenges related to greenwashing, half of the investors cited performance concerns related to investing sustainably, and 43% said that a lack of transparency and reported data was restricting their ability to invest sustainably, according to the report.
To help institutions invest more in sustainable investments, 58% of those surveyed indicated that more data or evidence that shows investing sustainably delivers better returns are needed, while 48% want greater transparency by companies on both financial and non-finance performance reporting. In addition, 39% said that more providers and benchmarks offering sustainable data can help.
“Investors are asking more from their asset managers when it comes to sustainability, and those demands are becoming increasingly sophisticated,” Andy Howard, global head of sustainable investments at Schroders, said in the report.
“We welcome regulatory efforts to harness tangible action and help fight greenwashing,” he said.
Regulators in Hong Kong have begun the battle against greenwashing. The Securities and Futures Commission (SFC), for example, is requiring funds with ESG mandates to show how they include ESG factors in the investment approach.
Separately, the report added that more institutions in Asia are becoming aware of the importance of sustainable investments. Around 71% of those surveyed said they expect the role of sustainable investing to be somewhat or significantly important in the coming five years.
The three key drivers for them to focus on sustainability investment include regulatory and industry pressure (60%), aligning to corporate or internal values (49%), and member pressure (40%).
Investors ranked ESG integration into the investment process (62%) as their top approach to implementing sustainable investments, followed by positive screening – focusing on ‘best in class’ companies or investments (61%) and active company engagement and stewardship (52%).
“Led by official institutions, institutional investors in Asia-Pacific are exerting influence and driving positive change through their investments,” Lily Choh, deputy CEO for Singapore and head of institutions for Asia-Pacific at Schroders, said in the report.
“By taking a proactive stance and adding different lenses to their sustainable investments, sustainable investing is taking deep roots here.”