Regulation will be key for the growth of ESG investing in Asia, not least in helping move towards more consistency in disclosure and reporting. Mandating more ESG disclosures at a company level could be beneficial, says Tomomi Shimada, Apac lead sustainable investing strategist at J.P. Morgan Asset Management.
Here Shimada answers ESG Clarity’s questions about her firm’s engagement with companies on ESG, why it’s focusing on low carbon, natural capital and diversity over the next three years, and the importance of regulation and corporate guidance.
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?
ESG is quickly becoming top of mind for corporates globally. In Asia, we have seen significant developments in the move to incorporate sustainability not only in terms of how corporates run their businesses, but actually developing products and services that directly contribute to a sustainable future.
This has been supported by a shift in consumer demand as well as the government‘s commitment to goals such as carbon neutrality. In addition, some of the corporates in Asia have leading technology and ideas around sustainability.
However, this is not always recognised by the investment industry and one of the key challenges is the reporting capabilities of comparable ESG data. Some corporates are still finding it challenging to dedicate sufficient resource for the reporting as well as senior management oversight, leading to low availability of public disclosure for investors to identify investment opportunities from an ESG lens in the market.
The lack of reliable data from companies, especially those in emerging markets, will continue to leave gaps for investors.
How do you approach engagement with Asia corporates on ESG?
To complement our research analysts’ and portfolio managers’ view on companies and financial materiality, our dedicated investment stewardship team provide subject matter expertise on various sustainable issues and collaborate with the investment teams on engagement. We approach corporate engagement by directly engaging with our investee companies and through collaborative methods with other asset managers or through industry groups.
Our engagement with our investee companies centres around five stewardship priorities: governance, human capital management, strategy alignment with the long term, stakeholder engagement and climate risk. In terms of industry collaboration, we have worked with groups such as the 30% Club in Hong Kong to campaign for better representation of women in senior leadership and corporate boards.
What would you like to see next in terms of ESG regulation in Asia?
We welcome the implementation of Task Force on Climate-related Financial Disclosures– aligned disclosure for investors in Hong Kong and Singapore, as this will bring a new level of reliability to ESG disclosure.
However, in order to be more effective, the industry would benefit from increased guidelines for corporate entities as well. For example, much of the sustainability disclosure (i.e. greenhouse gas emissions, supply chain conduct) for companies is voluntary, and although many do disclose, mandating more ESG disclosures at a company level could be beneficial. Further, regulation that increases standardisation and consistency will be beneficial.
What have inflows been like into Asia ESG strategies?
Asia will see stronger flows into sustainable funds, but with a lag. Real uptake of sustainable investing in the region would require policymakers, citizens, companies and the investment community to all embrace the spirit of sustainable investing and ESG integration.
Over the mid-long term, with the growth in investor interest, commitments by governments and stringent regulation being implemented, we expect an increase in the availability of ESG funds/products, not just in volume but in the variety of ESG products.
What are the key ESG themes for investment over the coming three years at JPMAM?
The development of the low-carbon economy, the importance of diversity and the growth of protecting natural capital.
In response to the increasing prevalence of climate change, the widespread move to a low-carbon economy will be front of mind for many groups, including investors. Included in this trend is strengthening our environmental resilience, driving just transition and improving connectivity through the development of sustainable infrastructure.
Although gender diversity is vital, it is likely that other aspects of diversity, including culture, nationality, abilities, socio-economic backgrounds, will be considered more widely and thoroughly.
Finally, the establishment of the Taskforce on Nature-related Financial Disclosures in 2021 has put a greater emphasis on the importance of natural capital and pushed more consideration towards the transition to a circular economy.
