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ESG investment could boost Asia growth

Interest in ESG investing in the region may increasingly be driven by its contribution to sustain overall levels of economic growth, according to a report by Deutsche Bank (DB) Chief Investment Office.
Farmer planting money

Asia needs to work out how to sustain existing high levels of economic growth, not least because much of its population is still below average income, noted Markus Müller, global head of DB’s chief investment office, and an author of the report.

Studies show that environmental and governance performance factors have a positive effect on growth in GDP per capita, and this relationship appears more pronounced in developing than developed economies, he argued. Therefore, economic productivity and competitiveness can be improved by firm-level ESG implementation, so, in a range of sectors including food production, energy, transport and financial markets, new companies and products are on the rise in Asia that are focusing on ESG.

For instance, a recent Oxford University study found a statistically significant relationship between a firm’s ESG performance and a country’s living standards, as measured by GDP per capita.

This relationship could have implications for per capita incomes in emerging economies. For example, if Indonesian firms were to improve their environmental performance to reach the level of the highest performers in the dataset, this would be associated with an increase in GDP per capita by 15%, from roughly $4,300 to $4,900.

The study suggests that if a portion of the pandemic recovery efforts were directed at enhancing companies’ ESG practices, and especially their social performance, this could stimulate economic growth, all things remaining equal.

“Some economies in the region already accept this: Singapore has a ‘Green Plan 2030’, whereby sustainable living, energy re-set and the green economy are integral pillars to its economic growth, climate and resource resilience and generation of new business opportunities,” noted Müller.

The shift to a more sustainably-driven approach in Asia is also being boosted by four other main drivers, according to Deutsche Bank.


First, investor enthusiasm, which is evident through the tripling in the number of asset managers signing up to the Principles for Responsible Investment (PRI) to around 300 in 2020 from 104 in 2015. Social and economic interest in ESG has encouraged asset owners and managers to incorporate the factors into investment decisions – although governments and regulators in Asia, are pushing sustainable and stewardship responsibilities and rules for companies to report ESG standards, both in their own businesses and increasingly in their supply chain partners.

Second, shifting demographics are influential, with Asia’s millennials making up almost 25% of the population in the region.  A 2019 Morgan Stanley survey found that 89% of millennials believe that they can lift people out of poverty by their investment decisions, and a 2018 Oliver Wyman study estimated that about 35% of Asia’s wealth will be in the hands of millennials by 2025, the highest rate of change in any global region.

Third, regional integration, most recently affirmed by the Regional Comprehensive Economic Partnership agreed to in November 2020, may eventually create major opportunities in the form of enhanced regulation and new anti-monopoly measures applied by governmental bodies in order to protect fair competition, hence improving the “governance” factor within ESG, according to Deutsche Bank.

Finally, digitalisation and data analytics is likely to have a major impact, concluded the report. For instance, about 70% of new economic value created in Southeast Asia by 2030 is expected to be based on digitally-enabled platforms.

“The scale of adoption of digitalization is driving greater efficiency, and at the same time helps to reshape business models and further sustainable practices and appropriate governance structures, with smart digital innovations likely to help reduce energy demand, for example,” noted the report.

Moreover, data analytics technology should help solve existing problems around ESG assessments, identify sustainable enterprises, and also correlate ESG with financial performance.

On the other hand, Deutsche Bank pointed out that Asia faces many challenges to widespread adoption of ESG practices. Notably, Asia is a highly diverse region in terms both of income levels, and types of governments that follow their own rules and development models using a variety of policy systems.

Harmonising ESG standards with a coordinated methodology and taxonomy may thus prove to be more difficult than in Europe or the US, according to the report.

Part of the Mark Allen Group.