In response to interest from the market, FSA held the ESG breakfast briefing in Hong Kong on March 13 and in Singapore on March 15. Attendees were from the fund selector community in each jurisdiction. A number of the delegates said in 2018 they are seeing increasing interest in ESG-themed investments from their Asia-based clients.
During the briefing, investment professionals from the three firms presented on various ESG strategies.
Oscar Yang, research analyst and portfolio manager at BNP Paribas AM affiliate firm Impax Asset Management, presented on the firm’s water fund – the Parvest Aqua Fund.
The thematic impact fund, which has $1.36bn in assets, invests in companies that specialise in water infrastructure (such as irrigation and industry equipment), water treatment and water efficiency and water utilities.
Yang believes that these companies are supported by long-term drivers. The demand for clean water supply persist globally and there is inadequate water infrastructure in most countries.
“Water scarcity is a top risk identified by governments, corporations and academia,” he said during his presentation.
Another presenter, Lewis Grant, director and senior portfolio manager at Hermes Investment Management, explained the processes behind the Hermes Global Equity ESG Fund.
The fund uses ESG screening to uncover companies that have strong or improving ESG scores. Grant said he wouldn’t hesitate to sell an out-performer if the management refused to move beyond a mediocre ESG policy.
He cited governance as the core of ESG. Companies with inadequate governance tend to underperform those that have comparatively stronger governance practices.
He also showed that on average, companies with the lowest governance ranking had negative returns across sectors and markets.
Another presenter was James Alexander, global head of multi-asset at Nikko Asset Management, who spoke about his firm’s approach to responsible investing.
He first cited a CFA study that showed in Asia-Pacific, only 9% of investors globally said they did not take ESG factors into account. Also in the region, 78% of those surveyed cited governance as the most important ESG issue in investment decisions.
While all ESG funds do not outperform the broader market, ESG factors integrated into the investment process reduce risk and improve shareholder value over the long-term, he said.