How can investors achieve their ESG goals via exposure to Asian equities?
For investors interested in sustainability themes, such as reducing carbon emissions, alleviating poverty, access to affordable healthcare and housing and creating greater financial inclusion in the developing world, Asia remains a very important investment destination, in our view. To tackle these themes globally, we believe we need to include the world’s most populous economies, many of which can be found in Asia.
The region is making great strides toward clean energy innovation, supported by positive regulatory trends. Government support and consumer demand have made China a world leader in areas such as renewable energy, electric vehicles and sustainable transportation infrastructure including high-speed train networks, for example.
Among critical social issues facing communities in Asia, inclusion is a key focus area. Social progress requires bringing more people into the middle class globally, along with ensuring greater access to health care, more women in the workforce and more opportunities for people to advance through education and training.
As a starting point, living a middle-class life requires becoming part of the “formal” financial system, yet millions of people across Asia lack basic banking services. Credit, even in small amounts, can make a huge difference to families living in poverty.
As Asia looks to add 2 billion more people to its middle class by 2030, financial inclusion will be a key enabler for this transformation by creating and supporting livelihoods. Profitable companies servicing this need provide microlending, micropayments and insurance.
Which themes offer the greater potential for outperformance as well as diversification?
In our experience, small- and mid-cap companies in emerging and frontier markets are often overlooked when it comes to ESG portfolios both for their performance and diversification benefits. Their ESG qualities are generally less appreciated and data coverage is often insufficient, and this is where proprietary research can help to identify companies that serve as catalysts for a more sustainable world. We spend considerable time on cultivating our deep local knowledge on some of the most important ESG issues that are important within the market context.
With regards to investment themes, we believe companies that drive the move toward cleaner energy and those that bring more people into the middle class globally still have a long runway for growth. Electric and hybrid vehicles offer opportunities to reduce the environmental impact of vehicles. We see opportunities across the supply chain.
Financial inclusion is a key theme that offers opportunities: Across Asia, delivering access to credit at appropriate rates to low-income segments of society allows greater participation in local and regional economies for these consumers. Opportunities can be found not only in micro and small enterprise finance companies but also in commercial banks. Access to affordable healthcare is also another very important area that offers potential for outperformance as key parts of North Asia continue to age. Innovative treatments in the areas of cancer, neurological diseases and in the area of medical devices offer attractive long-term growth opportunities.
How is the ESG-related opportunity-set likely to evolve in 2022 and beyond?
As we look to 2022 and beyond, Asia will continue to stay at the forefront of issues such as climate change, social and financial inclusion, poverty elimination and access to affordable healthcare and housing. Finding sustainably-growing quality businesses that address these areas is important; fortunately, the opportunity set of such businesses continues to expand. Markets are changing and growing rapidly, as new consumer preferences and emerging technologies enhance the attractiveness of the Asia ESG investment opportunity.
The Fund Selector Asia Investment Forum Thailand was held virtually on 24 March 2022 and was sponsored by Columbia Threadneedle Investments, Matthews Asia, TT International and Pimco.
Find out more about what was discussed and the strategies that were presented here: https://fundselectorasia.com/events/fsa-investment-thailand/