A surge in socially responsible investments to $59tn globally over the past decade is nudging Asian firms to change a notoriously insular management style to one that actively addresses corporate governance concerns.
As earnings growth and China’s economy slow, corporate executives are becoming more receptive to the investment messages from funds committed to Environmental, Social and Governance (ESG) principles.
That commitment can be measured in trillions of investment dollars - global investors who have signed the United Nations Principles for Responsible Investing (PRI) now own or manage $59tn, a surge from a mere $4tn in 2006, reflecting growing evidence that responsible investments translate to higher long-term returns.
Companies in Asia are beginning to take heed as boardroom indifference to issues like minority shareholder rights and the environment is giving way to stronger corporate governance that seeks to satisfy all stakeholders.
Asian firms now make up more than half of the Dow Jones Sustainability Emerging Markets Index, a benchmark for environmental, social and governance performance. Seven of the 13 additions to the index last year were from Asia.
“A company’s willingness and ability to address ESG issues relevant to its business can be a material driver of the company’s performance and valuation,” said Arthur Lau, head of Asia ex-Japan fixed income at PineBridge Investments, a signatory to the UN PRI.
Indeed, even as profit growth remains a focus for managers, an increasing number of Asian businesses and regulators are linking this growth to moves they are making to improve corporate responsibility such as tracking carbon footprints and creating indices of sustainable businesses.
Asian investors and managers who have signed the PRI climbed to 70 in 2015 from seven in 2006.
Malaysia and Japan introduced their own responsible investment indices in 2014.
In a sign that such investments are growing in importance to investors, Japan’s trillion-dollar Government Pension Investment Fund, the world’s biggest, now benchmarks its performance against the JPX-Nikkei index 400, instead of the traditional Nikkei 225 or the Topix.
