Asia is lagging behind Europe when it
comes to sustainable investing and stewardship several issues
need to be tackled during 2017 to achieve global standards,
according to a new report by MSCI ESG Research.
Despite six Asian countries that
developing stewardship codes since 2014, "the hard part starts
in 2017," the report reads.
As Asian institutional investors explore
what it means to be active owners in promoting sustainable
growth, they will increasingly face two main challenges
according to the report: "The challenge of short- vs.
long-termism, and the structural social and environmental
challenges specific to each Asian market."
MSCI identified Japan as the stand-out
performer in Asia, having potentially progressed the furthest
in the past two years. In a survey conducted by
Japan’s Government Pension Investment Fund (GPIF),
the world’s largest with $1.2 trillion in assets,
just over 60% of the fund’s companies reported
changes in their interactions with GPIF’s
Despite this development, tension remains
between the short-term compliance mentality of investment
managers versus the long-term goals of asset owners.
Short-termism may be winning, MSCI reports. The volume of share
repurchases among Japanese companies has increase to JPY5.1m as
of September, up 24% from June 2015, suggesting pressure on
companies to raise returns on equity.
Meanwhile asset owners that aim to promote
sustainable growth over the long term have few means to
differentiate among investment managers who view engagement as
a mere box-ticking exercise.
Investors who promote stewardship in Asia
also face the challenge of tackling macroeconomic issues. Japan
in particular faces a looming scarcity of human capital and a
labour force that is projected to shrink by 12% in the next 10
Further, the number of females in
management positions in Japan was as low as 2% in sectors
including energy and materials, as of July 2016.
Institutional investors are starting to
notice, hence the Bank of Japan created five exchange-traded
funds (ETFs) in 2016 aimed to specifically invest in companies
with plans to invest in physical and human capital.
Investors in Japan are unsure on whether
to view stewardship as a formality or to view it as a shift in
their engagement practices with companies to help create value
over the long term.
Similarly, Taiwan, Malaysia and Hong Kong
will have all adopted stewardship codes that put the concept of
active ownership on investors’ agendas.
Taiwan’s Bureau of Labor Funds recently committed
$2.4 billion to socially responsible investments.
"While a change in mind-set among
institutional investors and companies may take years, 2017
should be a year of ferment and discovery across Asia about
what is takes to create value sustainability over the long