Asia’s asset owners are picking up where the US left off

With the Trump administration pulling back from global climate leadership, the position is up for grabs. Amongst the regional contenders is Asia – a region of the world more critical the net zero transition than any other.

Asia has good reasons to put up a bid. It is home to the world’s largest emitter, its largest contributor to renewable energy deployment and its fastest growing pool of electricity demand. In the mix too, are the region’s asset owners whose capital allocation plans inevitably become part of the proposition.

A new report from the Asia Investor Group on Climate Change (AIGCC), an investor coalition, shows that the region’s asset owners are up to the task. Their appetite for climate solutions is rising, as is their commitment to climate alliances.

Climate solutions

The report is based on a review of 230 of the region’s largest investors including 113 asset owners across 19 Asian economies. 50% of those reviewed manage assets worth over $100bn.

The findings suggest an increasing investor appetite for climate solutions. 34% of asset owners have committed, either in full or in part, to deploy a share of their portfolio in climate solutions. Even though the committed portion tends to be low – year on year momentum is building.

“With our most comprehensive analysis to date of Asia’s most influential investors, the direction of travel is crystal clear: $100 trillion of investor capital in Asia is ratcheting up their climate action plans and are looking for opportunities to invest”, said AIGCC chief executive Rebecca Mikula-Wright.

AIA group, one of the Asia’s largest insurance players, is one such investor.

“As asset owners, we are accelerating our efforts to mitigate climate risks and seeking to capitalise on the opportunities in the climate transition”, says Chi Zhang, head of sustainable investment at AIA Group.

Fossil fuels and climate risk

The region’s fossil fuel dependence is the Achilles heel of Asia’s bid to lead.  According to the AIGCC’s report, the region’s investors are willing to adopt fossil fuel policies. 58% of reviewed asset managers have adopted plans to manage their fossil fuel exposure, compared to 28% of asset owners.

However, interpreting this result requires some nuance. The results show that the adoption of fossil fuel exclusions or a financing phase down still remains a challenge. Investors in the regions seem willing, for now, to stay invested in large emitters with a view to steer companies towards delivering credible transition plans.

Fossil fuel policy is arguably linked to climate risk management - a space where the region’s toolbox is a still a work in progress.

“We are encouraged by the steady progress that institutional investors across Asia have made over the past year in considering financially material climate-related factors. However, in Asia, the tools and frameworks used to measure these climate-related factors are still evolving”, says Charles Nguyen, managing director and head of ESG Asia at Neuberger Berman – an asset manager.

While welcoming signs of investor confidence in climate solutions, AIGCC’s Mikula-Wright added, “With markets in Asia highly exposed to physical climate risks and nature-related risks, we need to see more investor ambition in accounting for these risks in their portfolios as well as allocating capital to address them”.

Climate alliances

Crucially, the report finds evidence of Asia’s investors remaining steadfast in their commitment to global climate alliances – which have come under pressure from Republican lawmakers in recent months.

This includes Climate Action 100+, an initiative that was front and centre in Texas Attorney General Ken Paxton’s legal complaints against BlackRock, State Street and Vanguard.

In Asia, not only is the number of those committed to such initiatives staying consistent – it is rising. Additionally, it is asset managers not asset owners who are leading the charge. 52% of those reviewed are now part of global climate alliances.

This suggests both willingness and ability amongst Asia’s financiers to pick up where the US left off.

“With the US political environment and ESG headwinds, Asian investors are increasingly looking to take a leadership position in the climate transition”, the AIGCC says in its report.

Even though there is more to be done on fossil fuel financing, the AIGCC report suggests that the region’s asset owners will not shy away from accepting the invitation to lead.