Chinese investors most keen on ESG, Singaporeans least aware: Fidelity
Investors based in China are most eager about environmental, social and governance (ESG) investing, and regulatory bodies are stepping up to support the explosive growth in the field. According to Fidelity International, 77% of savers and investors in Mainland China say the pandemic has made them want to invest or save their money more sustainably, and 65% had heard of ESG investing, the highest among five Asian countries surveyed by the fund management firm.
The Chinese investor is also putting his money where his mouth is, with China charting the fastest growth in ESG assets under management (AUM) in Asia ex-Japan, according to JP Morgan and Bloomberg.
Flora Wang, director of sustainable investing at Fidelity International, attributes this to China’s air pollution, which has for years posed a tangible, visible symptom to otherwise abstract ESG warnings. “I think it partly reflects how acute the problem around environmental pollution has become in the past few years, especially with regards to air quality but also how effectively the government has shifted the gears of economic development, from a singular focus on economic development at all costs to quality [or] sustainable growth.”
Wang references a Chinese saying, which describes mountains of gold and silver as incomparable to an untouched mountain filled with lush greenery. “Every Chinese citizen knows that saying and that paves the foundation of sustainability awareness in China.”
Top-down policies are also shifting to manage the green wave. In June, the country’s central bank, the People’s Bank of China (PBOC), renewed its green finance evaluation plan for banking and financial institutions, first introduced in 2016. “Essentially, they are a set of guidelines to evaluate the main banks in China on how effectively they have developed their green finance programmes, as a way to incentivise them to develop green finance,” says Wang.
The latest update of this evaluation guideline includes green loans and green bonds as part of banks’ performance appraisal of green credits. “With that, we think green bonds are going to get another boost and this should provide a very important financing source for companies as they start their new sustainability journeys,” she adds.
In addition, Chinese securities will soon have to disclose ESG information. The China Securities Regulatory Commission (CSRC) conducted a public consultation with a few proposed changes to the annual and semi-annual reports of listed companies.
Corporate governance may have to uphold increased transparency with a proposal to disclose board members’ contributions to companies, including remuneration, the number of meetings attended and even proposals discussed.
Another proposal calls for a new section within the annual report to specifically cover environmental and social issues, such as disclosures on pollution and employee protection.
“Even though China, its domestic asset managers and investors started ESG investing later than other developed markets, they are starting from quite a high base,” notes Wang. “They look to international players and see how they have conducted ESG investing and what practices they can borrow as they develop their own processes and build in-house capacity.”
Singapore least aware of ESG
Fidelity International’s figures come from a survey of nearly 10,000 savers and investors across Mainland China, Hong Kong, Japan, Singapore and Taiwan towards ESG and sustainable investing.
ESG awareness differed somewhat across markets, with respondents in Mainland China most likely to say that they have heard of ESG investing (65%) and that they were aware that they can invest in companies that promote ESG values (72%).
Singapore stood out as being among the markets with the lowest level of awareness about ESG investing — despite regular campaigns and coverage on ESG-related issues in recent years by both the government and various public and private sector organisations.
Between April 12 and 19, 1,327 Singapore residents were surveyed by using YouGov’s online panel. Only 26% of respondents had heard of ESG investing — a tie with respondents from Japan — and just 6% had been investing in ESG.
The survey highlights an information gap in the growing field. While 57% of Singaporeans expressed interest in saving and investing more sustainably, more than half (56%) of that group feel they lack the information and tools to start investing in ESG.
“It’s clear that there is a gap between people’s desire to use their money for good and having enough knowledge and confidence to realise that desire,” says Tan Jenn-Hui, global head of stewardship and sustainable investing at Fidelity International.
But there exists a chicken-and-egg situation. “Is the problem demand or supply? You could say that the supply of ESG products is low because of little interest from investors,” says Tan. “But there’s no doubt that ESG is a top priority of Singapore regulators and it’s been promoted very actively.”
Now that Singapore is taking a leading role in ESG matters across the Asean region, the financial industry must introduce the concept to retail investors. “[They should] provide more standardised disclosure around the nature of ESG integration so that retail investors can compare the products of different financial advisors,” says Tan. “I think there’s a lot more that the financial industry can and should do to increase the level of awareness among Singaporean investors.”
Taiwan’s cultural imports
Between the two extremes lies Taiwan, with a middling awareness of ESG investing at 38%; lower than Mainland China (65%) and Hong Kong (62%) but not as insular as Japan and Singapore (both 26%). Multinational corporations headquartered on the island nation, however, are anything but tepid.
“The survey results on Taiwan aren’t as rosy as what we’re seeing in China and Hong Kong. But that shouldn’t be taken as an indication of corporate awareness or sustainability practices,” says Wang.
“In my view, I think Taiwanese issuers are well aware of ESG issues and have been working for years to improve their sustainability practices. That’s largely a result of Taiwan having a quite large percentage of its companies with a share of foreign ownership,” she adds.
These international investors have been engaging with Taiwanese companies on their ESG practices for years, says Wang, particularly on the issue of water usage and labour rights for the country’s reputable semiconductor industry.
As of April, the world’s largest third-party semiconductor manufacturer, Taiwan Semiconductor Manufacturing Co (TSMC), uses 156,000 tonnes of water a day. When the country experienced its worst drought in over 50 years earlier this year, TSMC brought in tanks of water on trucks to keep up with production.
“Some companies have a very large workforce and it is not easy to look after every single employee in their vast supply chain,” says Wang. “But companies have been making progress in terms of conducting third-party auditing … Overall, I think the response from companies has been very positive; over the years, it has been a story of progress.”
Investing in investor education
Despite the overall positive sentiment towards sustainable investing, the survey results highlight that certain misconceptions and barriers to ESG investing persist.
In general, respondents are concerned whether sustainable investing correlates with good returns. A third of the respondents agree that it is impossible to invest sustainably and get a good return.
In addition, many are still unsure of companies’ ESG intentions, with 42% agreeing that no entity is ensuring these sustainable companies fulfil their promises.
Finally, respondents are also unsure of where to get accurate information about ESG investing, with 46% saying they lack the tools or information to start investing sustainably.
“It will take some time for the public across Asia to gain a better understanding of ESG,” says Wang, noting that while most retail investors have not sought out ESG investing channels, they are keen to do so.
“If we see intention line up with action over time, that’s going to have a significant impact on the long-term development of sustainable investing and corporate behaviour.”