GLOBAL - The absence of an investor push is partly responsible for the relatively low level of environmental, social and governance (ESG) investments in Asia, according to Geoffrey Williams, chief executive at Kuala Lumpur-based OWW Consulting.

"Investors in Asia, in my opinion, do not care about ESG issues," he said, speaking at the Sustainable Emerging Markets conference in London, adding that OWW's own assessments show only $60bn (€42.5bn) is currently invested in equity SRI funds in Asia, while global SRI funds, according to the UN Principles for Responsible Investment (PRI) are estimated to be holding around $9trn.

Apart from the absence of an investor push, other barriers to ESG transparency in Asia include scepticism of international guidelines and insufficient funding for research providers.
"There is growing scepticism of international guidelines, in the sense that, sometimes investors in Asia are now abandoning international guidelines and adopting their own," Williams said.

"In Indonesia, for example, they have abandoned the Roundtable on Sustainable Palm Oil (RSPO) and established what is called the ISPO, the Indonesian Sustainable Palm Oil standard. This is taking a view that international guidelines do not necessarily reflect local conditions.

"There are other issues related to so-called standards - for example, the accountability standards, which are very popular in the West, are under some circumstances actually unlawful in Asia because standards have to be approved by a national standards agency."

Drivers of ESG transparency in Asia, according to Williams, are corporate social responsibility (CSR) guidelines and regulations, stock exchange initiatives and the brand effect of CSR. Overall, ESG disclosure by companies, he added, has improved.

Falko Paetzold, senior sustainability analyst at Zurich-based Vontobel Asset Management, said: "It is critical to understand governments as key drivers to sustainability in Asia.

"While the West - in other words Europe and the US - have a bottom-up approach, which is driven by civil society. Emerging Asia has a top-down approach driven by governments.

"There is a strong fundamental need for Asian governments to provide an environment that supports more efficient companies over less efficient solutions."

Elsewhere, global investment manager Invesco believes investors looking for attractive long-term investment opportunities in one of the world's major growth markets should consider renewable energy stocks in China.

Paul Chan, CIO for Asia ex Japan, writes in the latest issue of 'The Dragon Code', Invesco's investment newsletter for China: "China has aggressive expansion plans to meeting global standards on alternative energy use.

"With China targeting to reduce its carbon emissions per unit of gross domestic product by 17%, the government is seeking to reduce its reliance on coal-fired power, which currently accounts for approximately 75% of electricity capacity."

Strategic measures aimed at an expansion of renewable energies feature prominently in the recently announced 12th Five-Year Plan. In addition, like other governments around the world, the Chinese authorities have responded to the nuclear disaster in Japan by suspending and reviewing their plans for nuclear power development.

"While it remains to be seen if the expansion of nuclear capacity will be halted, China remains committed to stepping up its efforts in promoting the use of non-nuclear, environmentally friendly alternatives including solar, wind and hydro power," says Chan. "All of these alternative energy initiatives are poised to benefit from the tailwind of supportive measures from the government."

In other news, UK private equity houses face growing demands from investors to report on the environmental impact of companies in which they have a stake, according to an assessment by law firm Osborne Clarke.

David Ferris, head of the energy and natural resources practice at Osborne Clarke, said: "It is fascinating to see that while the UK government is concerned about the possible overburdening of companies with reporting requirements, it is apparent from our informal conversations with private equity houses that the push for environmental reporting is starting to come from investors anyway."

The UK government this week announced a consultation on whether to introduce mandatory reporting on greenhouse gas emissions by April next year.

But private equity houses wanting to attract investors to new funds should anticipate pressure for environmental analysis of their portfolio companies and stay ahead of legislation, Ferris believes.

"In practical terms, this means formulating and managing an ESG policy," he said. "It is quite clear green information is now part of mainstream investor interest."