GREAT EXPECTATIONS: ESG - WHAT’S NEXT FOR ASSET …€¦ · Source: Q1 Great Expectations -...
Transcript of GREAT EXPECTATIONS: ESG - WHAT’S NEXT FOR ASSET …€¦ · Source: Q1 Great Expectations -...
GREAT EXPECTATIONS: ESG - WHAT’S NEXT FOR ASSET OWNERS AND MANAGERS BNP PARIBAS GLOBAL ESG SURVEY
MADHU GAYER
Singapore, July 2017
Asia Pacific institutional investors are
increasingly adopting Environmental,
Social and Corporate Governance
(ESG) related strategies.
Key messages
Great expectations:
ESG - what’s next for asset owners and managers 2
The BNP Paribas survey
has found that 84% of
APAC institutional investors
surveyed currently
incorporate ESG into their
investment decision making,
compared with 82% in
Europe, and only 70% for
North America.
While a fifth of APAC
institutional investors
currently market a
majority of their funds as
ESG, more than 60% are
expected to do so within
two years (see section 2).
Demand in APAC is
broadly aligned across
both asset managers and
asset owners, driving
change.
However, availability of
robust data is seen as the
major barrier to further
adoption of ESG currently
while analytical
capabilities is seen as the
major issue tomorrow.
SURVEY BACKGROUND
1
3
High level demographics
4
44
19 10
26
21
2 13
APAC Countries
Australia
China
Hong Kong
India
Japan
Malaysia
Singapore
Great expectations:
ESG - what’s next for asset owners and managers
High level findings
5
Regional View
Respondent Type View
INCORPORATE ESG IN DECISION MAKING BOARD DISCUSS AS ISSUE OF IMPORTANCE HAS ESG POLICY AS PART OF STRATEGY
79% 82% 84% 70%
0%
20%
40%
60%
80%
100%
Europe APAC North Am
67% 70% 76%
57%
0%
20%
40%
60%
80%
100%
Europe APAC North Am
68% 68% 78%
59%
0%
20%
40%
60%
80%
100%
Europe APAC North Am
INCORPORATE ESG IN DECISION MAKING BOARD DISCUSS AS ISSUE OF IMPORTANCE HAS ESG POLICY AS PART OF STRATEGY
ASSET MANAGERS
ASSET OWNERS
80%
77%
69%
65%
69%
67%
Source: Q1 Great Expectations - What’s Next for Asset Owners and Managers
How are investors investing in ESG
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Global ESG landscape
CANADA
22.0%
2014 2016
$6,572 $8,723
UNITED STATES
15.2%
2014 2016
$729 $1,086
EUROPE
5.7%
2014 2016
$10,775
$12,040
JAPAN
724% ASIA EX. JAPAN
7.6%
$45
$52
2014 2016
$7
2014 2016
$474
AUSTRALIA / NZ
2014 2016
$148 $516
At present, the largest markets for sustainable
investing in Asia, excluding Japan, are:
Malaysia (30%)
Hong Kong (26%)
South Korea (14%)
China (14%). BREAKDOWN OF SRI ASSETS
Europe 53%
United States 38%
Canada 5%
Australia/NZ 2%
Asia ex Japan
0% Japan 2%
Global CAGR: 11.9%
Note: Asset values are expressed in billions
Source: 2016 Global Sustainable Investment Review, GSIA
How are investors implementing ESG
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GLOBAL FIGURES
ASIA EX JAPAN
0 2000 4000 6000 8000 10000 12000 14000 16000
Impact investing
Sustainanbility themed investing
Positive / best-in-class screening
Norms-based screening
Engagement
Integration
Negative / exclusionary screening
2016
2014
+57%
+55%
+8%
+19%
+19%
+17%
+12%
CA
GR
16.55
23.41
1.16 1.73 2.09 0 0
0
10
20
30
2014
2016
Investors are increasingly
seeing ESG as a core part
of their investment
decision making – both in
terms of analysing risk and
identifying opportunities –
for example, investing in
green bonds.
Integration has overtaken
divestment in Asia ex
Japan
Note: Asset values are expressed in billions
Source: 2016 Global Sustainable Investment Review, GSIA
APAC GAINS MOMENTUM ON ESG
2
8
APAC accelerating ESG take up
9
PROPORTION OF FUNDS THAT ARE ESG NOW AND IN TWO YEARS (MEAN SCORE)
31%
28%
34%
34%
51%
42%
57%
54%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Two years Today
+21%
+23%
+14%
+19%
Pro
jecte
d E
SG
Gro
wth
Europe
APAC
North Am
Source: Q8 Great Expectations - What’s Next for Asset Owners and Managers
Key messages
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APAC INVESTORS ARE MORE LIKELY TO INCORPORATE ESG FACTORS AND TO COMMIT TO HIGHER PROPORTION OF ESG FUNDS
50
55
60
65
70
75
80
85
90
25 26 27 28 29 30 31 32 33 34 35
Pro
po
rtio
n in
corp
ora
ting
ES
G in
th
eir d
ecis
ion m
akin
g
Proportion of funds that are ESG currently
Europe
Total
Total
APAC
Source: Q1 Great Expectations - What’s Next for Asset Owners and Managers
ESG allocation to shift to alternatives in the next two years
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TOTAL
APAC
47% 33% 36%
29% 19% 22% 16% 19% 16% 21%
34% 28% 34% 23% 28% 22% 20% 19%
Developedmarkets
Emergingmarkets
Domesticincome
Internationalincome
Hedge fund Private equity Private debt Real estate Infrastructure
0%
10%
20%
30%
40%
50%
Now (darker colour)
In Two Years (lighter colour)
-55%
33% 30% 27% 17% 15% 19% 15% 11% 13% 17%
28% 19%
30% 20% 21% 19% 16% 19%
Developedmarkets
Emergingmarkets
Domesticincome
Internationalincome
Hedge fund Private equity Private debt Real estate Infrastructure
0%
10%
20%
30%
40%
50%
Now (darker colour)
In Two Years (lighter colour)+76%
Alternative asset classes are becoming increasingly ‘ESG aware’ – for example, we are seeing private equity firms ensuring they
can achieve a timely and quick exit from an investment and are incorporating these factors when structuring their investments
Public equities Fixed Income Alternatives – avg. increase of 22%
Public equities Fixed Income Alternatives – avg. increase of 32%
Source: Q12 Great Expectations - What’s Next for Asset Owners and Managers
APAC barriers to ESG
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BARRIERS TO GREATER ADOPTION OF ESG: TODAY
Gathering data can be complex – relying on quantitative and publicly available data. A shortage of data to support ESG has
seen skepticism persist within some senior management ranks, which is limiting its adoption across the region, and globally
more generally.
However, smart data, artificial intelligence and ESG specialists will play a key role in helping to break down these barriers in
the next few years
52% 61% 53%
25% 25% 25%
18% 11% 19%
15% 17% 12%
14% 9% 9%
8% 9% 12%
6% 4% 6%
Europe APAC North Am
6%
9%
11%
15%
16%
25%
55% Lack of availability of robust data
Not a priority for senior management
Concern over costs
Limited ability to create ESG-themed
products
Lack of conviction that ESG will improve
performance
Lack of advanced analytical tools/skills
(external)
Lack of advanced analytical tools/skills
(internal)
APAC institutional investors
are confident they will
overcome this challenge
though as in two years, only
9% expect data to remain
a barrier to further ESG
incorporation.
Source: Q11 Great Expectations - What’s Next for Asset Owners and Managers
APAC investors – capabilities and AO-AM alignment
13
ESG TOOLS/CAPABILITIES AND AO LEVEL OF SATISFACTION WITH AM (TOP 2 BOX)
APAC boasts the
highest level of
asset owner
satisfaction with
the level of ESG
reporting they
receive from their
asset managers
(69%).
Nearly two thirds
of APAC investors
(64%) believe their
ESG tools are
industry leading –
likely a critical
factor in bolstering
enthusiasm
towards ESG.
3%
5%
3%
2%
8%
11%
4%
9%
33%
38%
30%
30%
38%
32%
45%
39%
17%
14%
19%
20%
1 We lack the tools 2 3 4 5 - Our tools are industry leading
68%
69%
60%
65%
AO satisfaction
North Am D
APAC C
Europe B
A
Tools and capabilities
Source: Q14 Great Expectations - What’s Next for Asset Owners and Managers
KEY GLOBAL FINDINGS
3
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How are investors currently deploying ESG
Great expectations:
ESG - what’s next for asset owners and managers 15
WHAT ARE YOU CURRENTLY DOING (ASSET OWNERS) OR OFFERING (ASSET MANAGERS)?
Both institutional and retail investors are demanding greater consideration of and disclosure around ESG issues and climate
change in particular is a very high profile topic and one that directly affects millions of people around the world
AOs and AMs are increasingly seeing ESG as a core part of their investment decision making – both in terms of analysing
risk and identifying opportunities – for example, investing in green bonds
50%
62%
39% 36%
25%
54% 51%
40%
30%
13%
Investing in sustainableinvestment opportunities
Investing in companiesbased on their ESG profiles
Active ownership Conducting negativescreening
Benchmarking fundsagainst an ESG benchmark
Asset manager : (A) Asset owner : (B)
Majority see policymakers with a stronger role to play but are
not sure that regulation is needed
Great expectations:
ESG - what’s next for asset owners and managers 16
POLICYMAKERS WILL INCREASE THEIR ESG REQUIREMENTS REGULATION ON ESG IS NOT NECESSARY
A
B
C
D
A
B
C
D
Europe
APAC
North Am
Europe
APAC
North Am
21%
23%
22%
17%
39%
39%
40%
36%
31%
28%
32%
34%
Don’t know 1 - Strongly disagree
2 - Disagree 3 - Neither agree nor disagree
4 - Agree 5 - Strongly agree
8%
13%
10%
4%
6%
6%
10%
4%
20%
16%
19%
24%
42%
41%
33%
48%
16%
19%
24%
11%
7%
6%
5%
9%
Don’t know 1 - Strongly disagree
2 - Disagree 3 - Neither agree nor disagree
4 - Agree 5 - Strongly agree
Institutional investors plan to double investment in ESG
strategies over next two years
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PROPORTION OF FUNDS THAT ARE ESG NOW AND IN TWO YEARS
ASSET MANAGERS
ASSET OWNERS
31%
32%
31%
51%
52%
50%
Two years Today
APAC 57%
+19%
+20%
+20%
Pro
jec
ted
ES
G G
row
th
Source: Q18Great Expectations - What’s Next for Asset Owners and Managers
The E in ESG takes centre stage
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This result shows organisations are planning ahead to future legislation and the transition to a low-carbon economy
However, the perceived difficulty of analysing social factors may be affecting perceptions of the “S” component’s
potential influence on returns. We believe that the potential benefits of this pillar are greatly underestimated
ASSET MANAGERS ASSET OWNERS
45% 36% The difficulty of incorporating social is
seen to over-ride the potential for returns,
particularly among asset managers
Source: Q9 Great Expectations - What’s Next for Asset Owners and Managers
All regions struggle to create relevant ESG products
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STRENGTHS AND WEAKNESSES (TOP 3 BOX)
Capability to keep pace with ESG reporting requirements
Adequacy of ESG policies
Ability to create relevant ESG products
Ability to adapt to changes in legislation
Adequacy of resources
Ability to measure ESG impact
49% 43% 53% 52%
44% 39% 45% 52%
23% 22% 25% 24%
52% 46% 52% 59%
47% 37% 51% 56%
49% 44% 47% 57%
Europe APAC North Am
Source: Q7 Great Expectations - What’s Next for Asset Owners and Managers
Overcoming the data challenge
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BARRIERS TO GREATER ADOPTION OF ESG: TODAY
9%
16%
6%
11%
15%
25%
55% Lack of robust data
Not a priority for senior
management
Limited ability to meet the
product needs of asset
owners
Lack of belief that ESG will
improve long-term gains
Lack of advanced analytical
tools/skills (internal)
Concern over costs required
Lack of advanced analytical
tools/skills (external)
ASSET OWNERS ASSET MANAGERS
Lack of data is a major
barrier at the moment,
particularly for asset
owners
Asset managers are
concerned about limited
ability to meet asset
owner needs
Lack of analytical tools
and concerns over costs
is a minor barrier currently
for both managers and
owners
47% 64%
26% 25%
28% NA
10% 13%
NA 11%
15% 17%
14% 5%
Source: Q19 Great Expectations - What’s Next for Asset Owners and Managers
But data is today’s problem, analytics tomorrow’s challenge
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BARRIERS TO GREATER ADOPTION OF ESG: TODAY AND IN TWO YEARS
6%
9%
11%
15%
16%
25%
55%
6%
6%
10%
15%
10%
25%
63%
Leader Group Total
There remains a lack of consensus as to all the relevant ESG factors, while gathering data can be complex – relying on quantitative and publicly
available data
However, the industry is solving this with new standards and definitions
To overcome the analysis issue, companies will need to seek technological solutions using things like AI and smart data. ESG specialists will also
need to be recruited
Lack of robust data
Not a priority for senior
management
Concern over costs required
Limited ability to meet the
product needs of asset owners
Lack of belief that ESG will
improve long-term gains
Lack of advanced analytical
tools/skills (external)
Lack of advanced analytical
tools/skills (internal)
Barriers Today
Barriers In two years (diff.)
Total
-40%
-2%
+11%
0%
+5%
+14%
+6%
-49%
-8%
+18%
-6%
+6%
+19%
+11%
Source: Q11 Great Expectations - What’s Next for Asset Owners and Managers
What asset owners seek from their asset managers
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IMPORTANCE OF ATTRIBUTES IN ASSET MANAGER SELECTION
ESG research capability
ESG values are aligned to ours
Dedicated ESG investment team
Competitive fees / costs
Clear investment processes relating to ESG
ESG brand and reputation
Performance track record
ESG reporting capability
Good communication between the two groups is going to be increasingly critical to align the right products
with the right organisations
11%
14%
22%
25%
28%
35%
38%
38%
15%
15%
24%
36%
25%
32%
41%
37%
Asset manager Asset owner
Source: Q11 Great Expectations - What’s Next for Asset Owners and Managers
BNP PARIBAS SECURITIES SERVICES AND ESG
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Our commitment to ESG
WE ARE COMMITTED ACROSS THREE KEY DIMENSIONS
1st global custodian as a signatory of the UN PRI
14 workstream global programme chaired by global head of CIB
150 people across the CIB business
ESG Reporting as a dedicated workstream, sponsored by BPSS
global CEO
Global Sustainable
Finance Programme
Data: continuous improvement programme focused on increase and
enhancement in data sets, across asset classes and within ESG
pillars
Solutions: integration into multi-asset risk, ESG attribution
R&D: climate change stress tests, green / shariah bond premia,
carbon footprinting, ESG-aware beta
ESGRA Roadmap
(2016-17)
ESG Made Simple Guide (working with the UK PLSA, the Dutch pension
industry)
Carbon stress testing paper published
Partnered on the 2016 UNEP “Investor Obligations & Duties in 6 Asian
Markets” report
Hosted 10 roundtables / seminars globally in 2016 on ESG
Flagship Sustainable Finance Forum in Singapore 2016 & 2017
Thought Leadership &
Research
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