Responsible Investor

The rising sun of institutional SRI in Asia

The SE Asia market for responsible investment is growing, but could be tested in a market downturn.

Enormous changes are taking place in the pension systems of many South East Asian nations. Individual countries are at vastly different stages of development and tackling significant challenges within their own institutions. They are also faced with the effects of a huge regional demographic transformation. By 2050, according to the United Nations, approximately 750 million people in key Asian economies will be over 65. Longer life expectancy and falling fertility rates are having dramatic effects, particularly in China, where the UN estimates that by 2050 approximately 30% of China’s population will be over 60. Declining birth rates reduce the number of children to support parents in their old age. This may shrink the size of the workforce and generate lower tax revenues at a time when reform of pension schemes is critical, given their inadequacy in many Asian countries. According to the World Bank, in low income countries just 10% of the labour force may be covered.

In China, the rural population and self-employed (together 70% of the population) fall outside most pension provision, and less than half of urban workers are covered by the system. Where formal pension coverage does exist, many countries have an inflexible structure of statutory retirement payments, and many systems suffer from high evasion and low participation rates. At the same time, many public pension systems in the region have significant liabilities and serious funding problems. Again, one of the most extreme situations is in China, where the legacy of state owned industries leaves the government with a massive pension liability.
Retirement schemes already make up one of the largest and fastest growing pools of capital in the region. Governments are looking towards reform of pension systems to help relieve fiscal burdens as well as contribute to the development of domestic capital markets. There have been significant efforts to improve coverage, including the introduction of mandatory

Not a member? Register here »