AIA Group, the largest public listed pan-Asian life insurance group, has become the first asset owner in Hong Kong to sign the UN-backed Principles for Responsible Investment (PRI).
There are already 26 investment management PRI signatories in Hong Kong, but AIA is the first asset owner, which is an indication of just how slow the region’s investors has been in adopting the six principles.
But momentum is building, according to the PRI’s network manager for Asia, Hong Kong-based James Robertson. Asia is currently the biggest growth area for new sign-ups, he said. For example, signatory numbers in China have doubled in the past year. Then again, it’s still mainly the larger fund management firms – not the big asset owners – with China AMC, E Fund, Harvest, China Life AM, CSOP and Penghua among those who signed up in 2018.
Commenting on AIA’s move, group CIO Mark Konyn, told RI that as an insurer, the commitment to sustainability that is central to the PRI requires investing in businesses that practice good governance and show an understanding of the impacts of ESG on their operations. “AIA recognises the importance of assessing these ESG issues in the creation of long term value,” he said.
Robertson said several other pension funds and insurance companies in Asia are ramping up their ESG activity as a result of recent moves by some of the region’s biggest pension funds. “It sends a strong signal to other investment institutions locally and in the region,” he said.
In December, Thailand’s Government Pension Fund (GPF) joined the small but growing band of Asian asset owner PRI signatories.
Up until last year, asset owner engagement with PRI in the Asia-Pacific region was limited to Australian and New Zealand pension funds and a very small number in the rest of Asia. Stanley Kwong, analyst in Aviva Investors’ Global RI team said momentum is building as institutions in Asia are seeing the benefits of ESG integration.
For example, in 2018, KWAP became the first pension fund in Malaysia to sign up to the PRI. And last month (March), another Malaysian pension fund, the Employees Provident Fund also signed up.The Asian Corporate Governance Association’s 2018 regional CG survey ranked Malaysia fourth of 12 Asia-Pacific economies, the biggest mover for the year in terms of market accountability and transparency. Despite this, Kwong said Malaysian companies are generally weaker around implementation, with poorer ESG disclosures and a widespread lack of independence on boards.
“AIA recognises the importance of assessing these ESG issues in the creation of long term value”
Malaysia is the largest country for Islamic finance outside of the Gulf and while the emphasis so far has been on specific exclusions (such as alcohol) rather than corporate governance, Kwong said the EPF is a good example of an increasing overlap between local strategies and broader ESG adoption.
There is a possibility that Malaysian companies will not welcome the encouragement of greater accountability, but with the 1 Malaysia Development Berhad (1MDB) trial in the news, there is going to be a spotlight on behaviour at the highest levels of corporate life in the country and the government is planning a raft of responses.
The greater sustainability activity by investors is being matched by regulators across the region. The stock exchanges in Malaysia and Hong Kong, for example, are demanding more disclosure on sustainability before public listings. In Thailand, the stock exchange has carried out a series of sustainability-related workshops as part of a sustainable development forum. In addition, it has organised free-of-charge training sessions with listed companies on, among other things, the specifics of sustainability reporting, sustainability indexing, evaluation and data management, corporate social initiatives, sustainable development risks and materiality.
The deputy secretary general for the fund management division at Thailand’s GPF, Yingyong Nilasena, said the Thai pension fund regularly talks with the Stock Exchange of Thailand and was instrumental in the development of the local stewardship code. But he added he is not sure any other Thai asset owners will be following their lead and signing up to the PRI. He said it is a not something you undertake lightly, owing to the strict reporting requirements, and few other Thai funds are willing to take that step.