APAC investors: Focus on investing in climate adaptation and net zero transition

What are the biggest challenges to APAC investors’ ESG investment strategy in 2024? Read our summary of APAC investor insights to learn more.

02 May 2024 . 4 min read

What are the biggest challenges to APAC investors’ ESG investment strategy in 2024? What emerging ESG themes and asset classes would they like to further allocate capital to in 2024? And what are their expectations for issuers’ transition plans and transition finance frameworks? These were some of the questions we asked investors in our annual APAC Investor Survey, to which 25 Asian investors responded.

We regularly survey and engage with ESG investors from across the globe – see our ESG Investor Insights Quarterly and our What ESG Investors Want Webinar Series – to help companies, and in particular, issuers, better understand investors and their expectations.

Here is our summary of the 2024 APAC investor survey* results:

Evolution of APAC investor approaches since 2022 – climate considerations dominate

Asian investors are making progress on carbon foot printing and targets: In our previous survey in 2022, only 42% of APAC investors declared the measuring the carbon footprint of their investment either across their entire portfolio or for specific mandates, while this year, 60% declared the measuring the carbon emissions of their investments.

Increasing number of emission reduction targets: 35% of the investors indicated that they have set relative and absolute emission reduction targets. This compares to only 10% in our previous survey.

Acceleration in exclusion policies: 75% of Asian investors are capturing coal in their exclusion policies - versus 46% in our 2022 survey. It is worth noting that policies are typically based on thresholds or a phased approach instead of an absolute exclusion.

Comparing APAC investors with European investors

Adaptation and Transition have become a key focus in APAC: Asian investors would like to increase capital allocated to adaptation and transition (71% and 58% respectively). This is materially higher compared to European investors’ allocation, as noted in our previous European investor survey (22% and 16% respectively).

Lack of sustainable investment opportunities a bigger challenge in APAC than in Europe: In Europe, investors’ biggest concern is “greenwashing”, while the most common challenge cited by Asian investors is the lack of sustainable investment opportunities (50% in Asia versus 13% in Europe). APAC investors named “greenwashing” as their second biggest concern.

Supranational Hybrid Capital could find its audience in Asia: 24% of Asian investors would like to see more supply of Supranational Hybrid Capital versus only 3% of investors in Europe.

Green, Social, Sustainability and Sustainability-Linked (GSS/S) bond supply

Barriers to ESG investing: 50% of APAC investors consider the lack of diversified supply as the biggest challenge they will face in 2024 (versus 30% in 2022), while greenwashing and litigation risks remain the second biggest concern (42%).

Investors show appetite for more supply from hard-to-abate sectors: More than 30% of Asian investors would like to see industrials, energy, utilities and transportation companies issue GSS/S bonds.

Assessing sustainable debt instruments

Issuer factors play a critical role in GSS/S bond assessments: 50% of APAC investors in our survey said that they look at the external rating of an issuer when assessing use of proceed bonds. 45% scrutinise the ambitiousness of an issuer’s KPIs, while 40% take into consideration issuers’ transition plans.

Investors focus on a small group of external ESG ratings and data providers for their investment decisions: Over 50% of Asian investors mentioned using MSCI and Bloomberg, followed by Sustainalytics (35%). All other external providers were cited by less than 20%.

EU regulation’s impact on APAC investors

Mixed feelings about green taxonomies: Only 27% of Asian investors are embedding regional or national taxonomies as a tool to assess investment opportunities. When asked which taxonomy they would most likely use, 38% cited the EU Taxonomy, while 33% referred to the Singapore Transition Taxonomy.

Disclosure-related regulations to have the biggest impact on investment strategies: 68% of Asian investors think that the transition plan disclosure requirements will have the biggest impact on their investment strategies.

Nature capital - an emerging asset class

Making nature capital more investible: 52% of the Asian investors in our survey expressed the view that Sustainability-linked structures – with key performance indicators (KPIs) linked to nature and biodiversity – can make natural capital more investible. 43% mentioned Green Use of Proceed bonds as a helpful instrument to direct capital flows to nature projects while only 4% referred to Biodiversity credits.

Financing the decommissioning of coal-fired power plants

Energy transition carbon credits could play a crucial role: 65% of APAC investors in our survey named Energy transition carbon credits as one of the most useful tools to finance the early retirement of coal-fired power plants, followed by government subsidies (55%).

Where to get more insights

In our “What ESG investors want” series we provide regular updates on investors’ most current views. Read “What ESG investors want”.
For a recap on the results from last year’s survey, you can access the 2023 round-up here.

*The 2024 survey consisted of 25 investors from across Financial Institution sectors.

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